Fooled By Randomness

Fooled By Randomness explains how luck, uncertainty, probability, human error, risk, and decision-making work together to influence our actions, set against the backdrop of business and specifically, investing, to uncover how much bigger the role of chance in our lives is, than we usually make it out to be.

Many of the systems we move and live in work in a linear fashion. With every day at work, you get closer to the next promotion. With every exam in school, you get closer to graduation. With every dollar into your retirement plan, you get closer to being able to retire with the same lifestyle, and so on.

Because of that, we tend to think life is all linear, but it’s really not. For example, Darwin’s rule of “survival of the fittest” only means that the best-adapted organisms will survive on average. However, that doesn’t stop all unfit organisms from surviving, at least in the short run.

Taleb says the reason life is non-linear is that some outcomes are path-dependent, meaning we wouldn’t end up with the same results if we were to start over. For example, the QWERTY keyboard we all know and use today was originally invented for typewriters in 1873, just to keep them from jamming. But after the spread of its usage reached a tipping point, it became and remained the standard, just because switching to a more ideal keyboard would be a hassle and not improve much.

It’s hard for us to see these tipping points in advance, so our natural tendency is to expect incremental changes to have only incremental impact as well.

However, at one point, a single office ordered Windows for its computers and suddenly, more than half of all offices were using it. From one day to the next, non-Windows users were in the minority. Just like one grain of sand can bring down an entire sand castle, that one extra blog post, one extra day in the lab, one extra phone call can suddenly create a huge reward.

This is exactly what The Dip is talking about, the disproportionate size of rewards for ongoing effort, but because progress on the extra mile isn’t clearly visible, most people give up too early.

If we were to make every single one of our decisions based on rational reasoning, we would cease to exist, because some choices really are indifferent – neither outcome will make us better or worse off. Consider the parable of Buridan’s donkey. A donkey that’s equally hungry and thirsty is placed dead in the middle between a stack of hay and a bucket of water. A donkey always goes to whatever’s nearest to him, but since both are equally far…