Wednesday, October 15, 2008

Fooled by Randomness

I just finished reading Fooled by Randomness, by Nassim Nicholas Taleb. It's a good book. The author NNT also wrote The Black Swan. Fooled by Randomness is a good challenging read, but a bit lighter than the black swan. I recommend it.

He has some interesting points, especially about the dangers of judging the performance of say a mutual fund manager over a short time series. NNT seems to speak well of George Soros writing so I'll have to pick up a Soros book in the future. I think I'll do some light reading first though for balance before hitting the nonfiction again.

Fooled by Randomness talks some about options trading and NNT has also written some books on options trading. I don't know much about options trading but it sounds interesting. I should learn more about it in the future. There's something pleasing about finding profitable opportunities especially when you judge you are an underdog to hit - hmmm, now where does that come up in my life?

There is a an interesting probability problem in the book. I'll repeat it here.

It's related to medicine.

A certain disease affects 1 in 1000 people.

There is a test for the disease. The test is 95% accurate; it produces a false positive 5% of the time. The test never produces a false negative.

An individual tests positive for the disease. What is the chance that he has the disease?

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