Fooled by Randomeness by Nassim Taleb

Nassim Taleb has written one of the most insightful books I have ever read about the role of random events in our lives. As a long-time Wall Street trader, his frame of reference is heavily influenced by the markets. However, he is able to draw on examples from a number of areas to highlight the fact that chance and probability influence our decisions in many, perhaps most, aspects of our lives.

One of the most important concepts explored in the book is the difference between being smart and being lucky. As an example, Taleb postulates a situation in which an eccentric tycoon offers to pay you $10 million to play a single round of Russian roulette. Chances are, if you accept the tycoon's proposal, you will walk away with $10 million in your pocket, but that doesn't mean it is a smart thing to do.

Using this example, Taleb strikes at his central theme: we cannot always judge the quality of our decisions by their outcomes. It is very possible that, in the short term, even bad decisions can produce excellent results. Instead we must judge a particular strategy by the entire spectrum of potential outcomes that strategy could possibly produce and the probability associated with a particular result. The book does a very good job illustrating how Monte Carlo analysis, a technique for simulating hundreds or thousands of potential outcomes for a defined strategy, can help make this determination.

The book's only negative for me is its intellectually arrogant tone. At times, the author can be painfully condescending in his treatment of those who do not agree with his ideas. That aside, the book was insightful, thought provoking and a lot of fun to read.