Citation
Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
TL;DR
Narrative fallacy: we construct causal stories for random outcomes
Introduces the concept of the 'narrative fallacy' - our tendency to construct causal stories for outcomes determined largely by random sampling. Argues that in small-sample environments, we systematically confuse luck with skill.
Genetic drift provides the mathematical foundation for what Taleb describes: in small populations, outcomes that look like vindication of strategy are often just visible results of invisible random walks.
Key Findings from Taleb (2001)
- Narrative fallacy: we construct causal stories for random outcomes
- Small-sample environments cause systematic confusion of luck with skill
- Success often attributed to strategy when timing and chance were decisive