KOOLED BY RANDOMNESS The Hidden Role of Chance in Life and in the Markets SECOND EDITION NASSIM NICHOLAS TALEBAbout the author Nie Nicholas Taleb is the founder of Empirica Capital LLC, a crisis-hunting hedge fund operator, and a fellow at the Courant Institute of Mathematical Sciences of New York University. He has held a variety of derivative trading positions in New York and London and worked as an independent floor trader in Chicago. Taleb was inducted in February 2001 in the Derivatives Strategy Hall of Fame. Taleb received an MBA from the Wharton School and a Ph.D. from University Paris-Dauphine. He is the author of Dynamic Hedging: Managing Vanilla and Exotic Options (Wiley, 1997). IFOOLED BY RANDOMNESS The Hidden Role of Chance in the Markets and in Life 4 NASSIM NICHOLAS TALEB TEXERE New York ¢ LondonCONTENTS “fe Preface and Acknowledgments Chapter Summaries Prologue Mosques in the Clouds PART I; SoLon's WARNING - SKEWNESS, ASYMMETRY, INDUCTION One: If You’re So Rich Why Aren’t You So Smart? Nero Tulip Hit by Lightning Temporary Sanity Modus Operandi No Work Ethics There Are Always Secrets Jobn the High-Yield Trader An Overpaid Hick xiii xvii