Friday, December 26, 2008

Fooled By Randomness: Chapter 12

The following summary was written by Frank Voisin, who regularly writes for Frankly Speaking. Recently, Frank sold four restaurants and returned to school to complete a combined LLB/MBA.

Taleb admits to being just intelligent enough to understand that he, like all people has a predisposition to being fooled by randomness. However, he is neither smart enough, nor strong enough to cast away his emotions and deal with pure probabilities, nor does he suggest that you or I do so.

Gamblers’ ticks are those habits picked up by gamblers that are thought to bring them added luck, such as a lucky shirt, or a certain phrase. The problem is that many of these ticks are more severe in real life than lucky shirts - causing us to react to events in certain ways based on our past success with that kind of reaction.

The trick is to recognize your own ticks and set up systems to deal with them, such as preventing access to information which is filled with noise, rather than signal (e.g. the 24-hour financial news networks) if these cause you to react in a superstitious manner rather than a logical manner.

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