Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb

Part I
•
SOLON’S
WARNING
Skewness, Asymmetry, Induction

Croesus, King of Lydia, was considered the richest man of his time. To this
day Romance languages use the expression “rich as Croesus” to describe a
person of excessive wealth. He was said to be visited by Solon, the Greek
legislator known for his dignity, reserve, upright morals, humility, frugality,
wisdom, intelligence, and courage. Solon did not display the smallest surprise
at the wealth and splendor surrounding his host, nor the tiniest admiration for
their owner. Croesus was so irked by the manifest lack of impression on the
part of this illustrious visitor that he attempted to extract from him some
acknowledgment. He asked him if he had known a happier man than him.
Solon cited the life of a man who led a noble existence and died while in
battle. Prodded for more, he gave similar examples of heroic but terminated
lives, until Croesus, irate, asked him point-blank if he was not to be
considered the happiest man of all. Solon answered: “The observation of the
numerous misfortunes that attend all conditions forbids us to grow insolent
upon our present enjoyments, or to admire a man’s happiness that may yet, in
course of time, suffer change. For the uncertain future has yet to come, with
all variety of future; and him only to whom the divinity has [guaranteed]
continued happiness until the end we may call happy.”
The modern equivalent has been no less eloquently voiced by the baseball
coach Yogi Berra, who seems to have translated Solon’s outburst from the
pure Attic Greek into no less pure Brooklyn English with “it ain’t over until
it’s over,” or, in a less dignified manner, with “it ain’t over until the fat lady
sings.” In addition, aside from his use of the vernacular, the Yogi Berra quote
presents an advantage of being true, while the meeting between Croesus and
Solon was one of those historical facts that benefited from the imagination of
the chroniclers, as it was chronologically impossible for the two men to have
been in the same location.
Part I is concerned with the degree to which a situation may yet, in the
course of time, suffer change. For we can be tricked by situations involving
mostly the activities of the goddess Fortuna—Jupiter’s firstborn daughter.
Solon was wise enough to get the following point; 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. Solon also had the intuition of a problem
that has obsessed science for the past three centuries. It is called the problem
of induction. I call it in this book the black swan or the rare event. Solon even
understood another linked problem, which I call the skewness issue; it does

Leonard Pokrovski - Fooled by Randomness: The Hidden Role of Chance... (bigmoney.vip)