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Fooled by Randomness by Nassim Taleb

Key Takeaways

  1. In the long run, acute successful randomness fools will run out of luck and after years of success will have one devastating quarter where they lose everything in one huge blow up

  2. Induction – infer things about the nature of the world based on our observations. This approach leads to problems as one disconfirming piece of evidence (one black swan) makes the long held belief that all swans are white incorrect

  3. Can never be sure any theory is correct. Always consider the possibility that your theories and assumptions may be proved wrong and examine how such a development would affect your portfolio

  4. The past blowups were always surprises, as all future ones will be as well. Just because it hasn’t happened before, doesn’t mean that it won’t

  5. Path dependent outcome – things sometimes end up as is because of luck or randomness (QWERTY), not because it is optimal

  6. Going the extra mile is disproportionately rewarded but without visible progress, most people give up before they succeed

  7. Human brain not built to accurately forecast or think about probabilities

  8. People get attached to things they already own but we should be able to accept change in our minds when presented with enough evidence

  9. Capability for rational reason can easily be overwhelmed by emotions

  10. We are inherently poor at understanding the impact of rare events

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