Fooled by Randomness

I would listen to someone's discussion of his own past, realizing that much of what he was saying was just back-fit explanations, concocted, exposed by his deluded mind. This became at times unbearable. I could feel myself looking at people in the social sciences, particularly conventional economics and in the investment world, as if they were deranged subjects. Something in the real world may be painful, particularly if one finds statements more informative about the people making them than the intended message. I picked up Newsweek this morning at the dentist's office and read a journalist's discussion of a prominent business figure, particularly his ability in timing moves, and realized how I was making a list of the biases in the journalist's mind, rather than getting the intended information in the article itself, which I could not possibly take seriously. Why don't most journalists end up figuring out that they know much less than they think they know? Scientists investigated half a century ago the phenomena of experts not learning about their past failings. You can mispredict everything for all your life, yet think that you will get it right next time. Inequality and Probability I believe that the principal asset I need to protect and cultivate is my deep-seated intellectual insecurity. My motto is, my principal activity is to tease those who take themselves and the quality of their knowledge too seriously. Cultivating such insecurity in place of intellectual confidence may be a strange aim, and one that is not easy to implement. To do so, we need to purge our minds of the recent tradition of intellectual certainties. A reader turned penpal made me rediscover the sixteenth-century French essayist and professional introspector Montaigne. I got sucked into the implications of the difference between Montaigne and Descartes, and how we strayed by following the latter's quest for certitudes. We surely closed our minds by following Descartes' model of formal thinking, rather than Montaigne's brand of vague and informal, but critical, judgment. Half a millennium later, the severely introspecting and insecure Montaigne stands tall as a role model for the modern thinker. In addition, the man had exceptional courage. It certainly takes bravery to remain skeptical. It takes inordinate courage to introspect, to confront oneself, to accept one's limitations. Scientists are seeing more and more evidence that we are specifically designed by Mother Nature to fool ourselves. There are many intellectual approaches to probability and risk. Probability means slightly different things to people in different disciplines. In this book, it is tenaciously qualitative and literary, as opposed to quantitative and scientific, which explains the warnings against economists and finance professors as they tend to firmly believe that they know something and something useful at that. It is presented as flowing from Hume's Problem of Induction, or Aristotle's Inference to the General, as opposed to the paradigm of the gambling literature. In this book, probability is principally a branch of applied skepticism, not an engineering discipline. In spite of all the self-important mathematical treatment of the subject matter, problems related to the calculus of probability rarely merit to transcend the footnote. How? Probability is not a mere computation of odds on the dice or more complicated variants. It is the acceptance of the lack of certainty in our knowledge and the development of methods for dealing with our ignorance. Outside of textbooks and casinos, probability almost never presents itself as a mathematical problem or a brain teaser. Mother Nature does not tell you how many holes there are on the roulette table, nor does she deliver problems in a textbook way. In the real world, one has to guess the problem more than the solution. In this book, considering that alternative outcomes could have taken place, that the world could have been different, is the core of probabilistic thinking. As a matter of fact, I spent all my career attacking the quantitative use of probability. While chapters 13 and 14, dealing with skepticism and stoicism, are to me the central ideas of the book.