Fooled by Randomness

that which came with the help of luck could be taken away by luck (and often rapidly and unexpectedly at that). The flipside, which deserves to be considered as well (in fact it is even more of our concern), is that things that come with little help from luck are more resistant to randomness.

it does not matter how frequently something succeeds if failure is too costly to bear.

Trading forces someone to think hard; those who merely work hard generally lose their focus and intellectual energy. In addition, they end up drowning in randomness; work ethics, Nero believes, draw people to focus on noise rather than the signal

Mild success can be explainable by skills and labor. Wild success is attributable to variance.

Einstein’s remark that common sense is nothing but a collection of misconceptions acquired by age eighteen.

A mistake is not something to be determined after the fact, but in the light of the information until that point.

It was said that nature does not make jumps; people quote this in well-sounding Latin: Natura non facit saltus. It is generally attributed to the eighteenth-century botanist Linnaeus who obviously got it all wrong. It was also used by Leibniz as a justification for calculus, as he believed that things are continuous no matter the resolution at which we look at them. Like many well-sounding “make sense” types of statements (such dynamics made perfect intellectual sense), it turned out to be entirely wrong, as it was denied by quantum mechanics. We discovered that, in the very small, particles jump (discretely) between states; they do not slide between them.

Whenever there is asymmetry in outcomes, the average survival has nothing to do with the median survival.

It is a pure accounting fact that, aside from the commentators, very few people take home a check linked to how often they are right or wrong. What they get is a profit or loss.

Just as in finance, an event, although rare, that brings large consequences cannot just be ignored.

Rare events are always unexpected, otherwise they would not occur.

Note that the economist Robert Lucas dealt a blow to econometrics by arguing that if people were rational then their rationality would cause them to figure out predictable patterns from the past and adapt, so that past information would be completely useless for predicting the future

The more data we have, the more likely we are to drown in it.

Descartes’ Error presents a very simple thesis: You perform a surgical ablation on a piece of someone’s brain (say, to remove a tumor and tissue around it) with the sole resulting effect of an inability to register emotions, nothing else (the IQ and every other faculty remain the same). What you have done is a controlled experiment to separate someone’s intelligence from his emotions. Now you have a purely rational human being unencumbered with feelings and emotions. Let’s watch: Damasio reported that the purely unemotional man was incapable of making the simplest decision. He could not get out of bed in the morning, and frittered  away his days fruitlessly weighing decisions. Shock! This flies in the face of everything one would have expected: One cannot make a decision without emotion.

This mechanism I also call Wittgenstein’s ruler: Unless you have confidence in the ruler’s reliability, if you use a ruler to measure a table you may also be using the table to measure the ruler.