Don’t be fooled by ramdomness

I’m enjoying reading Fooled by Ramdomness by Nassim Teleb at the moment.  Any book that opens with an instruction to Take knowledge less seriously has got to be good!

The central argument is that as humans we are uncomfortable with the amount of randomness in life and therefore constantly look for (and find) causality where none exists.  I see this everywhere.  In the venture capital business I come across it all the time when figuring out whether people who have been successful once will be successful again.

Everyone can explain how their success is a result of what they have done – people they have hired, decisions taken etc. – but the truth of life is that a goodly portion of them will have been successful solely because they are lucky.  The dangerous thing is when someone who was lucky takes their “lessons” and applies them to a different business.

As individuals understanding where we have been lucky and where success came without luck is critical for our continued development and good performance.

A related point that Taleb makes is the importance of understanding the role of chance in your result when evaluating whether you made a good decision.  I.e. the last investment decision I made could have been a bad one even if I made a profit if the only way I got there was by extreme good luck.

As Taleb puts it – you could win playing Russian roulette, but that doesn’t mean it was a good decision to play!