Author: Nassim Nicholas Taleb
Subjects: Business, philosophy, social sciences
What is this?
In 2019, I won 2nd place in a March Madness bracket tournament, losing by only 1 first round game. Clearly this proves that I’m very knowledgeable in March Madness, and that I will be able to accurately make predictions in the future.
……no it doesn’t.
But imagine if I said “I predicted the 2008 recession, so you should listen to me for economic predictions". Being lucky and being correct are 2 different things that can often be mistaken for each other. We often get fooled by the randomness of life into believing that luck is skill, and skill is luck. Maybe I am very good with college basketball, but one March Madness 2nd place won’t prove anything. And making one accurate economic prediction doesn’t show anything.
Why should you read this?
It is so incredibly easy to misuse and misunderstand data in our lives. We live in a world with so much data, almost too much data, that it can become impossible to make decisions. And even once we are able to cut through all the noise there’s no way to be certain it’s even correct.
Taleb’s book has some good criticism of one of my favorite books, The Millionaire Next Door. Taleb argues that by interviewing millionaires from the early 2000s the authors committed 2 errors: the first, is that the data is going to be skewed because the 80s & 90s were a very successful time, economically speaking. Even bad investors would come out of those 2 decades with positive gains.
The 2nd, and more important to the book, is that the authors did not take into account the unsuccessful investors who followed the same path. How many people were frugal, good with their money, invested, and did not end up as a millionaire? Even if it turns out that only a small percentage of people fail at being the millionaire next door, the concept is important.
How many times have you heard financial advise backed by “someone who predicted the 2008 recession”? I certainly have, and all I can think is “is this guy a genius or just lucky”? I got 2nd place in my March Madness bracket in 2019, does that mean I really knew college basketball that year? Of course not, I got lucky. I was a beneficiary of the randomness of March Madness.
Don’t let randomness fool you.
Related Books:
The Millionaire Next Door
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