Fooled by Randomness
Library · Psychology of money
- Author: Nassim Nicholas Taleb
- FinSimLab rating: 4/5
- Reading: Demanding
- Finance level: Intermediate
- Published: 2001
An essay on how we mistake luck for skill, especially in the markets.
What it covers
Taleb, a former market trader, argues that we tend to credit talent for results that chance explains, and that we judge decisions by their outcome rather than by how they were made. It is the first book in his Incerto series. The style is personal and sometimes polemical, but it forces you to think about risk differently.
What you will learn
- Why a good outcome does not prove a decision was good.
- How survivorship bias distorts success stories.
- Why it pays to think about the scenarios that did not happen.
Who it is for
People who follow successful managers or investors and want to tell skill from luck.
Concepts
Luck and randomness, Risk, Biases
What you will not learn
Practical investing instructions: it is an essay, sometimes polemical.
Already read a book on this?
- It shares the role of luck and risk with The Psychology of Money. If you have read The Psychology of Money, this one mainly adds a deeper analysis of randomness and survivorship bias. The Psychology of Money
Related Academy guides
- What is risk tolerance in investing and why it matters
- FOMO Investing: How Fear of Missing Out Destroys Portfolios
- How to analyse any investment: avoid mistakes and spot risks
Put it into practice
More psychology of money books
Descriptions written by FinSimLab for educational purposes. They do not summarise the books and are not investment advice.