Most Helpful Customer Reviews
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68 of 71 people found the following review helpful:
5.0 out of 5 stars
An antidote to clueless gurus, 4 Sep 2007
I was ambivalent about this book when I picked it up, but was quickly gripped and had to read to the end.
This book is about the Illusion of Control on a massive scale: a refusal to acknowledge blind luck's contribution to our success. Taleb is a trader as well as a scholar, and mixes his logical points with many tales about the "Masters of the Universe": traders who, with a run of successful investment, become rich, promoted and profiled in Fortune magazine. Given the huge numbers of people who become traders, the number of these high-flyers is pretty much what you would expect by chance. The logical conclusion is that there is no evidence that any of these traders have any real skill, or that any of the investment advice given by gurus and journalists has any value. This contrasts with other walks of life where skill and practice are necessary: you couldn't become a concert pianist by blind luck, for example.
Yet the finance industry refuses to acknowledge this. Noise (the natural volatility of the market) is mistaken for signal (understandable and predictable responses to events), and hence pure luck is mistaken for skill. When the hot-shot trader loses all his money, and is escorted from the building by security, it comes as a total surprise to him.
Embarrassingly for his targets, Taleb is not advancing some daring new theory. He just uses probability theory, basic statistics and a knowledge of the psychological research on biases: the toolbox of an informed critical thinker. He shows how professionals in finance, the media and even academia repeatedly fail to use these basic tools: ignoring probabilities, drawing bold conclusions from minuscule evidence, or focusing on probabilities but ignoring values of outcomes
Just as research on bias overlaps research on human happiness, the book also discusses how we can be more happy by exposing ourselves to less information. Far from a whimsical speculation, this is backed up by a clever mathematical/psychological argument.
Taleb's writing style will grate with some people (his favourite topic is clearly himself) but others will find it a very personal and engaging voice. It's an intellectual rather than scholarly book (Taleb mentions a great deal of scientific, philosophical and literary influences, but is not very concerned to back up each claim with citations) but this won't be a problem for most readers.
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31 of 33 people found the following review helpful:
4.0 out of 5 stars
Humour and wisdom, 26 Aug 2007
I was hesitant about buying this book because I thought it might be a technical book about trading. It isn't. It reminded me of Fred Schwed's, Where are all the customers' yachts? - a humorous look at human folly in the media and the world of investments. There's a little bit of Northcote Parkinson, P J O'Rourke and maybe a little of Montaigne in there, too.
I liked the fact that Taleb recommends not reading newspapers or watching TV news, I like his anti-corporate dandyism, too. He makes a sweeping statement about how self-help books don't work, which I didn't agree with, particularly because I think this book is a rather smart and elegant self-help book written by a very funny guy.
I work as a speechwriter and this book is crammed full of colour that can be recycled for that kind of exercise. If you don't use it for that it will liven up your dinner-party conversation.
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17 of 18 people found the following review helpful:
4.0 out of 5 stars
Statistical Karma will get you in the end, 7 Oct 2007
Any book that stimulates the mind, leaving you thinking about the content for a long time after reading, is a worthy read even if its tone, message or style is not always appealing and this is such a book.
One trader makes large profits from his trading decisions three years in a row, is considered highly skilled in his profession and is financially rewarded. Another trader makes a loss and loses his job. Nassim Taleb argues that the difference could be more due to luck than talent and that in business and life in general people have a tendency to provide cause and effect explanations to what are in reality random events.
Taleb comes across as the rebellious anti-establishment statistician, showing his disdain and frustration at the abuse of statistics and logic that he sees in the world around him. He describes the many flaws in the mathematical and logical reasoning used by the 'experts'. This book illustrates many ways that misuse of statistical models and logical inference can lead to inaccurate conclusions and promote the unworthy to stardom. The misconceptions are presented in an entertaining, easy to read manner and while many of the underlying statistical concepts are not new and may even appear to be common sense, the point made is that the human brain is not necessarily programmed to apply them naturally in the real world.
There is a frustrating element to the book in that it raises more questions than answers. Assuming the biases and inaccuracies in stock market modeling do exist, then there is a lack of practical suggestions on how to react to this or benefit from this. There is a danger here of promoting academic purity over real world pragmatism, the statistical models and tools used may not be perfect but what is the alternative apart from flipping a coin?
Taleb does hint at a successful options trading method he uses to exploit biases in stock market decision making models yet he never elaborates. Such claims could be treated with skepticism. For example, if rare events are so rare that one cannot quantify their probablity or impact, how can one accurately assess the best method to profit from them?
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