07.09.07

Ran-dumb-ness

Posted in Reviews at 9:09 by RjZ

Silly, but, when I was younger and a good friend of mine collected records from obscure alternative music groups, we we’re often a bit disappointed when suddenly those bands became popular. Then, later, I remember thinking about philosophy and coming up with what I thought to be clever and innovative ideas, only to finally get around to reading what philosophers had actually been writing for a couple of millennia and being a bit crestfallen that I wasn’t as original as I initially imagined.

Fortunately, these days, I rather enjoy the ego boost I get when I read a book that confirms much of what I already thought. It’s especially nice (and imminently more valuable) when the ideas are better articulated, more thoroughly researched and quite expanded. That is exactly the case with the quirky Fooled By Randomness by Nassim Taleb.

Taleb is something like a financial analyst and trader cum elitist snob philosopher. Anyone who knows me, readily recognizes we’d probably either like or hate each other instantly upon meeting, but we’d have plenty to talk about either way. His book discusses the many, many ways, we are fooled by randomness in the world. Our very brains are likely programmed to misjudge the visible victories of the few (as opposed to the sheer quantity of the many failed) and assume their success is due more to their efforts than inherent randomness in nature. Being obsessed by randomness for so long, Nassim has collected hundreds of anecdotes, examples, and quotes illustrating his point and he has even developed a resigned affection for it too.

I made my way through this occasionally, I think unnecessarily, dense and confusingly organized book because it captured and explained many of the issues I struggle with when trying to explain complex observations. Here’s one of mine that could have easily made it into Taleb’s book.

The CEO Club
From early on in my career (my first professional job actually) I noticed that in North American business there is a club with an exclusive membership but almost no real requirements of its members. Once an individual through skill, tenacity, charisma or chance, is promoted to CEO, he (most of them are still ‘he’ today) may remain in the club regardless of performance for the rest of his career.

Imagine an incredibly talented CEO, who makes all the right decisions, only to have a terrorist attack trigger a stock market crash which, in turn, destroys his company’s stock value. If his unfortunate company goes bankrupt and he winds up looking for a job he won’t have to for long. After all his resume mentions his experience running a multi-million dollar firm.

Imagine a very tall, good looking CEO with no real qualifications other than his fashion sense and the ability to remember names. Assume his company performs well and he makes many important decisions along the way, even though he’s been guessing the whole time. How many of those decisions will truly end up being critical to the success of his company? We’ll never be able to separate his choices from the thousands of internal and external forces that guided the company towards success but he’ll be able to take credit just the same.

In fact, once you’ve reached the point of CEO for a company (provided that company is bigger than, say, you and a couple of your beer drinking buddies) you’ve got a pretty good chance that your experience alone, regardless of your performance will ensure good jobs from here on out, so long as you’re willing to work hard (or at least look like you do.) Simply stated, once a certain position is achieved, the captain of the ship will still be able to negotiate a new ship, even if his last one sinks spectacularly.

Of course, there are entrepeneurs who truly take risks and affect change in their environments, and there are plenty of excellent talented CEOs out there. It’s just that it may not be so easy to tell who’s who. Being talented is no more guarantee of success than being an idiot is a guarantee of being of failure. (Being talented just stacks the odds in your favor.) I think Taleb writing a whole book about makes me feel very clever and validated. Maybe it was just luck that I found it.

6 Comments »

  1. Mike said,

    July 9, 2007 at 10:26

    You just had to include a caveat about companies needing to be bigger then you and your beer swilling buddies, didn’t you. I was reading this thing feeling all puffed up about my future prospects and then bam, you take it all away. Fake companies need love too! Or um, something like that.

  2. RjZ said,

    July 9, 2007 at 10:29

    Actually had to put that in there with you in mind. No, really.

  3. erin said,

    July 11, 2007 at 9:32

    your example is a great one. i just left a large company with a brilliant ceo. he was an innovator who brought in a great team (some of whom are still there), but the problems and the company were just too big for him to turn it all around in the time frame provided.

    so often, the other side is true though. the so-so ceo with a great product that just can’t go wrong. and they keep getting the big bucks.

  4. dan said,

    July 31, 2007 at 15:13

    I will have to put this book on my reading list. This reminds me of when I have felt “smart” for buying a stock that paid off well later. I should have just felt fortunate, because I’ve used the same logic to buy others, that have lost me money, and then felt like an idiot. “Oh I should have known better,” I would tell myself. Silly. I do think it is human nature to find patterns in the randomness. Speaking of silly, was I that record collecting friend? Either way, yes it was silly back then!

  5. Traveling Hypothesis » New member in the CEO club said,

    September 7, 2010 at 6:13

    [...] in this review of Nassim Talib’s Fooled by Randomness I mentioned the CEO [...]

  6. Traveling Hypothesis » Exceptional Steve Jobs said,

    October 6, 2011 at 9:16

    [...] written about the CEO club or more than one occasion. The CEO club is my name for the concept that we give extra credit to CEOs [...]

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