What does it mean to be fooled, especially Fooled By Randomness? Or to put it differently, what are the perils of being fooled? The collective work of Kahneman and Tversky convinced me that people are bad decision makers (link). The bottom line is that we take a lot of risk because of our ignorance. Once the downside of these risks becomes known to us, we become chickens. Unfortunately, there is no solution to this paradox, other than knowing that all of us are full of biases. That awareness alone – when acted upon – reduces the chances of us being fooled, but the possibility will always exist.
The (very depressive) contribution of Nassim Taleb to this debate is that you can’t even convince people they are chickens; only the reality can do that. The world, according to Taleb, is full of „suckers” and only occasionally a „Fat Tony” comes along. Tony can take advantage of others, or of the situations they create, not because he is free of biases but because he is aware of them. In short, „Fat Tony” is not an evil human being, he is simply not a „sucker.”
So where do we go from here? Fooled By Randomness illustrates the many biases we have to contend with. That we are so eager to mistake luck for skill should scare people, but it doesn’t. Hence the perpetual need to copy what the best athletes, business people, and other gurus are doing. Not that hard work does not matter, it just matters less than we think. Hard work leads to moderate success. However, we continue to attribute wild success to hard work alone, ignoring the role of chance. Such an approach creates a lot of confusion in our social world, and the only way out of it is to become like „Fat Tony,” which means living in a way that allows you to profit from luck.
To be sure, it is difficult to live that way because one has to be content with right decisions that produce bad outcomes (hint: it is the process that matters, not the outcome). Being a chicken also has some upsides. As the saying goes – ignorance is a bliss. But the perils of being fooled by randomness are dangerous, with the possibility of ruin being the major threat. Being a chicken is as comfortable as it is deadly, especially in the long-run.
So are we all fooled? The answer is, yes. It is just that some are looking for patterns where none exist, while others (e.g., Fat Tony) constantly seek to falsify patterns that appear non-random. This slight difference is all that matters. This quality, of practising skeptical empiricism (so prevalent among chess players), turns out to make all the difference. After all, one black swan is enough to invalidate a long-standing body of knowledge (link).