Fooled by randomness


On mathematic

Two ways of learning history:

  1. Play with the past: Reading lesson from the elders
  2. Play with the future: Monto Carlo simulation


Important statement (page 130)

If the science of statistics can benefit me in anything, I will use it. If it poses a threat, then I will not. I want to take the best of what the past can give me without its dangers. Accordingly, I will use statistics and inductive methods to make aggressive bets, but I will not use them to manage my risks and exposure.

Successful trader: Ensure the costs of being wrong are limited and their probability is not derived from past data.

2 important factors to consider when making any assessment:

  1. The degree of randomness
  2. The size of the sample