FOOLED BY RANDOMNESS - NASSIM NICHOLAS TALEB

     Nassim Nicholas Taleb has some great things to say about the chaotic nature of the events that make up market data in this wonderful and thought inspiring volume.  Plucking at the heart strings of any arbitrager on acid, he offers anecdotal images of an obsessed trader named Nero Tulip who deals with mental anguish in areas of personal enjoyment but trades like a machine of cold emotionless profit seeking.

     As Taleb happily states concerning the matter: "I am not capable of avoiding being the fool of randomness; what I can do is confine it to where it brings some aesthetic gratification."

     One can have a look at a pdf of the book here and read about Nero's frustration with the success of his neighbor: "John the High Yield Trader" who seemed to defy the structure of randomness as he won big in the markets under the delusion of patterned randomness.  Ultimately survivorship bias could no longer benefit John as randomness finally caught up with him.  After some years of fantastic success, he lost everything and Nero felt the pleasure of vindication in not giving in to the temptations of the mirages of patterns in the desert of randomness.  Taleb points out that while the survivors of the various schemes built on those mirages afford magnificent lifestyles in their moments of grandeur, they and the many of their counterparts together form a much less wealthy group than those like Nero who build wealth with aversion to those allurements.

     Taleb supplies the antidote to the poison of the survivorship bias in the form of rational consideration of the costs embedded in the alternative histories forgone by the election be it human or random of any given series of events.  An economist would find familiarity in this with the age old concepts of opportunity and economic costs.  He paints the picture of this rational evaluation in the image of the various possible histories of a $10 million game of Russian roulette wherein the playing of thousands results in a few amazing stories of delight and a "very large cemetery".  He further brings up the problem of the black swan and the degeneration of history that creeps into the bigger games of financial matters putting countless chambers in the roulette revolver.

     I will say more on Fooled By Randomness when I have caught up on sleep....