Category Archives: Skills

Book references, Skills, Society

[Book review] Fooled by Randomness

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I don’t usually read books about “how to see life differently”, but I liked the idea that an original-minded trader (by background) wrote about the role of randomness in life. “Fooled by randomness” is just that: a (sometimes cynical) view of our lives from the eyes of a statistician.

The Author

Nassim Nicholas Taleb is most famous for his previous work about unlikely events — “The Black Swan”. A former trader, he nows teaches at NYU and feeds trolls on Twitter. Of Mediterranean culture, seemingly extensive thereof, he excels in seeing things in their wholesomeness, not just events by events. This was the philosophy of the Black Swan, and it is still present in this book.

The Takeaways

The book is a constant reminder to check real facts against their probability of occurence, before jumping to conclusion about their cause. Several phenomenons are at work in building well-accepted-but-false theories out of observation:

  • Randomness: while people might use complicated theories to explain visible successes, they might just be the result of the number of agents at play. Then, there is always a slight probability that you are observing a small-but-visible sample of that large number set. Imagine that 10 000 traders play the casino on foreign-exchange rates. Out of this quantity, a marginal number will almost surely come up with impressive results. Their big bonuses and acclaim will make them more visible that the losers. Add cognitive biais to this, and you get a false theory that might seem to explain their success.
  • Cognitive biais: several biaises are at play, but few of them seem of particular importance:
    • survivor biais: we usually don’t talk about the losers, just about the winners. When you see a traders who “made it”, you may not see all those who got fired because of their poor performance;
    • risk/loss aversion: we may make the wrong choices by fear of losing out. As a trader specialised on unlikely events with big impact (the “black swans”), the author shares the pressure he gets while investors see minor loses on his portfolio while others (the “random fools”) are in the green. This may be the case most of the time. Until that time when he makes up in a few weeks several times what the “random fools” made in the previous years. The example that comes to mind is the one where traders make $5M every year during several years, enjoy promotions and big bonuses, until their theories turn out to malfunction and they lose $30-50M in a few weeks. Over time they clearly lost their investors’ money in hot-air theories, but investors do prefer this way, rather than to accept losing little during several years until a disproportionate reversal of fortune. Think of it next time your friend shows off how much s/he made on the stock market;
    • induction: we tend to expect the future to be a continuation of the past. We all heard that “real-estate market will never go down”. Until it does. This may be intuitively a particular case of the fact that our brains like linearity — while many things are non-linear;
    • environmental biais: we have greater chances to live in environments where people are similar to us. Therefore, our house may never seem big enough (“the neighbour has a new car”…), our fortunes never seem to be as good or bad as they actually are.
  • Laziness : the medias are particularly held responsible to spread biaises. The striking example is how they have to explain the direction of the stock market with whatever news of the day. They can’t justify their existence by just saying that we are observing noise. This makes reading news much less important. Obviously this applies to many managers in larges companies, or politicians, etc. trying to take credit for random events.

Personal opinion

If you have a background in statistics, and have read recent books about cognitive biases, you may not feel like you will learn a lot in this book. Let’s just say that it is a kind reminder. I found the writing style not particularly pleasant, but I will nevertheless keep this book as a reference when confronted to random fools. It is not often that these things are dealt with altogether in one convenient place.

The book is available here.

Apple, Innovation, New business, Skills

Want to innovate? do your clients’ job !

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One of the key skills that innovators need to develop is empathy. Empathy is needed in innovation to understand your customer’s pains and reasons to adopt such or such behavior. At the individual level, empathy is triggered by what scientists call the “mirror effect”: when exposed with someone else’s situation, it triggers the same part of your brain as if you were actually living the scene. But how do you create empathy at the organisation level ? The trick is simple: if you want to innovate, do your clients’ job !

Parrot is well know for its best-selling AirDrone, but it is primarily the world leader in OEM hands-free modules for car dashboards. Its products are so good that they are almost ubiquitous: best sound quality, great design, easy to use… but is that all it should be ? Well, to figure this out, Parrot management actually asked its R&D to develop car dashboards. Does it actually SELL dashboards ? No, as it would be competing with its customers (the car manufacturers). But developing car dashboards is a way to go through all the process its customers are going through, and understand the place of its OEM bluetooth modules in the process. So its OEM modules are also the easiest to integrate, because Parrot understood what its customers are going through.

Now, a lot a people believe that Apple is about to sell a car. Obviously, there is evidence that Apple is BUILDING a car. Does it mean that it will SELL cars? I doubt about it. As Apple bacame a platform company, all it probably wants is to understand how car manufacturers will integrate its platform in the most-elegant possible way. Corporate empathy at its best.