Fooled by Randomness

In his 2001 book, Fooled by Randomness, Nassim Nicholas Taleb argues that people tend to find patterns in random behavior that just aren't there. The human mind looks for patterns because that helps us survive. But we may detect patterns that simply don't exist which can lead to problems.

Luck or Skill

He suggests that we can confuse luck with skill. Since he's an investor by trade, he suggests that some investors will be lucky year after year, but continued success will appear to be skill. Given the thousands of mutual funds, randomness will allow some fund managers to succeed for three to five years through luck alone.

Noise or Signal

I recently attended a conference where one speaker had problems with feedback from his microphone. As he moved around the stage, the feedback increased. The speaker kept adjusting until there was only one place to stand. Being in the back of the room, I could see the sound person desperately adjusting the microphone levels on the mixer until they found the right one. Ultimately, the mixer got the right channel and fixed the volume, but by then the speaker was frozen to one spot on the stage. Is what you're hearing or seeing noise or signal?

Probability or Certainty

Some people don't just play the lottery, they invest in it like it's a retirement plan. There's a chance you can win if you buy a ticket, but it isn't certain. Many people confuse likely outcomes with certain outcomes.

Coincidence with Causality

The first TQM project I worked on back in 1991 involved false fire alarms. The leadership team had recently added microwave popcorn to the break rooms. They confused this coincidence with causality. Fortunately, I worked in the Advanced Technologies group of U S West at the time. We used a little more science to determine that the introduction of cell phones (a new technology that emitted radio frequency interference) was causing unshielded detectors to go into alarm mode.

The cause was cell phones plus unshielded detectors, not popcorn.

I cannot tell you how many improvement teams I've worked on since then that were distracted by coincidences and had to be drawn back to cause-effect.

A Fool and His Money

Taleb identified some other common behaviors people exhibit when they've detected patterns in randomness:

  • People overestimate the accuracy of their beliefs about the pattern.
  • They get married to their position.
  • They have no game plan or exit strategy for dealing with set backs or losses.
  • Denial

Here's My Point

The human mind is a pattern finding machine. It helped us find food and water when we were hunter gatherers. It helps us in many ways, but it can also fool us when confronted with randomness. Rather than revise our observations and beliefs about these patterns, we tend to defend them.

The world changes quickly. What used to be "true" is overturned by new findings. Let yourself be open to new information. Is there a new or better pattern? Is there no pattern, only randomness?

Don't get fooled by randomness!

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