Fooled By Randomness: The Hidden Role of Chance in Life and in the Markets

Nero is a fictional character whom Taleb uses to illustrate contrasting methodologies for market trading. Nero is not a born trader; instead, he comes to the profession after seeing a trader arrive hastily in a sports car which he leaves for a valet to take care of. Nero, who had been working toward a PhD in statistics, decides to pursue trading that day. He is an all-around intellectual, having also studied literature prior to his graduate work. Part of what drives Nero away from the academy and toward the market is his perception of the excitement and energy in the profession, which he felt was lacking in academia.

Nero is a deliberate and contemplative trader who uses his intellect to make informed decisions. He is risk-averse and prefers to build his wealth incrementally over time. Taleb refers to Nero as a “conservative trader” (41). Taleb also says that Nero’s operating strategy is to avoid the rare event as much as possible, and this partly explains why his wealth is not exorbitant. He simply does not take unnecessary chances with the market. Later in Chapter 1, Taleb introduces us to John, the antithesis of Nero. John’s affluence becomes a source of quiet envy for Nero until one day he sees John in the driveway of his opulent house and discovers that the man has lost everything.

Later in the book, Taleb revisits Nero’s story and informs the reader that the character has developed cancer. Taleb uses the diagnosis as a means of examining survival rates and statistics. When Nero makes one final return at the end of the book, the reader learns that Nero survived his cancer diagnosis. However, Nero does something out of character and pursues a license to operate a helicopter, despite the greater physical risks compared to driving a car. Eventually, he crashes the helicopter and dies.

Taleb is scornful of MBAs in the book, and this is best represented by the character of John. Unlike the intellectual Nero, John is an MBA degree holder. John is a high-yield trader, and based on his accumulation of material possessions, including his house which is situated across the street from Nero’s, one might conclude that John is incredibly successful. He is 35 years old when he is introduced and on top of his profession after a rapid rise on Wall Street.

Much of what the reader learns about John is revealed through Nero’s distaste for John’s trading tactics and his lifestyle choices. Taleb describes John as not only intellectually lacking, but also as lacking in street smarts and common sense. John appears to have built his wealth by riding a boom in the market during the late 1990s. John and his wife are materialistic and, unlike Nero, like to show off their wealth.

While John’s lifestyle causes Nero some jealousy, he instinctively believes that John will at some point meet an economic demise because he has not properly buttressed himself against the rare event. Taleb attributes this to the fact that John “had too short an experience of the market (but also because he was not thoughtful enough to study history)” (49). Eventually, John experiences a complete loss, or what Taleb refers to as a “blow-up.” He loses everything, because “Markets went into a volatile phase during which nearly everything he had invested in went against him at the same time” (124). John embodies the problems that arise when a person misunderstands The Distinction Between Luck and Skill. John believes his success is due to his own brilliance, rather than due to lucky timing. When the market reverses, he is unable to recover. John’s downfall also illustrates the human impact of The Limitations of Financial Models and the Unpredictability of the Markets.