Fooled By Randomness: Be Less Wrong


No one wants to be wrong.

But what if you’re wrong and don’t even know it.

Cognitive biases or things like pareidolia, the phenomenon of perceiving things not as they are affect how we make decisions and see the world on a daily basis.

If there’s something we want to see, we, or rather our brains, make sure we do.

First Principles or Second-Level Thinking would remove these biases and reveal our assumptions so we could start with what we know to be absolutely true. However, those methods are hard.

Instead, our tendency is to look for patterns.

“With his Lucas critique, American economist Robert Lucas rocked finance and economics in the '70s by codifying what investors already knew: Past returns are not indicative of future results. The larger our pool of information, the more chance patterns we're likely to find in it, and the easier it becomes to "prove" whatever we like.” [USA Today]

The problem is this pattern seeking behavior can warp our reality by causing us to focus on things that are not actually there. We see what we need to and fail to acknowledge the world we live in is based more on random occurrences than by sequential, ordered events.

[W]e often have the mistaken impression that a strategy is an excellent strategy, or an entrepreneur a person endowed with “vision,” or a trader a talented trader, only to realize that 99.9% of their past performance is attributable to chance, and chance alone. Ask a profitable investor to explain the reasons for his success; he will offer some deep and convincing interpretation of the results.”

In hindsight everything makes sense. It has to. To say something happened by chance would signal the success is undeserved or that there’s nothing to learn from a failure. This is why we tell stories of success in absolutes and describe failures as a bad set of chance circumstances -- something to avoid.

This disparity of attribution causes us to focus on the wrong side of the outcome. We put more effort in trying to understand and replicate the success of a few whereas we’d be better off learning to avoid the things that caused more people to fail.

By studying the exception rather than the rule we take away the possibility of chance being a part of the  opportunity that was necessary for that success.

When we apply cause and effect relationships to situations where there are none we tend to believe that things are more predictable than they actually are.

Therefore, in order to course-correct for this we must recognize when we’re mistakenly being fooled by what we perceive to be random and question whether or not our assumptions are actual truths or only what we believe.


Fooled By Randomness is a term introduced by Nassim Nicholas Taleb in his book of the same name.

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