fooled by randomness role of chance in markets and life proper1
Post on 02-Jun-2018
223 Views
Preview:
TRANSCRIPT
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 1/219
#$%& %'(& )$%'#*&
#$% &#'()* % + *,-% # % .(,% /)012,3%)/% 4$5#3#' % 6 5#. *% 776 8% %
'3# # 9(01.#1:% (,2:,% /012% )5,3 .)38% 12% % /,**);% .% .(,% 6)03 1.%
<1 .#.0.,%) /%= .(,$ .#' *% >'#,1', %) /%&,;%?) 3@%A1#B,3 #.CD%E,%( %(,*2%
% B 3#,.C% )/% 2,3#B .#B,%.3 2#1:% 5) #.#)1 % #1%&,;% ?)3@% 12% 7)12)1% 12%
;)3@,2% % 1% #12,5,12,1.% /*))3%.3 2,3% #1%6(#' :)D% + *,-% ; % #120'.,2%
#1% F,-30 3C% GH HI% #1%.(, #$%&'(%&#) *($'(#+,% E **% )/% F $,D%
+ *,-% 3,',#B,2% 1%=JK% /3)$% .(,%L( 3.)1% >'())*% 12% %M(DND % /3)$%
A1#B,3 #.C % M 3# 9N 05(#1,D% E,% # % .(,% 0 .()3% ) / ,-'.%/ 0#1+%-+2
3'- '+%-+ 4'-%55' '-1 678(%/ 9:(%8-)
% OL#*,C8% IPPQR D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 2/219
B Y
+( ,% E #2 2,1% S ) * ,% ) /% 6 ( 1' ,%
#1% .( ,% = 3 @ , . % 12% #1% 7 #/,%
N S SIM N I C H O L S T L E E
g
•
#$ % & ' ($ )$ * & + ,& +$
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 3/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 4/219
6T&+4&+>%
;$#<'/# '-1 =/>-8?5#1+.#-() 7%%%
@A':(#$ *B. .'$%#) 7&%%
-'&.&/0 $ 1$
3 8)CB#) %- (A# @58B1) D
M K S + $ 2 3% > T7T& U>% LKS& <&V% 9$ 4567 644 8% K > ?==4 + S? 8%
<&NA6+<T&% Q%
8+ 3$ 29$%&0 :' $ 4&$;<=>$7>?$ @' +:A$ %&0$ 4&$ 4BC'AD$ 11$
E#$8 FB5%: DD
E#.% -C%7#:(.1#1:% II%
+,$5)3 3C% > 1#.C% IG%
381B) 9:#$'-1%% IW%
&)%L)3@% 4.(#' % IX%
+(,3,% K3,%K*; C %>,'3,. % IQ%
G8A- (A# 0%+AHI%#51 F$'1#$ DJ
K1%TB,35 #2%E#'@% IP%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 5/219
B ## #% 6 T & + 4 & + >%
FA# K#1H08( *B. .#$ LD
>,3).)1#1% 12%S 12)$1, % GG%
I8B$ #-(%)( M) K%/AN 4#$, K%/A H LO
E#& 3$ @$ F<GC'' $ @==&0+A<+/$ H A>&,$ I J$
=5(#$-'(%&# 0%)(8$, LP
S0 # 1% S)0*,..,% GQ%
K1%4B,1%=)3,%Y#'#)0 % S)0*,..,% GZ%
*.88(A ;##$ K#5'(%8-) LQ
> *B .#)1%Y# % K,3)/*).% [H%
>)*)1% Y# #. K#+%-#R) %&#:(.%6*0-% [G%
S#8$+# T%55 M) E8 *858-2 9- @8B-(#$%-(B%(%&# F$B(A) UO
E0$#*# .,2% #1%N,- ., % [Q%
S# @%= 1 :,3 % [Z%
E>' 3$ @$HCA> BCA<=C.$ H ,<ACA<&+$ &+$ K<LA&'?$ M N$
403)5* C-)C% = .(,$ .#' % WH%
+(,% +))* % WI%
=)1.,% 6 3*)%= .(,$ .#' % W[%
VB- %- 3, =((%/ OW
= @#1:% E# .)3C% W\%
])3:*0- % 63);2#1:% .(,%K..#'% WX%
N,1#:3 .#)1% )/%E# .)3C% WQ%
+(,% >.)B,% < %E).% WZ%
=C%>)*)1% \H%
%)(%55#1 FA%->%-+ 8- I8B$ ;'5.;%58( WD
J3, @#1:%&,; % \I%
>(#**,3% S,20^% \[%
V,3)1.)'3 'C% \\%
;A%58)($'(B) %- 3 8-(# @'$582 9- (A# %<<#$#-/# X#(?##- E8 %)#
'-1 M-<8$.'(%8- WP
O&0' 3$ ;C+,&B+ LLP$ &+L +L P$ C+,$ A> $4=< +A<9<=$ 2+ A .. =A0C.$ J N$
K'-18. -#)) '-1 (A# 4#$Y
S,B,3 ,%+03#1:%+, .%
6
JI$
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 6/219
6 T& + 4 & + > %
#^%
+(,% F .(,3% )/%K**% M ,02).(#1@,3 % XW%
3 8-(# @'$58 ;8#($, PO
O<Q 3$ 40'Q<QC.$ &9$ A> $* CLA$ O<A$ R $ SC+$ 6Q&.0A <&+$ F $ O&&. ,$ T?$
;C+,&B+ LLD$ JU$
@'$58) (A# 6. #$+%-+ 3 '$>#() T %Z'$1 P[
+(,% V))2%?, 3 % QI%
KB,3 :#1:%N);1% QG%
7#1, % #1% .(,%> 12% QG%
G8A- (A# 0%+AHI%#51 F$'1#$ JO
+(, \B'-(% L()%_1,;%6)$50.,3 % 12%4`0 .#)1 % Q\%
+(,% +3 #. % +(,C% >( 3,2% QZ%
= K#&%#? 8< 3 '$>#( V885) 8< K'-18. -#)) @8-)('-() J[
E'%&# 6&85B(%8-'$, FA#8$%#) [D
6 1% 4B)*0.#)1% -,% F))*,2% -C%S 12)$1, a% ZG%
4<V3$ 4( #+ LL$ C+,$@L?BB A'?$ UM$
FA# 3 #1%'- M) E8( (A# 3#))'+# [O
XB55 '-1 X#'$ ]8858+, [P
=-
%K33): 1.% GP9?, 39T*2% >)1% ZZ%
S 3,% 4B,1. % ZP%
>C$$,.3C% 12%>'#,1',% PH%
FA# K'$# 6&#-( V'55'/, QU
+(,%=).(,3% )/%K**%N,',5.#)1 % P[%
L(C%N)1U.% >. .# .#'# 1 % N,.,'.% S 3,% 4B,1. a% PX%
K%=# '(#,B)0 % 6(#*2%S,5* ', % .(,%J* '@% J ** % PQ%
4 Q +3$E> $ -'&T. B$ &9$ 2+,0=A<&+$ W W$
V$8. X'/8- (8 0B. # QQ
@,+-B) =($'(B)
% IHH%
&#,2,3()//,38% Y#'.)3# 1% V,1.*,$ 1% IHH%
*%$ ^'$5R) ;$8.8(%-+ =+#-( %_U
7)' .#)18% 7)' .#)1% IH\%
M)55,3U %K1 ;,3
D_P
T5,1% >)'#,.C% IHZ%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 7/219
B##%
6 T & + 4 & + > %
&)-)2C% < % M,3/,'.% IHZ%
M ' *U %L :,3% IHP%
FA'-> I8B *858- ` DD_
M K S +% * # % =T&_4 ?>% T&% + ? M 4LS < +4 S >% 9% >A SY <Y TS >E <M% K&N%
T +E 4 S% J <K >4 >% I I I%
<.% N,5,12 % T1% .(,%&0$-,3% )/%=)1@,C % IIW%
Y#'#)0 % S, *% 7#/,% II\%
+(# % >,'.#)1% II\%
6</>A3$ E & &$ HC+?$ H<..<&+C<' L$ VA$ X&&'$ 1 1Y$
08? F8 *(8: (A# *(%-+ 8< V'%5B$# DDJ
>)$,;( .%E 55C% IIQ%
+))%=0'(%L)3@% IIZ%
?)0U3,% % F #*03,% IIP%
8BY5# *B$&%&8$)A%: X%')#) DL_
=)3,% 4^5,3. % IGH%
Y# #-#*#.C%L#11,3 % IGG%
<.U % % J0**%= 3@,.% IGG%
= SB$BR) 9:%-%8- DLU
<+ 3$ 2A$ 2L$ 6CL< '$ E &$ F0?$ C+,$ 4 ..$E>C+$ O'?$ C+$ 6//$ 1IZ$
V885#1 Y, EB. Y#$) DLJ
M* ',-)% <1B, .)3 % IGQ%
&)-)2C%E %+)% J,%6)$5,.,1.% IGZ%
43:)2#'#.C% IGP%
a%<# M) @8%-/%1#-('5 DUD
+(,%=C .,3#)0 % 7,..,3% I[I%
K1%<1.,3305.,2% +,11# % V $,% I[G%
+(,% J#3.(2 C% M 3 2)^% I[G%
<.U % % >$ **%L)3*2b% I[G%
N . %=#1#1:8% >. .# .#' 8% 12%6( 3* . 1# $% I[[%
+(,% J, .% J))@% <%E B,%4B,3%S, 2b% I[W%
+(,% J '@., .,3% I[W%
K%=)3,%A1 ,..*#1:% 4^.,1 #)1% I[X%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 8/219
6 T & + 4 & + > %
c <%
+(,% 4 31#1: % >, )1d% F))*,2% -C%.(,% S, 0*. % I[X%
6 1',3% 603, % I[Q%
M3)/, )3% M, 3 )1%V), % .)%=)1.,% 6 3*)% O7#.,3 **CRd%
S 12)$1, % N), %&).% 7))@% S 12)$b% I[P%
+(,%N):%+( .%N#2%&).% J 3@d% T1% J# , % #1% >'#,1.#/#'%
_1);*,2:,% IWH%
M 0'&# E8 @8-/5B)%8- DOD
E +3$ *&L '$ EC( L$ @..$ R$ 8+$ A> $ &+.<+ C'<A< L$ &9$ *<9 $ 1MI$
FA# *'-1:%5# 6<<#/( DOL
41.,3% S 12)$1, % IWW%
7, 31#1:% .)%+C5,% IWW%
3'(A#.'(%/) M-)%1# '-1 9B()%1# (A# K#'5 T 8$51 DOP
J03#2 1U % N)1@,C% )3% .(,% V))2% >#2,% )/%S 12)$1, % IWQ%
T A#- M( K'%-)N M( ;8B$) DO[
6. Q +3$ ;C+,&B+ LL$ C+,$ 80'$ F'C<+3$ 7 $ @' $ -'&TCT<.<A? $
F.<+,$ 1M W$
;'$%) 8$ (A# X'A'.')b DOQ
*8. # =$/A%(#/(B$'5 @8-)%1#$'(%8-) DW_
V$8. ;),/A858+, (8 E#B$8Y%858+, DWL
T03%& .03 *% E -#. .% I\[%
_ /@ % #1% %6)03.3))$% I\W%
K1%K- 032%L)3*2% I\X%
_ (1,$ 1% 12%+B,3 @C% I\Q%
&,03)-#)*):C% I\Z%
4^ $5*, % )/% J# , % #1%A12,3 . 12#1:% M3)- -#*#.C% I\P%
L,%K3,%T5.#)1%J*#12% IXH%
;$8Y'Y%5%(%#) '-1 (A# 3#1%' c38$# G8B$-'5%)()d DPL
6&J6% .% 701'(%+#$,% IX[%
?)0% >()0*2%J,%N, 2%-C%&);% IX[%
+(,% J*))$-,3:% 4^5* 1 .#)1 % IXW%
F#*.,3#1:%=,.()2 % IXX%
L,%N)%&).%A12,3 . 12% 6)1/#2,1',% 7,B,* % IXZ%
K1%K2$# #)1% IXZ%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 9/219
^ # #% 6 T & + 4 & + >%
M K S +% < * * % L K c% <&% =?% 4 K S >% 9% 7 <Y <& V% L <+E% SK&NT= <+<>% I X P%
<%K$%&).%>)%<1.,**#:,1.% e% IQG%
FA# 91,))#'- 3B(# @8..'-1 DJU
E# .Q 3$ [CBT. 'L:$ E<=(L$ C+,$ -</ &+L$ <+$ C$ F &V$ 1YZ$
F'7 %H@'Y 6-+5%)A '-1 @'B)'5%(, DJW
FA# *>%--#$ ;%+#8- 67:#$%.#-( DJ[
;A%58)($'(B) K#1B7 DJQ
E><'A +3$ SC'+ C, L$ S&B L$ A&$ ;&B 3$ 8+$ -'&TCT<.<A? $ C+,$
4( \A<=<LB$ 1 U I$
@'$-#'1#) @8.#) (8 K8.# D[U
M3)- -#*#.C% .(,%6(#*2% )/% >@,5.#'# $% IZW%
3 8-)%#B$ 1# E8$:8%)R) 9:%-%8-) D[W
M .(%N,5,12,1',% )/% J,*#,/ % IZQ%
@8.:B(%-+ M-)(#'1 8< FA%->%-+ D[[
V$8. VB-#$'5 (8 VB-#$'5 DQ_
O&0'A +3$ FC==>0L$ @TC+,&+L$ @+A&+?$ 1W1$
E8(#) 8- G'/>%# 9eR) VB-#$'5 DQL
K'-18. -#)) '-1 ;#$)8-'5 65#+'-/# DQO
6\<.&/0 3$ 4&.&+$ E&.,$ %&0$ 4&$ 1WJ$
J,; 3,% .(,% 7)12)1% +3 //#'% f $ % IPX%
E8(#) DQJ
M-1#7 DQ[
=Y8B( F6f6K 6 L_O
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 10/219
MS4 FK64% K&N% K6_&TL74NV=4&+>%
(# % -))@% # % .(,% C1.(, # % ) /8% )1% )1,% ( 128% .(,% 1)91)1 ,1 ,%
$ .(,$ .#' *% .3 2,3%O ,*/9 .C*,2% g53 '.#.#)1,3% )/%01',3. #1.CgR%;()%
5,1.% (# % *#/,% .3C#1:% .)% 3, # .% -,#1:% /))*,2% -C%3 12)$1, % 12% .3#'@% .(,%
,$).#)1 % )'# .,2%;#.(%01',3. #1.C% 128%)1%.(,%).(,38% .(,% , .(,.#' **C%
)- , ,28%*#.,3 .03,9*)B#1:%(0$ 1%-,#1:%;#**#1:%.)%-,%/))*,2%-C% 1C%/)3$%
)/ % 1)1 ,1 ,% .( .% # % 5)*# (,28% 3,/#1,28% )3#:#1 *8% 12% . .,/0*D% <% $% 1).%
' 5 -*, % )/% B)#2#1:% -,#1:% .(, % /))*% )/% 3 12)$1, h% ;( .% <% ' 1 % 2)% # %
')1/#1,% #.% .)%;(,3,% #.% -3#1: % )$,% , .(,.#'% :3 .#/#' .#)1D%
=0'(% ( % -,,1 % ;3#..,1 % -)0.% )03% - # , % O '`0#3,2% )3% :,1,.#'R% #1 %
2, *#1:%;#.(% 3 12)$1, % )B,3% .(,% 5 .% 2,' 2,D% =C% 30*, %;(#*,% ;3#.#1:%
.(# %-))@% ( B,%-,,1%.)% B)#2%2# '0 #1:%O R% 1C.(#1:%.( .%<%2#2%1).%,#.(,3%
5,3 )1 **C % ;#.1, % )1% .(,% .)5#'% )3% 2,B,*)5% #12,5,12,1.*C 8% 12% O-R%
1C.(#1:%.( .%<%( B,%1).% 2# .#**,2%;,**%,1)0:(% .)% -,% -*,%.)%; 3#.,%)1%.(,%
0-i,'.%;#.(%.(,% *#:(., .%,//)3.D% 4B,3C.(#1:% .( .% 3,$).,*C% /,*.%*#@,%;)3@%
; %)0.D%<%( 2%.)%503:,%.(,%.,^.%/3)$ %5 :, %.( .% ,,$,2%.)%')$,%/3)$ %
% B# #.% .)% .(,% *#-3 3C8% #1'*02#1:% .(,% '#,1.#/#'% 1 $,% 23)55#1:D% < %.3#,2% .)%
0 ,%1)%`0).,%.( .%2), %1).%1 .03 **C% 53#1:%/3)$%$C%$,$)3C% 12%2), %
1).% ')$,% /3)$% % ;3#.,3% ;()$% <% ( B,% #1.#$ .,*C% /3,`0,1.,2% )B,3 % .(,%
C, 3 %O<%2,., .%.(,%53 '.#',% )/%3 12)$ % 0 ,%)/% -)33);,2%; # 2)$%9% $0'(%
)1% .( .8% * .,3R D =B( ('/# 'B( 58CB#$# .#5%8$' )%5#-/%8% O)1*C% ;(,1% .(,%
;)32 % )0.5,3/)3$% #*,1',RD%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 11/219
c<Y%
M S4 FK 6 4% K&N% K 6 _& T L 74 N V= 4 & +>%
<% .3#,2% .)% $ @,% .(,% $ #1#$0$ % )0.% )/% $C% 2#3,'.% 53)/, #)1% ) /%
$ .(,$ .#' *% .3 2,3 D% = 3@,. % 3,% % $,3,% 5,'# *% ' ,% )/ % 3 12)$1, %
.3 5 D% <% 2# '0 % .(,$% #1% 1% #**0 .3 .#B,% ; C % % <% ;)0*2 % i 1 % % 2#11,3%
')1B,3 .#)1%;#.(8% C8% %' 32#)*):# .%;#.(% #1.,**,'.0 *% '03#) #.C% O<%0 ,2%
% % $)2,*%$C% ,')129:,1,3 .#)1% /3#,12%f '`0, % =,3 -RD %
>)$,% '@1);*,2:$,1. d% /#3 .8% <%;)0*2% *#@,%.)% .( 1@% /3#,12 %;()% ' 1%
-,%')1 #2,3,2%3#:(./0*%')9 0.()3 D%<% $ %:3 .,/0*%.)%&,;%?) 3@% #1.,**,'.0 *%
12% ,^5,3.% #1% 3 12)$1, % >. 1% f)1 % O<% 2)% 1).% @1); % 1C% ).(,3%
2, #:1 .#)1%.( .%;)0*2%2)%(#$%i0 .#',R%/)3%( */ % %*#/,.#$,%)/%')1B,3 .#)1 %
#1.)% **% 0-i,'. %-)32,3#1:%)1%53)- -#*#.C%;#.(%.(,% 1 #$ .#)1% 12%.(,%j, *%
)/%.(,%1,)5(C.,D% <%.( 1@%$C%53)- -#*# .% /3#,12%N)1% V,$ 1% O(0 - 12% )/%
E,*C,..,% V,$ 18%$C% .(, # %2#3,'.)3R% /)3%(# %,1.(0 # .#'% 055)3.% /)3%$C%
-))@h% (,% * )% $ 2,% $,% 3, *#j,% .( .% 53)- -#*# . % 3, % -)318% 1).% $ 2,% 9
$ 1C%$ .(,$ .#'# 1 % 3,%' 5 -*,%)/%')$50.#1:8%-0.%1).% 012,3 . 12#1:8%
53)- -#*#.C% O.(,C% 3,% 1)% -,..,3% .( 1% .(,%:,1,3 *% 5)50* .#)1% #1% ,^,3.#1:%
5 3)- -#*# .#'% i02:$,1. RD% +(,% 3, *% -))@ % . 3.,2 % ; #.(% 1% **91#:(.%
')1B,3 .#)1% ;#.(% $C% ,302#.,% /3#,12%f $#*% J j% 203#1:% .(,% 0$$,3% )/%
IPZ Q8 % % (,%2# '0 ,2% .(,%/)3$ .#)1% )/%g1,; g% 12%g)*2 g% $)1,C% $)1:%
/ $#*#, D% <% ; % .(,1 % % -022#1: % .3 2,3% 12 % (,% ')31,2 % .(,% 33): 1.%
> *)$)1%J3).(,3 %.3 2,3 %.( .% 033)012,2%(#$% O(,%; %53)B,2%3#:(.RD%E,%
#1 .#**,2% #1%$,%.(,%B)3 '#)0 % #1.3) 5,'.#)1% -)0.%$C%5,3/)3$ 1',% #1%*#/,%
12% 3, **C% : B,%$,% .(,% #2, % /)3% .(# % -))@ D% J).(% )/%0 %,12,2%05%:,..#1:%
2)'.)3 ., % * .,3%#1%*#/,8%)1% 1% *$) .% #2,1.#' *% 0-i,'.%$ ..,3D% <%( B,% * )%
23 ::,2% $ 1C% 5,)5*,% )1% OB,3C% *)1:R% ; *@ % #1% &,;% ?)3@8 % 7)12)18% )3%
M 3# 8%2# '0 #1:% )$,%5 3. %) /%.(# %-))@8% 0'(% %.(,%* .,%f#$$C% M);,3 8%
;() % (,*5,2 % 103.03,% $C% .3 2#1: % , 3*C % )18% 12 % ;()% @,5 .% 3,5, .#1:%
g 1C)1,% ' 1 % -0C% 12% , ** g8% )3% $C% ,1'C'*)5,2#'% /3#,12% N B#2% M .,*%
,`0 **C% .% , ,% ;#.(% *#.,3 .03,8% $ .(,$ .#' 8% 12% >,$#.#' % * 1:0 :, D% < %
( B,% * )% ,1: :,2%$C%*0'#2%M)55,3# 1% ')**, :0,%f)1 .( 1% L ^$ 1% #1%
10$,3)0 %')1B,3 .#)1 % )1%.(,%#1.,:3 .#)1% )/%_ 3*%M)55,3U % #2, % #1%)03%
*#/,% % .3 2,3 D%
>,')12 8% <% ( B,% -,,1% *0'@C % .) % $,,.% =C*, % +()$5 )1% 12 % N B #2 %
L#* )18%;(,1%.(,C%-).(%;,3,% .%f D% L#*,C%k% >)1 D%=C*, %( %B# #)1%9% (,%
# % .(,% 3,B,3 ,% g$,% .)) g% 50-*# (,3D %E,% 012,3 . 12 % .( .% -))@ % 1,,2% 1).%
-,%;3#..,1%.)% .# /C% %53,92,/#1,2%* -,*,2% 02#,1',8%-0.%.( .% %-))@ %; #**%
/#12%#. %);1%01#`0,% ,.%)/%3, 2,3 %9% .(0 %:#B#1:%$)3,%'3,2#.%.)% .(,%3, 2,3%
.( 1% .(,% )//9.(,93 '@% 50-*# (,3D% K %.)% N B#28% (,%-,*#,B,2% ,1)0:(%#1% .(,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 12/219
c<Y% MS 4 FK 6 4% K&N% K 6 _ & T L 7 4N V = 4 & + >%
-))@% .)% 50 (%$,%.)% . @,% #.% #1.)%#. % 1 .03 *% ')03 ,8% /3,,% )/% **% * -,* % 12%
. ^)1)$#, D% N B#2% ;%$,% .(,%; C%< %B#,;%$C ,*/h% )$,)1,% ;()%( % %
5 #)1%/)3%53)- -#*#.C% 12%3 12)$1, 8%;()% # %)- , ,2%;#.(% *#.,3 .03,%
-0.%( 55,1 %.)% -,% %.3 2,38%3 .(,3%.( 1% %:,1,3#'%g,^5,3. gD%E ,% * )% B,2%
$C%#2#) C1'3 .#'% .C*,% /3)$% .(,% 20**#1:% )/%.(,%,2#.#1:% 53)', % O/)3% **% #. %
/ 0*. 8%.(,% .C*,%# .%-#de% F#1 **C8%= #1 % > $0,* %53)B,2%.)%-,%.(,%:3, ., .%
')1' ,#B - *,% ,2#.) 3d% #$$,1 ,*C% #1 .0 #.#B ,8% ' 0*.0 3,28% , .( ,.#' * *C%
')1',31,28% C,.% 1)1#1.30 #B,D%
= 1C% /3#,12 %( B,% /,2%$,%;#.(% #2, %203#1:%')1B,3 .#)1 8% #2, %.( .%
/)012% .(,#3% ; C% #1.)% .(,% .,^. D% < % ' 1% $,1.#)1% .(,% 0 0 *% 0 5,'. 8% ** % )/%
.(,$%53#$,%')1B,3 .#)1 *# . d% 6C1.(# % >(,*.)1%+ *,- 8%E,*C,..,%V,$ 18%
= 3#,96(3# .#1,%S # '(#8%M 0*%L#*$)..8%>( #C%M#*5,*8%N B#2%N,S) 8% 43#'%
J3#C 8%>#2%_ (18%f#$% V .(,3 *8% J,31 32%T55,.#.8% 6C30 %M#3 .,(8% = 3.#1%
= C,38% J301) % N05#3,8% S 5( ,*% N)0 2C 8% = 3') % KB,** 1,2 8% N #2 #,3%
f B#',8% &,#*% 6(3# 8% 12% M(#*#55,% K ,#*CD%
>)$,% )/% .(, ,% '( 5.,3 % ;,3,% ')$5) ,2% 12%2# '0 ,2% % 5 3. % )/% .(,%
gT2,)1% 6 #3'*,g 8% % $C% /3#,12 % 12 % <% $,.% ; #.( % % B 3C#1: % 2,:3,,% ) /%
3,:0* 3#.C%O)1%L,21, 2 C % .% IH% 5D$D% /.,3%$C%6)03 1.%'* R% .%.(,%- 3%
)/% .(,% 3, . 03 1.% T2,)1% #1 % +3#-,'' D S#-%B) 58/%% Og.(,% 5#3#.% ) /% .(,%
5* ',gR% 12% )0. . 12#1:% T2,)1% . //% $,$-,3% + 3,@% _(,*#/#% $ 2,% 03,%
.( .%;,%;,3,% ;,**% . @,1% ' 3,% )/% 12% ,1/)3',2% )03% #20#.C% -C%$ @#1:%
$,%/,,*%:0#*.C%)1%1)9 (); 8%.(0 %(,*5#1:% :3, .*C%;#.(%.(,%,* -)3 .#)1% )/%
.(,%-))@D %L,%);,%(#$% % *). D %
<% $0 .% * ) % '@1);*,2:, % .(,% 5,)5*, % ;()% 3, 2% .(,% = >8% 2#*#:,1.*C %
(,*5,2% ;#.(% .(,% ,33)3 8% )3% ')1.3#-0.,2% .)% .(,% ,* -)3 .#)1% )/% .(,% -))@%
; #.(% 0 ,/0*% ')$$,1. d% <1:,% <B'(,1@) 8% N 11C% + ) .) 8% = 1) %
Y)03@)0.#).# 8% >. 1%=,.,*#. 8 %f '@% S -#1);#.j8% >#*B,3#)% F)3, #8 %K '(#**, %
Y,1, .)0*# 8% 12%&#'()* % >.,5( 1)0D% 43#@% >.,..*,3%; %#1B *0 -*,%#1%(# %
3)*,% % % ( 2);% ')5C%,2#.)3D% K**%$ # . @, % 3,% $#1,D%
F#1 **C8%$ 1C%B,3 #)1 % )/%.(# % -))@% .%)1% .(,%;,-8%C#,*2#1:% 5)3 2#'%
O 12 % 3 12)$R% -03 . % ) /% *,..,3 % ) /% ,1')03 :,$,1.8% ')33,'.#)1 8% 12 %
B *0 -*,% `0, .#)1 % ;(#'(% $ 2,%$,%;, B,% 1 ;,3 % #1.)% .(,%.,^.D% = 1C%
'( 5.,3 % )/%.(# % -))@% ' $,% #1%3, 5)1 ,% .)% 3, 2,3 U% `0, .#)1 D% F3 1', ')%
6)3#,**#% /3)$% J)'')1#% *,3.,2%$,% )1% .(,% -# , % #1% .(,% 2# ,$#1 .#)1% )/%
'#,1.#/#'% 3, 0*. D%
+(# % -))@% ; % ;3#..,1% 12% /#1# (,2% /.,3% <% /)012,2% 4$5#3#' 8% $C%
#1.,**,'.0 *% ()$,8% g6 $5% 4$5#3#' g8% #1%.(,%;))2 % #1%.(,%- '@% ')01.3C%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 13/219
c<Y% M S4 FK 6 4% K&N% K 6 _& T L 74 N V= 4 & + >%
)/%V 3,,1;#'(8%6+ 8%;(#'(%<%2, #:1,2%.)%/#.%$C%. .,% 12%/,,*%*#@,% %()--Ch%
% ')$-#1 .#)1% )/ % 1% 55*#,2% 53)- -#*# .C% 3, , 3'(% * -)3 .)3C8% .(*,.#' %
0$$,3% ' $58% 128% 1).% *, .8% % '3# # % (01.#1:% (,2:,% /012% )5,3 .#)1% O<%
( 2% ,^5,3#,1',2% )1,% )/%$C% -, .% 53)/, #)1 *% C, 3 % ;(#*,% ;3#.#1:% .(, ,%
*#1, RD%<%.( 1@% **%.(,%*#@,9$#12,2%5,)5*,%;()%(,*5,2%/0,*%.(,% .#$0* .#1:%
.$) 5(,3,% .(,3,d% M **)5% K1: 05018% N 11C% +) .)8% M,.,3% E **,8% = 3@%
>5#.j1 :,*8% ?0j( 1:% ]()08% 12% 6C3#*% 2,% 7 $-#**C% % ;,**% % .(,%
$,$-,3 % )/% M *)$ % M 3.1,3 % 0'( % % +)$% L#.j % ;()% '( **,1:,2% )03%
;# 2)$% )1% % 2 #*C% - # % )3%N)1 *2% >0 $ 1%;()% 055*#,2%$,%;#.(% (# %
5,1,.3 .#1:% i02:$,1.D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 14/219
8+ 3$ 2 9$%&0 :' $ 4&$;<=>$7>?$ @' +:A$ %&0$ 4&$ 4BC'AD $
@+$ < .. 0L A' CA <&+$ & 9$ A > $ 9 9 = A$ & 9$ ' C+,&B+ LL$ &+$ L & =< C.$ \ =( <+/$ & ', '$ C+,$ ] C. &0 L? P$
A >' &0 />$ A# & $ = > C' C =A 'L$ & 9$ & \\ &L <A $ C AA <A 0, L^$ 8+$ A> $ = & += C. ,$ ' C ' $ Q + A^$ K & # $
A><+/L$ <+ $B &, '+ $ .<9 $ BC? $ =>C+/ $ 'C A> '$ ' C\<, .? P$ V= \A P$ \ '>C\LP$ <+ $ , +A< LA '? ^$
E# &3 $ @$ F<GC'' $ @==&0+A<+/$ H A>&,$
8+$ C . A '+CA <Q $ ><L A&' < L P$ C $\'&TCT<. < LA < =$ Q < #$ &9 $ A> $# &'., P$ <+ A . . =A0C.$ 9 'C0, P$ C+, $ A> $
' C+,&B+ LL$ # < L,&B $ & 9$ C$ O ' +=>BC+$ # < A> $ L A C,?$ T C A> <+/$ > CT <A L^$ K &# $ ] &0 '+ C. <L AL$
C ' $T ' ,$ A& $ +& A$ 0+, 'L AC+,$ ' C+,&B $ L '< L$ & 9$ Q +AL^$ F # C' $ T& ' '&# , $ # <L,&B 3$ >&# $
C .B &L A$ C..$ / ' C A$ <, CL$ = &+ = '+ <+ /$ ' C+ , &B$ & 0A =&B L$ C ' $ C/ C<+ LA$ = &+ Q + A<& +C .$
LC\< += ̂$ 8+ $ A> $ ,<99 ' += $ T A# +$ =&'' =A+ LL $ C+, $ <+ A . .</<T <. <A? ^$
E>' 3$ @$HCA> BCA<=C.$ H ,<ACA<&+$ &+$ K<LA&'?$
8+ $H &+ A $ SC ' . &$ L <B0 . CA <&+$ C L$ C$B AC\>& '$ A &$ 0+, 'L AC+,<+/ $ C$ L _0 += $ & 9 $ ' C+,&B$
> <L A& '<= C.$ Q +AL^$ 8 +$ ' C+ ,&B+ LL$ C +,$ C 'A<9<=<C .$ > <L A& '? ^$ @ / $ <L$ T C0 A? P$ C .B & LA$
C .#C?LP$ C+, $ A> $+ #$ C+, $ A> $?&0+/$ C ' $/ + 'C ..?$ A &V < = ^$ 4 +, $?&0'$ > < LA& '? $ \ '& 9 LL& '$
A & $ C+$ <+ A '&,0= A& '? $ = . CL L$ &+ $ L CB\.<+/$ A> &'? ^$
O&0 '3$ ;C+,&B+ LLP$ &+L +L P$ C+,$ A> $ 4=< +A<9<= $ 2+A .. =A0C.$
8+$ V A +, <+/$ A> $H &+A $ SC ' .& $ / + 'C A& ' $ A & $ \ '&,0= $ C ' A< 9< =< C.$ A> <+( <+/ $ C+,$ =&B\ C' $
< A$# < A> $ ' </& '&0L$ +&+ R 'C+,& B $ =&+L A '0 =A L ^$ E> $ L = < += $ #C'L $ + A '$ A> $T0L <+ LL$ #&' ., ^$
7 >? $ A > $ C L A> A $ <+ $B $ . &Q L$ A &$ T $ 9 &&. ,$ T?$ ' C+,&B+ LL ^$
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 15/219
^B###%
6 E K M+ 4S% > A= = KS <4 >%
O<Q 3$ 40'Q<QC.$ &9$ A> $ * CLA$ O<A$ R$ S C+$ 6Q&.0A<&+$ F $ O&&. ,$ T?$
;C+,&B+ LLD$
@$ = C L $ L A0 , ?$ & +$ A # &$ ' C' $ Q + AL ^$ 8 + $ ' C ' $ Q + AL$ C +,$ Q &.0 A< &+ ^$ K &# ` : X C '# < + < LB a$
C +, $ Q& . 0 A< & +$ C ' $ = & + = \ A L$ A > C A$ C ' $ B < L 0+, ' L A & &,$ <+ $ A> $ +&+ R T <& . & /< = C .$ #& ' . , ^$ * <9 $
<L$ + & A$ = & + A< + 0 & 0 L^$ K &# $ Q & .0 A< &+$ # <..$ T $ 9 && . ,$ T ?$ ' C + , &B+ L L ^$ @$ \ ' \ C ' CA <& +$ A &$
A > $ \ ' & T . B $ & 9$ < + ,0 = A< &+ ^$
4<V3$ 4( #+ LL$ C+,$ @L?BB A'?$
7 $ < + A '& ,0 = $ A > $ = & + = \ A$ & 9$ L ( #+ L L 3$ #>? $ A > $ A 'BL$ a T0 . . a$ C +,$ a T C ' a $ > C Q $ . <B < A ,$
B C+ < +/$ & 0 AL < , $ & 9$ G & & . & / ?^$ @ $ Q <= <& 0 L$ = > <. ,$# ' =( L$ A > $ L A ' 0 = A0 ' $ & 9$ ' C +,&B+ L L ^$ @+ $
< + A '& ,0 = A <& + $ A &$ A > $ \ ' & T . B $ & 9$ \ < L A B& .& / < =C .$ & \ C = <A ? ^$ E> $ \ +0 . A <BC A $ L A \$ T 9& ' $
A > $ \ ' & T . B $ & 9$ < +,0 = A< &+ ^$
4 Q +3$ E> $ -'&T. B$ &9$ 2+,0=A<&+$
8+ $ A > $ = > ' &B &,?+C B < = L $ & 9$ L#C+ L ^$ E C( < +/$ 4& .& + :L$ #C '+ < +/$ < + A&$ L &B $ \> < .& L & \> < =C .$
A ' '< A& ' ? $̂ K &# $ b < = A& '$ < , '> & 99 '$ A C 0 /> A$ B $ B\ < '< =< LB c$ 2$ C , , ,$ , ,0 = A< &+ ^$ 7 >? $
<A$ <L$ + & A $ L =< + A< 9< =$ A &$ A C ( $ L = < += $ L ' <& 0 L. ?^$ 4 & ' &L$ \ ' &B& A L$ -&\\ ' ^$ E>C A$ T & &( L A & ' $
& +$ I 1 L A$ C + ,$ O <9 A>$ @ Q +0 ̂$ - C L= C .: L$ # C / ' ^$
6</>A3$ E& &$ HC+?$ H<..<&+C<' L$ VA$ X&&'$
E>' $ < .. 0 L A' C A< &+L$ & 9$ A > $ L0 'Q <Q& ' L> <\ $T < C L ^$ 7 >? $ Q '?$ 9 #$\ &\. $ L>&0 ., $ . <Q $&+ $ -C '( $
@ Q + 0 ̂$ E > $ B <.. <& +C <' $ + V A$ , & &'$ > CL$ Q ' ?$ 9.<B L?$ = .& A> L ^$ @ +$ & Q ' =' &# , <+ /$ & 9$
V\ 'A L ^ $
<+ 3$ 2 A$ 2L $6CL< '$ E &$ F0?$ C+,$ 4 ..$E> C+$ O'?$ C+$ 6//$
4&B $ A = >+ <= C .$ V A + L <& + L$ & 9$ A > $ L 0 'Q <Q &' L> <\$ T <C L^$ 8+ $ A > $ , <L A' <T 0 A< &+$ & 9$ a = & <+ R
= < , + = L a $ <+ $ .<9 ̂$ 2 A$ < L$ \ ' 9 'CT . $ A &$ T $ . 0 =(?$ A >C+$ = &B \ A + A$ d T0 A$ ? &0 $ = C + $ T $ = C0/> A e ^$
E > $ T < 'A >, C ?$ \ C ' C , & V ^ $ H& ' $ = > C ' .C A C + L$ d C+ ,$ B& ' $ ] &0 ' +C .< LA Le ^$ K &# $ A > $ ' L C ' => ' $
# < A >$ #& ' ( $ A >< =L$ _ C+$ 9<+ ,$ ]0 LA$ C T & 0 A$ C + ?A >< + /$ <+$ , C A C^$ 8+ $ , & /L$ + & A$ T C '( <+ / ^$
E +3$ *&L '$ EC( L$ @.. $ R$ 8+$ A> $ &+.<+ C'<A< L$ &9 $*<9 $
E> $ +&+ . <+ C '$ Q <= <& 0 L+ LL$ & 9$ .<9 ̂$ H& Q < +/ $ A &$ F .$ @ <'$ C +,$ C = _0 <' <+/$ A > $ Q <= L$ & 9$ A > $
' < =>$ C+, $ 9 C B&0 L ^$ 7 >? $ H < = '& L& 9 A : L $ F <..$[ C A L$ BC ?$ +& A$ T $ A > $T L A$ < +$ > < L$ T0L < + LL$ d T0 A$
\ . C L $ , &$ + & A$ < + 9& 'B$ > <B $ & 9$ L 0 =>$ C$ 9 C =A e^$ X \ '< Q< +/$ , & +( ? L$ & 9$ 9 & &, ^$
6. Q +3$ ;C+,&B+ LL$ C+,$ 80'$ F'C<+3$ 7 $ @' $-'&TCT<.<A?$ F.<+,$
8+ $ A > $ , <9 9< =0 .A ?$ & 9$ A >< +( <+/$ & 9$ ? & 0 '$ Q C = C A <& + $ C L$ C$ . <+ C'$ = &BT < +C A < & + $ & 9$ - C '< L$ C +, $
A> $ F C> C B CL ^$ ' &$ E 0.<\$ B C ?$ + Q '$ L(<$ <+$ A> $ @ .\L$ C /C <+ ^$ 4 &B $ , <L=0 LL<&+$ & 9$
T >CQ < & ' C .$ , < L =&Q ' < L ^$ 4&B $ BC+ < 9 L A CA < &+L$ & 9$ \ '&TCT < .< A?$ T . <+,+ LL$ A C( +$ &0 A$ & 9$ C $
A V A T & & ( ^$ @$ .<AA. $ B& ' $ & +$ ] &0 ' +C .< LA <=$ \ & .. 0A <& + ^$ 7 >? $ ? & 0$ B C ?$ T $ , C,$ T ?$ + &# ^ $
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 16/219
6 E KM +4 S% > A= = KS <4 >%
^#^%
E# .Q 3$ [CBT. 'L:$ E<=(L $ C+,$ -</ &+L$<+$C $ F &V$
8+ $ / CBT . ' L:$ A <= (L$ = ' &#, < + /$ 0 \$ B ?$ .<9 ̂$ 7 > ?$ T C ,$ A C V< R= C T$ 6 +/ .<L >$ = C +$ > .\$ ? & 0$
B C ( $ B&+ ? ^$ K &# $ 2$ CB $ A > $ 9 && .$ & 9$ C ..$ 9 && .L P$ V = \ A$ A > CA$ 2$ CB $ C#C ' $ & 9$ <A^$ X C .< +/$
# < A>$ B? $ / + A <=$ 0 + 9<A+ LL ^$ &$ T & V L$ & 9$ = > & = & .C A $ 0 +, '$ B? $ A 'C , <+ /$ , L( ^$
E><'A +3$SC'+ C, L$S&B L$A&$; &B 3$8 +$-'&TCT<.<A?$C+,$ 4( \A<=<LB$
SC A & $ A > $ = +L& '$ L +,L$ S C '+ C, L$ \ C =( < +/^$ H&+L < 0 '$ , $ & '\& < L$ , & L$ +& A$ ' B BT '$
> <L$ & .,$ & \<+ <& +L ^$ F #C ' $ A> $ L =< + A<LA ^$ H C ' ' ? <+ /$ <, CL ^$ E > $ L CB $ ; & T ' A$ H ' A & +$
> .\ <+/$ A > $ C 0 A >& ' $ L A C' A$ > <L$ 9 <'B ^$ 4 = < += $ Q& .Q L$ 9 ' &B $ 9 0+ 'C .$ A &$ 9 0+ ' C. ^$
O&0'A +3$ FC==>0L$ @TC+,&+L$ @+A&+?$
H& +A> ' . C+ A : L $ , C A> ^ $ 4 A & <= < LB $ <L$ +& A $ A > $ L A< 99$ 0\\ '$ .<\ P$ T0 A$ A > $ < . .0 L <&+$ & 9 $ Q < = A & '?$ & 9$
B C +$ C/ C<+ LA$ ' C+ ,& B+ L L ^$ 2A$ <L$ L&$ CL?$ A &$ T $ > ' &<= $̂ ; C+ , &B + L L$ C+ ,$ \ 'L& +C .$
. /C+ = ̂ $
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 17/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 18/219
MST7TVA4%
W 9
+#,-$(,& ./& %'(& 01#$2,&
T
(# % -))@ % # % -)0.%*0'@%2# :0# ,2% 12%5,3',#B,2% %1)19*0'@% O.( .% # 8%
@#** R% 12 8%$)3,%:,1,3 **C8% 3 12)$1, % 2# :0# ,2% 12%5,3',#B,2% %
1)193 12)$1, % O.( .%# 8%2,.,3$#1# $RD% <.%$ 1#/, . % #. ,*/%#1%.(,% ( 5,%) /%
.(, 5B/>, <885N% 2,/#1,2% % % 5,3 )1% ;()% -,1,/#.,2% /3)$% % 2# 53)5)39
.#)1 .,% ( 3,% )/% *0'@% -0.% ..3#-0., % (# % 0'', % .)% )$,% ).(,38% :,1,3 **C%
B,3C% 53,'# ,8% 3, )1D% >0'(% ')1/0 #)1% '3)5 % 05% #1% .(,% $) .% 01,^5,'.,2%
3, 8% ,B,1% '#,1',8% .()0:(% 1).% #1 % 0'(% 1% '',1.0 .,2% 12% )-B#)0 %
$ 11,3% %#.%2), %#1%.(,%;)3*2% )/% -0 #1, D% <.%# %,12,$#'%#1%5) *#.#' 8% %#.%
' 1% -,%,1')01.,3,2% #1%.(,% ( 5,% )/% %')01.3CU % 53, #2,1.% 2# ')03 #1:% )1%
.(,% i)- % .( .% g(,g% '3, .,2 8% g(# g% 3,')B,3C 8% 12 % g( # % 5 3,2,', )3U g%
#1/* .#)1D%
L,% 3,% :,1,.#' **C% .#**% B,3C% '*) ,% .)% )03% 1', .)3 % ;()% 3) $,2% .(,%
B 11 (D% +(,% /)3$ .#)1% )/% )03% -,*#,/ % # % /3 0:(.% ;#.(% 05,3 .#.#)1 % 9
,B,1% .)2 C% O<% $ #:(.% C8% , 5,'# **C% .)2 CRD% f0 .% % )1,% 2 C% )$,%
53#$#.#B,% .3#-, $ 1% '3 .'(,2% (# % 1) ,8% ;% 3 #1% / **#1:8% 12% 2,B,*)5,2%
1%,* -)3 .,%$,.()2%)/% '3 .'(#1:%(# %1) ,%.)% -3#1:%)1%.(,%$0'(91,,2,2%
3 #1 8% ;,% *#1@ % ,')1)$#'% 53) 5,3#.C % .)% )$,% 3 .,% '0 .% -C % .(,% F,2,3 *%
S, ,3B,%J) 32 8%)3%.(,% 0'', %) /% %')$5 1C%;#.(%.(,% 55)#1.$,1.% )/%.(,%
1,;% 53, #2,1.% g .% .(,% (,*$g D% J))@ .)3, % 3,% /0**% ) /% -#):3 5(#, % ) /%
0'', /0*%$,1% 12%;)$,1%53, ,1.#1:%.(,#3% 5,'#/#'%,^5* 1 .#)1% )1%();%
.(,C%$ 2,% #.% -#:%#1% *#/,% O;,%( B,% 1% ,^53, #)18% g.(,%3#:(.% .#$,% 12%.(,%
3#:(.%5* ',g%.)%;, @,1%;( .,B,3%')1'*0 #)1%' 1% -,%#1/,33,2%/3)$%.(,$RD%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 19/219
G% M S T 7 T V A 4%
+(# % ')1/0 #)1% .3#@, % 5,)5*,% )/% 2#//,3,1.% 5,3 0 #)1 h% .(,% *#.,3 .03,%
53)/, )3%#1B, . % %2,,5%$, 1#1:%#1.)% %$,3,%')#1'#2,1. *% )''033,1',% )/%
;)32% 5 .., 31 8% ;(#*,% .( ,% /#1 1'# *% . .# .#'# 1% 53)02*C% 2 ,.,'. %
g3,:0* 3#.#, g% 12% g 1)$ *#, g% #1% 2 . % .( .% 3,% 5* #1% 3 12)$D%
K.%.(,% ') .% )/% 55, 3#1:% -# ,28% < % ( B,%.)% C%.( .% .(,% *#.,3 3C%$#12%
' 1%-,%#1.,1.#)1 **C%53)1,%.)%.(,%')1/0 #)1%-,.;,,1 -8%)#% 12 .#'-%-+N
.( . % # 8% -,.;,,1% % 3 12)$*C% ')1 .30'.,2% 33 1:,$,1.% 12% % 53,'# ,*C%
#1.,12,2%$, :,D%E);,B,38%.(# %' 0 , %*#..*,%( 3$h%/,;% '* #$% .( .% 3.%# %
% .))*% )/%#1B, .#: .#)1% )/%.(,%+30.(% 9% 3 .(,3%.( 1% 1% ..,$5.%.)% , ' 5,%#.%
)3% $ @,% #.%$)3,% 5 * . -*,D% >C$-)*# $% # % .(,% '(#*2% )/% )03% #1 -#*#.C% 12%
01;#**#1:1, % .)% '',5.% 3 12)$1, h% ;,%:#B,%$, 1#1:% .)% **% $ 11,3% )/%
( 5, h%;,%2,.,'.%(0$ 1%/#:03, %#1%#1@- *). D M )'? .8)CB#) %- (A# /58B1)
11)01',2% K3.(03% S#$- 02% .(,% IP.(9',1.03C% F3,1'(% C$-)*#' % 5),. D%
+(# % #1 .,353,. .#)1% .))@% (#$% .) % g5),.#'g% K-C #1 # % O#1 % 4 .% K/3 #' R8%
;(,3,% (,% ; % -30. *#j,2% -C% % 6(3# .# 1% 7,- 1, ,% * B,% 2, *,38%
')1.3 '.,2% C5(#*# 8% 12% *) . % % *,:% .)% : 1:3,1,D% E,% : B,% 05% 5),.3C% #1%
2# :0 .% .%.(,% :,%)/% IP8% 12%2#,2% 1)1C$)0 *C% #1% %= 3 ,#**, % () 5#. *%
; 32%;(#*,% .#**% #1%(# %.(#3.#, D%J0.% #.%; %.)) % * .,D% 403)5, 1% #1.,**,'.0 *%
*#/,%2,B,*)5,2%;( .% ,,$ %.)% -,% 1%#33,B,3 #-*,% . .,%/)3% C$-)*# $% 9% ;,%
3,% .#**% 5 C#1:% #. % 53#',8%; #.(% 5 C'() 1 *C # % 12% ).(,3% / 2 D%
S,:3,.. -*C8% )$,%5,)5*,% 5* C% .(,%: $,% .))% ,3#)0 *Ch% .(,C% 3,% 5 #2%
.)% 3, 2% .))% $0'(% #1.)% .(#1: D% K**% $C% *#/, % <% ( B,% 0//,3,2% .(,% ')1/* #' .%
-,.;,,1% $C% *)B,% )/% *#.,3 .03,% 12%5),.3C% 12% $C%53)/)012% **,3:C% .)%
$) .% ., '(,3 % )/% * #.,3 .03,% 12% g'3#. #' gD% +(,% F3,1'(% 5),.% M 0*% Y *,3C%
; % 0353# ,2% .)% *# .,1% .)% % ')$$,1. 3C% ) /% (# % 5),$ % .( .% /)012%
$, 1#1: %.( .%( 2%01.#*%.(,1%, ' 5,2%(#$% O)/%')03 ,8%#.%; %5)#1.,2% )0.%
.)% (#$% .( .% .(, ,%;,3,%#1.,12,2% -C%(# % 0-')1 '#)0 RD%
=)3,% :,1,3 **C8% ;,%012,3, .#$ .,% .(,% ( 3,% )/%3 12)$1, % #1% -)0.%
1C.(#1:8% % 5)#1.% .( .% $ C% 1).% $,3#.% % -))@% 9% ,^',5.% ;(,1% #.% # % .(,%
5,'# *# .% ;()% # % .(,% /))*% )/% **% /))* D% N# .03-#1:*C8% '#,1',% ( % )1*C%
3,',1 .*C % -,,1 % - *,% .) % ( 12*,% 3 12)$1, % O.(,% :3);.( % #1 % B #* - *,%
#1/)3$ .#)1% ( % -,,1% ,^',,2,2% -C%.(,% ,^5 1 #)1% )/% 1)# ,RD% M3)- -#*#.C%
.(,)3C% # % %C)01:% 33#B *%#1%$ .(,$ .#' h%5 3)- -#*#.C% 55*#,2%.)% 53 '.#',%
# % *$) .%1)1,^# .,1.% % % 2# '#5*#1,D%
6)1 #2,3%.(,%*,/.% 12%.(,%3#:(.%')*0$1 %) /%+ -*,% M D* D% +(,% -, .%; C%.)%
0$$ 3#j,% .(,% $ i)3% .(, # % )/% .(# % -))@% # % .( .% #.% 223, , % #.0 .#)1 %
O$ 1C% )/% .(,$% .3 :#')$#' *R% ;(,3,%.(,% *,/.% ')*0$1% # %$# . @,1% /)3%.(,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 20/219
[ % M S T 7TVA4 %
+ -*,$-^.% + -*,%)/%6)1/0 #)1%
;$#)#-(%-+ (A# /#-($'5 1%)(%-/(%8-) B)#1 %- (A# Y88>
[6 6;@*$
* 0 = ($ 4(<..L$
; C + , &B + L L$ X A 'B <+ < LB$
- ' &T C T < . < A ?$ S ' A C < + A ?$
F .< 9 P$ = & + ] = A 0 ' $ 5 + &# . , / P$ = ' A < A 0 , $
E > & ' ?$ ; C . < A ?$
@ + =, & A P$ = & < + = < , + = $ S C 0 L C . < A ? P$ . C#$
O & ' = C L A$ - ' & \ > = ?$
H@;56E$ -6;O8;H@ S6$
* 0 = ( ?$ <, <& A$ 4( <. . ,$ <+ Q L A& '$
4 0 ' Q <Q & ' L > <\$ T<C L$ H C ' ( A$ & 0 A \ ' 9 & 'B C + = $
O2 @ S6$
b & . C A < . < A ?$ ; A 0 ' +$ d & '$ , ' < 9 A e$
4 A & = > C L A < =$ Q C ' < C T . $ X A 'B <+ < L A < =$ Q C ' < C T . $
-K%42S4$@ X$6 [2 66;2 [$
& < L $ 4 </+C .$
*2E6;@;%$ S;2E2S24H$
& + $ d . < A 'C '?$ =' < A < = L$ , &$ 4 ?B T & .$
+ & A$ L B$ A &$ > CQ $ C$ + C B $
9 &'$ A> <+ / L$ A > ?$ , &$ + & A$
0+, ' L A C + , e$
-K2*848-K%$8O$4S26 S6$
6 \ < L A B< =$ \ ' & T CT < . < A ?$ - > ? L < = C .$ \ ' & T C T < . < A ?$
2 + , 0 = A < & +$ X , 0 = A < & +$
4 ?+ A> A < =$ \ ' & \ & L < A < & +$ @ + C . ? A < =$ \ ' & \ & L < A < & +$
3#:(.%)1,D%+ (,% 0-9 ,'.#)1 % * )%#**0 .3 .,%.(,%@,C% 3, % )/%2# '0 #)1% )1%
;(#'(%.(# % -))@% ;#**% -,% - ,2D%
+(,% 3, 2,3%$ C%;)12,3%;(,.(,3%.(,% )55) #.,% ' ,%$ #:(.%1).% 2, ,3B,%
)$,% ..,1 .#)18% .( .% # 8% .(,% #.0 .#)1 % ;(,3,% 1)193 12)$1, % # %
$# . @,1% /)3% 3 12)$1, D% >()0*21U. % ;,% -,% ')1',31,2% ;#.(% #.0 .#)1 %
;(,3,% 5 ..,31 % 12 % $, :, % $ C% ( B,% -,,1% #:1)3,2a% <% ( B,% .;)%
1 ;,3 D% F#3 .8% <% $ % 1).% )B,3*C% ; )33#,2% -)0.% .(,% ,^# .,1',% )/%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 21/219
W%
M S T 7 T V A 4 %
012,.,'.,2 % 5 ..,31 D% L,% ( B,% -,,1% 3, 2#1:% *,1:.(C% 12 % ')$5*,^%
$, :, % #1% i0 .% -)0.% 1C% $ 1#/, . .#)1% )/% 1 .03,% .( .% 53, ,1. %
i ::,21, % O 0'(% % .(,% 5 *$% )/% % ( 128% .(,% 3, #20, % . % .(,% -)..)$% )/%
+03@ # (% ') //,,% '05 8% , .' DRD% K3$,2% ;#.( % ()$,% 05,3')$50.,3 % 12 %
'( #1,2%53)', )3 8% 12%(,*5,2%-C%')$5*,^#.C% 12% g'( ) g% .(,)3#, 8%.(,%
'#,1.# . 8% ,$#9 '#,1.# . 8% 12% 5 ,02) '#,1.# . % ;#**% -, % -*, % .)% /#12%
5)3.,1. D% >,')128%;,% 1,,2%.)% . @,% #1.)% '')01.%.(,%') . % )/%$ # . @, h% #1%
$C%)5#1#)18% $# . @#1:% .(,% 3#:(.%')*0$1% /)3%.(,%*,/.% )1,% # %1) .% % ') .*C%
% 1% ,33)3% #1% .(,% )55) #.,% 2#3,'.#)1D% 4B,1%5)50* 3% )5#1#)1% ; 31 % .( .%
- 2%#1/)3$ .#)1% # %;)3 ,% .( 1% 1)% #1/)3$ .#)1% .% **D %
E);,B,3%#1.,3, .#1:%.(, ,% 3, %')0*2% -,8%.(,#3%2# '0 #)1%;)0*2%-,% %
. **% )32,3D % <1% 22#.#)18% .(,C% 3,% 1).% $C% '033,1.% 53)/, #)1 *% 5,'# *.CD%
+(,3,%# %)1,%;)3*2%#1%;(#'(%<%-,*#,B,%.(,%( -#.%)/%$# . @#1:%*0'@%/)3% @#**%
# % $) .% 53,B *,1.% 9% 12% $) .% ')1 5#'0)0 % 9% 12% .( . % # % .(,% ;)3*2% )/%
.3 2#1:D% JC% *0'@%)3%$# /)3.01,8%.( .% # %.(,%;)3*2%#1%;(#'(%<%)5,3 .,D% <.%# %
$C%53)/, #)18% 12% % 0'(% #.%;#**% /)3$% .(,%- '@-)1,% )/%.(# % -))@D% <.% # %
;( .% <% @1);% -, .D% <1 % 22#.#)18% -0 #1, % 53, ,1. % .(,% -, .% O 12% $) .%
,1.,3. #1#1:R% * -)3 .)3C% /)3% .(,% 012,3 . 12#1:% )/% .(, ,% 2#//,3,1', D% F)3%
#.% # %.(,% 3, % )/%(0$ 1% 012,3. @#1:%;(,3,%.(,%')1/0 #)1% # %:3, ., .% 12%
#. %,//,'. %.(,%$) .%5,31#'#)0 D%F)3% #1 . 1',8%;,%)/.,1%( B,%.(,%$# . @,1%
#$53, #)1% .( .% % .3 .,:C% # % 1% ,^',**,1.% .3 .,:C8% )3% 1%,1.3,53,1,03% %
5,3 )1% ,12);,2%;#.(% gB# #)1g8% )3% %.3 2,3% 1% ,^',**,1.% .3 2,38% )1*C% .)%
3, *#j,% .( . % PP DPl% )/% .(,#3% 5 . % 5,3/)3$ 1',% # % ..3#-0. -*,% .)% '( 1',8%
12%'( 1',% *)1,D%K @% %53)/#. -*,%#1B, .)3%.)%,^5* #1% .(,%3, )1 %/)3%(# %
0'', h% (,% ;#** % )//,3% )$,% 2,,5% 12% ')1B#1'#1:% #1.,353,. .#)1% )/% .(,%
3, 0*. D % F3,`0,1.*C8% .(, ,% 2,*0 #)1 % 3,% #1.,1.#)1 *% 12% 2, ,3B,% .)% -, 3%
.(,%1 $,% g'( 3* . 1# $gD %
</%.(,3,% # %)1,% ' 0 ,%/)3% .(# %')1/0 #)1% -,.;,,1%.(,% *,/.% 12% .(,% 3#:(.%
#2, % )/% )03% . -*,8% #. % # %)03% #1 -#*#.C% .)% .(#1@% '3#.#' **C% 9 % ;,%$ C% ,1i)C%
53, ,1.#1:% ')1i,'.03, % %.30.(D%L ,% 3,%;#3,2%.)%-,%*#@,%.( .D%L,%;#**% ,,%
.( .% )03% $#12% # % 1).% ,`0#55,2% ;#.(% .(,% 2,`0 .,% ( 32; 3,% .)% ( 12*,%
53)- -#*#.#, h% 0'(% #1/#3$#.C% ,B,1% .3#@, %.(,% ,^5,3.8% )$,.#$, % i0 .% .(,%
,^5,3.D%K%'3#.#' *%$ #128%)1%.(,%).(,3%( 128%# % )$,)1,%;()% ( %.(,%:0. 8%
;(,1%')1 /3)1.#1:% %:#B,1% ,.%)/%#1/)3$ .#)18%.)% ..3#-0.,% %* 3:,% ( 3,%)/%
#. % 5) #-*,% ' 0 ,% .)%.(,% *,/.% ')*0$1D%
+(,% IP.(9',1.03C% ' 3.))1% '( 3 '.,38% 5).9-,**#,2% -)03:,)# % =)1 #,03%
M302()$$,8% ' 33#,2 % 3)012 % % * 3:,% ;)32 % ; #.(% % 2)0-*,% #1.,1.d%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 22/219
\ % M S T 7 T VA 4 %
53#$ 3#*C%.)% 2,/,12% .(,%S,50-*#'% : #1 .% #. %,1,$#, 8% 12% ,')12 3#*C% .)%
.. '@% #.% ()0*2% #.% .3 C%/3)$% #. %')03 ,D% <1%.(,% $,%$ 11,38% .(# % -))@%
( %.;)% 5035) , d%.)% 2,/,12% '#,1',% O % %*#:(.%-, $% '3) % .(,% 1)# ,% )/%
3 12)$1, R8% 12%.)% .. '@% .(,% '#,1.# .%;(,1%(,% .3 C %/3)$% (# % ')03 ,%
O$) .%2# .,3 % ')$,%/3)$ %.(,%/ '.%.( .%#12#B#20 *% '#,1.# . % 2)%1).% ( B,%
1 % #11 .,% 012,3 . 12#1: % ) /% . 12 32 % ,33)3% )3% % '*0,% -)0.% '3#.#' *%
.(#1@#1:RD% K % % 53 '.#.#)1,3% )/% 01',3. #1.C% < % ( B,% ,,1% $)3,% .( 1% $C%
( 3,%)/% 1 @,9)#*% *, $,1%23, ,2%#1%.(,%: 3-%) /% '#,1.# . D%+( ,%:3, ., .%
/))* % )/% 3 12)$1, % ;#**% -,% /)012% $)1:% .(, ,D%
+(# % 0.()3%( ., % -))@ % .( .%' 1% -,%, #*C%:0, ,2%/3)$% .(,%. -*,% )/%
')1.,1. % 9% -0.% % (#1.% )/% ;( . % ')$, % 1,^.% ,,$ % #1 %)32,3 D% +(,% -))@% # %
')$5) ,2 % ) /% .( 3,,% 5 3 . D% +(,% /#3 .% # % 1 % #1 .3) 5,'.#)1% #1 .) % >)*)1U %
; 31#1:8% %(# %)0.-03 .% )1%3 3,%,B,1. % -,' $,% $C%*#/,*)1:%$ )..)D% <1%#.%
;,% $,2#. .,% )1% B# #-*,% 12% #1B# #-*,% (# .)3#, D% +(,% ,')12% 53, ,1. % %
')**,'.#)1% )/%53)- -#*#.C% -# , %<% ,1')01.,3,2% O 12% 0//,3,2% /3)$R% #1%$C%
' 3,,3% #1% 3 12)$1, % 9% )1, % .( .% ')1.#10,% .)% /))*% $,D% +(,% .(#32%
')1'*02, %.(,%-))@ %; #.(% .(,%3,B,* .#)1% .( .%5,3( 5 %3#22#1:%)03 ,*B, % )/%
)03% (0$ 1#.C% # % 1).% #1% .(,% ;)3@ h% ;,% 1,,2% .3#'@ 8 % 1).% )$,% :3 12#) ,%
$)3 *#j#1:% (,*5D%K: #1% .(,% ,*2,3 % ' 1% (,*5%0 %;#.(% )$,% )/% .(,#3% 30 , D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 23/219
-@;E$2 $
g W m%
> T 7T& U>% LKS& <&V% 9% > _ 4L&4 > > 8%
K > ?== 4 + S ? 8% < & NA 6 + <T &%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 24/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 25/219
3), 0 8%_#1:%) /%7C2# 8%; %')1 #2,3,2%.(,%3#'(, .%$ 1% )/%(# % .#$,D%
+ )% .(# % 2 C% S)$ 1',% * 1:0 :, % 0 ,% .(,% ,^53, #)1% g3#'(% %
63), 0 g % .)% 2, '3#-,% % 5,3 )1% )/% ,^', #B,% ;, *.(D% E,% ; % #2% .)% -,%
B# #.,2% -C% >)*)18% .(,% V3,,@% *,:# * .)3% @1);1% /)3% (# % 2#:1#.C8% 3, ,3B,8%
053#:(.% $)3 * 8% (0$#*#.C8% /30: *#.C8% ;# 2)$8% #1.,**#:,1',8% 12% ')03 :,D%
>)*)1% 2#2% 1).% 2# 5* C% .(,% $ **, .% 0353# ,% .% .(,% ;, *.(% 12% 5*,12)3%
033)012#1:%(# %() .8%1)3%.(,%.#1#, .% 2$#3 .#)1% /)3%.(,#3%);1,3D% 63), 0 %
; % ) % #3@,2 % -C % .(,% $ 1#/, .% * '@ % ) /% #$53, #)1 % )1 % .(,% 5 3.% ) /% .(# %
#**0 .3#)0 % B# #.)3% .( .% (,% ..,$5.,2% .)% ,^.3 ' .% /3)$ % (#$ % )$,%
'@1);*,2:$,1.D% E,% @,2% (#$% #/% (,% ( 2% @1);1% % ( 55#,3% $ 1% .( 1%
(#$D%>)*)1%'#.,2%.(,%*#/,%) /% %$ 1%;()% *,2% %1)-*,%*#/,% 12%2#,2%;(#*,%#1%
- ..*,D% M3)22,2 % /)3% $)3,8% (,% : B,% #$#* 3% ,^ $5*, % ) /% (,3)#'% -0.%
.,3$#1 .,2% *#B, 8% 01.#*% 63), 0 8% #3 .,8% @,2% (#$% 5)#1.9-* 1@% #/% (,% ; %
1).% .)% -, % ')1 #2,3,2% .(, % ( 55#, .% $ 1% )/% **D% >)*)1% 1 ;,3,2d% g+(,%
)- ,3B . #)1% )/% .(,% 10$,3)0 % $# /)3.01, % .( . % ..,12% **% ')12#.#)1 %
/)3-#2 % 0 %.)%:3);% #1 )*,1.%05)1%)03%53, ,1.%,1i)C$,1. 8%)3%.)% 2$#3,% %
$ 1U % ( 55#1, % .( .%$ C%C,.8% #1%')03 ,% )/%.#$,8% 0//,3% '( 1:,D% F)3%.(,%
01',3. #1%/0.03,%( %C,.%.)%')$,8%;#.(% **%B 3#,.C%) /%/0.03,h% 12%(#$%)1*C%
.)%;()$ %.(,%2#B#1#.C%( % n:0 3 1.,,2o% ')1.#10,2%( 55#1, %01.#*%.(,%,12%
;,%$ C%' ** % ( 55CDg
I%
+(,% $)2,31% ,`0#B *,1.% ( % -,,1% 1)% *, % ,*)`0,1.*C% B)#',2% -C% .(,%
- ,- **% ') '(% ?): #% J ,33 8% ;()% ,,$ % .)% ( B,% .3 1 * .,2% >)*)1U %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 26/219
I H% > T 7 T & U >% L K S & <& V%
)0.-03 .% /3)$% .(,% 503,%K..#'% V3,,@% #1.)% 1)%*, % 503,% J3))@*C1% 41:*# (%
;#.(% g#.% #1U.%)B,3%01.#*%#.U % )B, 3g8%) 38%#1% %*, %2#:1#/#,2%$ 11,38%;#.(% g#.%
#1U.% )B,3%01.#*%.(,%/ .% * 2C% #1: gD% <1% 22#.#)18% #2,%/3)$% (# %0 ,%)/%.(,%
B,31 '0* 38% .(,% ?):#% J,33 % `0).,% 53, ,1. % 1% 2B 1. :,% )/% -,#1:% .30,8%
;(#*,% .(,% $,,.#1:% -,.;,,1% 63), 0 % 12% >)*)1% ; % )1,% )/% .(, ,%
(# .)3#' *% / '. %.( .%-,1,/#.,2% /3)$%.(,%#$ :#1 .#)1% )/%.(,%'(3)1 #'*,3 8% %
#.% ; % '(3)1)*):#' **C% #$5) #-*,% /)3% .(,% .;)%$,1% .)% ( B,% -,,1% #1% .(,%
$,% *)' .#)1D%
M 3.% < % # % ')1',31,2% ;#.(% .(,% 2,:3,,% .)% ;(#'(% % #.0 .#)1% $ C% C,.8 % #1%
.(,% ')03 ,% )/% . #$,8% 0//,3% '( 1:,D% F)3%;,% ' 1% -,% .3#'@,2% -C% #.0 .#)1 %
#1B)*B#1: % $) .*C % .(,% '.#B #.#, % ) /% .(,% V)22, % F)3.01 % 9% f05#., 3U %
/#3 .-)31% 2 0:(.,3D% >)*)1% ; % ;# ,% ,1)0:(% .)% :,.% .(,% /)**);#1:% 5)#1.h %
.( .%;(#'(%' $,%;#.(%.(,%(,*5%)/%*0'@%')0*2%-,%. @,1% ; C% -C%*0'@% O 12%
)/.,1% 3 5#2*C% 12%01,^5,'.,2*C% .%.( .RD% +(,% /*#5 #2,8%;(#'(%2, ,3B, % .)%
-,% ')1 #2,3,2% % ;,**% O#1 % / '.% #.% # % ,B,1% $)3,% )/% )03% ')1',31R8% # % .( .%
.(#1: % .( .% ')$,% ; #.(% *#..*,% (,*5% /3)$% *0'@% 3,% $)3,% 3, # . 1.% .)%
3 12)$1, D%>)*)1% * )%( 2%.(,%#1.0#.#)1%)/% %53)-*,$% .( .%( %)- , ,2%
'#,1',%/)3% .(,%5 .%.(3,,%',1.03#, D%<.% # %' **,2%.(,%53)-*,$%)/% #120'.#)1D%
<% ' **% #.% #1% .(# % -))@% .(, Y5'/> )?'-% )3% .(, $'$# #&#-(e% >)*)1% ,B,1%
012,3 .))2% 1).(,3% *#1@,2% 53)-*,$8% ;(#'(% <%' **% .(, )>#?-#))% # 0,h% #.%
2), % 1).% $ ..,3% ();% /3,`0,1.*C% )$,.(#1:% 0'',,2 % #/% / #*03,% # % .))%
') .*C% .)% -, 3D%
?,.% .(,% .)3C%) /%63), 0 %( % 1).(,3%.;# .D%E B#1:%*) .% %- ..*,%.)%.(,%
3,2)0-. -*,% M,3 # 1% @#1:%6C30 8% (,%; % -)0.% .)% -,% -031,2% *#B,%;(,1%
(,%' **,2% >)*)1U % 1 $,% 12% ()0.,2% O )$,.(#1:% *#@,R% g>)*)18% C)0%;,3,%
3 #:(.g% O : #1 % .( # % # % *,:,12RD% 6C30 % @,2 % -)0.% .(,% 1 .03,% ) /% 0'( %
010 0 *% #1B)' .#)1 8% 12 % (,% .) *2 % (#$% -)0.% >)*)1U % ; 31 #1:D% +(# %
#$53, ,2% 6C30 % )% $0'(% .( . % (,% 2,'#2,2% .)% 5 3,% 63), 0 U% * #/,8% % (,%
3,/*,'.,2%)1%.(,%5) #-#*#.#, % %/ 3% %(# %);1%/ .,%; %')1',31,2D% M,)5*,%
;,3,% .()0:(./0*% .%.( .% .#$,D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 27/219
T&4%
=- %55B)($'(%8- 8< (A# #<<#/( 8< $'-18. -#)) 8- )8/%'5 :#/>%-+
8$1#$ '-1 g#'58B),N (A$8B+A (? 8 /A'$'/(#$) 8< 8::8)%(#
'((%(B1#)e 9- (A# /8-/#'5#1 $'$# #&#-(e 08? (A %-+) %- .81#$-
5%<# .', /A'-+# $'(A#$ $':%15,N #7/#:(N :#$A':)N %- 1#-(%)($,e
3(*#& 4$1.5&
K 2E$ F %$ * 2[ K E 2 [$
N
,3)%+0 *#5%-,' $,%)- , ,2%;#.(%.3 2#1:% /.,3%;#.1, #1:% % .3 1:,%
',1,% )1,% 53#1:% 2 C% % (,% ; % B# #.#1:% .(,% 6(#' :)% =,3' 1.#*,%
4^'( 1:,D% K% 3,2% ')1B,3.#-*,% M)3 '(,8% 23#B,1% . % ,B,3 *% .#$, % .(,% '#.C%
5,,2%*#$#.8% -305.*C% .)55,2%#1% /3)1.% )/% .(,%,1.3 1',8% #. % .#3, % ,$#..#1:%
.(,% )012%) /%5#: % -,#1:% * 0:(.,3,2D%K%B# #-*C%2,$,1.,2% .(*,.#'%$ 1 %#1%
(# % .(#3.#, 8% (# % / ',% /*0 (,2% 3,28% ,$,3:,2% 12% 3 1% 05%.(,% .,5 % % #/% (,%
;,3,%'( ,2%-C% %.#:,3D%E,%*,/.%.(,%' 3%2)0-*,95 3@,28%#. %,1:#1,%3011#1:8%
5 3)B)@#1: % 1 % 1:3C % / 1/ 3,% ) /% ()31 D% K/.,3% % *)1: % $#10.,8% % -)3,2 %
C)01:%$ 1% '* 2% #1% % C,**);% i '@,.% OC,**);% ; % .(,% ')*)3% 3, ,3B,2% /)3%
'*,3@ R% ' $,% 2);1% .(,% .,5 8% B# #-*C% 01.3)0-*,2% -C% .(,% .3 //#'%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 28/219
I G%
> T 7 T & U >% L K S& <& V%
')$$).#)1D% E,% 23)B,% .(,% ' 3 % #1.)% .(,% 012,3:3)012% 5 3@#1:% : 3 :,% 9
5,3/01'.)3#*C% % #/%#.%;,3,% (# % 2 #*C% '()3,D%
+( .% 2 C% &,3)% +0*#5% ; % (#.% ;#.(% ;( .% .(,% F3,1'(% ' * *% /8B: 1#
<8B1$#N% % 022,1% #1.,1 , % O 12% )- , #B,R% #1 / .0 .#)1% .( .% .3#@, % *#@,%
*#:(.1#1:D% g+( # % # %/)3%$ ,bg8% (,% '3, $,2% ,1.(0 # .#' **C%9% (,%')0*2% 1).%
(,*5% ')$5 3#1:% .(,% *#/,% )/% % .3 2,3% .)% .(,% *.,31 .#B,% *#B, % .( . % ')0*2%
53, ,1.% .(,$ ,*B, % .)% (#$D%K' 2,$# % ')1i03,2%05%.(,% #$ :,%) /% % #*,1.%
01#B,3 #.C% )//#',% ;#.(% 302,% ,'3,. 3#, h% -0 #1, 8% .(,% #$ :,% )/% % `0#,.%
)//#',% . //,2% ;#.(% *);% .(#1@,3 % 12% ,$#9 *);% .(#1@,3 % ;()% ,^53, %
.(,$ ,*B, % #1% /0**% ,1.,1', D%
E6H-8;@;%$ 4@ 2E%$
A1*#@,% /8B: 1# <8B1$#8% .(,% #1/ .0 .#)1% .3#::,3,2% -C% .(,% 6(#' :)%
',1,%( %1).%*,/.%(#$%'*) ,%.)% %2,' 2,9 129 9( */% /.,3%.(,%#1'#2,1.D%F)3%
&,3)% ;, 3 % .( .% 1)% ).(,3 % * ;/0*% 53)/, #)1% #1 % )03% .#$, % ')0*2% -,% %
2,B)#2% )/% -)3,2)$% % .( .% )/%.(,%.3 2,3D % F03.(,3$)3,8% *.()0:(% (,%( %
1).%C,.%53 '.#',2%.(,%53)/, #)1% )/%(#:(9 , %5#3 'C8% (,%# %1);% ')1B#1',2%
.( .% ,B,1% .(,% )''05 .#)1% )/% 5#3 .,% ;)0*2% 53, ,1.% $)3,% 20** % $)$,1. %
.( 1% .( .% )/%.(,% .3 2,3D %
&,3)% ')0*2% -, .% -,% 2, '3#-,2% % )$,)1,% ;()% 3 12)$*C% O 12%
-305.*CR% ;#1: % -,.;,,1% .(,% 2,5)3.$,1.% 12% 5,,'( % $ 11,3 % )/% %
'(03'(% (# .)3# 1% 12% .(,% B,3- **C% -0 #B,% #1.,1 #.C% )/% % 6(#' :)% 5#.%
.3 2,3D% E,% ' 1% ')$$#.% (0123,2 % )/%$#**#)1 % )/%2)** 3 % #1% % .3 1 '.#)1%
;#.()0.% % -*#1@% )3% % ( 2);% )/% ,')12%.()0:(. 8% C,.% :)1#j,% -,.;,,1%
.;)% 55,.#j,3 % )1 % .(, % $,108% '( 1:#1:% ( # % $#12% - '@% 12% /)3.( % 12%
;, 3#1:% )0.% .(,% $) .% 5 .#,1.% )/%; #.,3 D%
&,3)% ()*2 % 1% 012,3:3 20 .,% 2,:3,,% #1% 1'#,1.% *#.,3 .03,% 12%
$ .(,$ .#' % /3)$% 6 $-3#2:,% A1#B,3 #.CD% E,% ,13)**,2 % #1% % M(DN D%
53):3 $% #1% . .# .#' % .%.(,%A1#B,3 #.C% )/%6(#' :)% -0.8% /.,3% ')$5*,.#1:%
.(,%53,3,`0# #.,%')03 ,;)3@8% %;,**% %.(,%-0*@%)/%(# %2)'.)3 *% 3, , 3'(8%
(, % ;#.'(,2% .)% .(,% 5(#*) )5(C% 2,5 3.$,1.D% E,% ' **,2% .(,% ;#.'( % g %
$)$,1.% )/%.,$5)3 3C% 1#.Cg8% 22#1:%.)%.(,%')1 .,31 .#)1% )/%(# % .(, # %
2#3,'.)3%;()%; 31,2% (#$% : #1 .%5(#*) )5(,3 % 12%53,2#'.,2% (# % 3,.031%
- '@%.)%.(,%/)*2 D%E,%/#1# (,2%;3#.#1:%(# %.(, # %#1%5(#*) )5(CD%J0.%1).%.(,%
N,33#2 % ')1.#1,1 . *% .C*,% ) /% #1')$53,(,1 #-*,% 5(#*) )5(C % O.( . % # 8%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 29/219
< F% ? T A U S 4% >T% S <6 E% L E ?% K S 4 & U +% ? T A% >T% >= K S + a% D% I [%
%-/8.:$#A#-)%Y5# % .)% 1C)1,%)0. #2,% )/% .(,#3 % 3 1@ 8% *#@,% $C ,*/RD% < .% ; %
`0#., % .(,% )55) #., h% (# % .(, # % ; % )1% .(,% $,.()2)*):C% )/% . .# .#' *%
#1/,3,1',% #1% #. % 55*#' .#)1% .)% .(,% )'# *% '#,1', D% <1%/ '.8% (# % .(, # %; %
#12# .#1:0# ( -*,% /3)$% %.(, # %#1%$ .(,$ .#' *% . .# .#' %9% #.%; %i0 .% %
-#.%$)3,% .()0:(./0*% O 12%.;#',% % *)1:RD%
<.%# %)/.,1% #2%.( .%5(#*) )5(C%' 11).% /,,2%#. %$ 1%9% -0.%.( .%; %1).%
.(,% 3, )1% &,3)% *,/.D% E,% *,/.% -,' 0 ,% 5(#*) )5(C% ' 11).% ,1.,3. #1% #. %
$ 1D% K.% /#3 . 8% #. % . 3.,2% *))@#1:% /0.#*,h% (,% 3,' **,2% (# % . .# .#' % .(, # %
2#3,'.)3U % ; 31#1: D% +(,18% 022,1*C8% #.% . 3.,2% .)% *))@% *#@,%; )3@D%K %(,%
-,' $,% .#3,2% )/% ;3#.#1:% 5 5,3 % )1% )$,% 3' 1,% 2,. #* % )/ % (# % , 3*#,3%
5 5,3 8% (,%: B,% 05%.(,% ' 2,$CD% +(, ,% ' 2,$#'% 2,- ., % -)3,2%(#$% .)%
., 3 8% 5 3.#'0* 3*C%;(,1%B,3C% $ **%$#10.,% 5)#1. % O#1B# #-*,%.)% .(,%1)19
#1#.# .,2R%;,3,% .% . @,D% K'.#)1%; %;( .% &,3)% 3,`0#3,2D% +(,% 53)-*,$8%
();,B,38%; %.( .%(,% ,*,'.,2%.(,% ' 2,$C% #1%.(,%/#3 .%5* ',% #1%)32,3% .)%
@ #**% ;( .% (,% 2,.,'.,2 % ; % .(,% /* .1, % 12 % .,$5,3,2 % 0-$# #)1 % ) /%
,$5*)C$,1.% *#/,D%
K/.,3%;#.1, #1:%.(,% ',1,%)/%.(,%.3 2,3%'( ,2% -C% %.#:,38%& ,3)% /)012%
% .3 #1,,% 5).% )1%.(,%6(#' :)%= ,3' 1.#*,% 4^'( 1:,8% .(,%* 3:,% ,^'( 1:,%
;(,3,% .3 2,3 % .3 1 '.% -C% ()0.#1:% 12%:, .#'0* .#1:% /3,1,.#' **CD% +(,3,%
(,%;)3@,2% /)3% %53, .#:#)0 % O-0.%,'',1 .3#'R 58/'5N% ;()%.3 #1,2%(#$%#1%.(,%
6(#' :)% .C*,8% #1% 3,.031% /)3% &,3)% )*B#1:% (# % $ .(,$ .#' *% ,`0 .#)1 D%
+(,% ,1,3:C%#1%.(,% #3%53)B,2%$).#B .#1:% .)%& ,3)D%E,% 3 5#2*C% :3 20 .,2%
.)%.(,%3 1@%)/% ,*/9,$5*)C,2%.3 2,3D%+(,18%;(,1%(,%:).%.#3,2%)/% . 12#1:%
)1%(# %/,,.%#1%.(,%'3);28% 12% .3 #1#1:%(# %B)' *%')32 8%(,%2,'#2,2%.)% ,,@%
,$5*)C$,1.% g05 . #3 g8% .( . % # 8% .3 2#1:% /3)$% % 2, @D% E,% $)B,2% .)% .(,%
&,;% ?)3@% 3, % 12%.))@% %5) #. #)1%;#.(% 1% #1B, .$,1.% ()0 ,D%
&,3) % 5,'# *#j,2%#1%`0 1.#. .#B,%/#1 1'# *%53)20'. 8%#1%;(#'(%(,%( 2% 1%
, 3*C%$)$,1.%)/%:*)3C8%-,' $,%/ $)0 % 12 %#1%2,$ 12D%= 1C% #1B, .$,1.%
()0 , % #1% &,;% ?)3@% 12%7)12)1% /* (,2% (0:,% :0 3 1.,,2% -)10 , % . %
( #$D% &,3)% 5,1.% % ')05*, % )/% C, 3 % (0..*#1:% -,.;,,1% &,;% ?)3@% 12%
7)12)18% ..,12#1:% #$5)3. 1.% g$,,.#1: g% 12%;, 3#1:% ,^5,1 #B,% 0#. D %
J0.% ))1%& ,3)%;,1.%#1.)%(#2#1:h%(,%3 5#2*C%50**,2%- '@%.)% 1)1C$#.C% 9
.(,%L **%>.3,,.% . 32)$%.3 '@%2#2%1).%`0#.,%/#.%(# %.,$5,3 $,1.D%+)% . C% %
g() .%.3 2,3g%3,`0#3, % )$,%)3: 1#j .#)1 *% $-#.#)1 % 12% %5);,3%(01:,3%
.( .%(,%/,,* %*0'@C%1).%.)%5) , D%E,%; %)1*C%#1%#.%/)3%.(,%/01%9% 12%(# %
#2, % )/%/01%2), %1).%#1'*02,% 2$#1# .3 .#B,% 12%$ 1 :,3# *%;)3@D%E,% # %
0 ',5.#-*,% .)% ')1/,3,1',% 3))$% -)3,2)$% 12%# % #1' 5 -*,% )/%. *@#1:% .)%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 30/219
I W%
> T7 T& U>% L K S& <& V%
-0 #1, $,18% 5 3.#'0* 3*C% .() ,% 3019)/9.(,9$#**% B 3#,.CD% &,3)% # % **,3:#'%
.)% .(,% B)' -0* 3C% )/% -0 #1, % . *@8% 1).% i0 .% )1%5* #1% , .(,.#'% :3)012 D%
L)32 % *#@,% g: $,% 5* 1g8% g-)..)$% *#1,g8% g();% .)% :,. % .(,3,% /3)$% (,3,g8%
g;,% 53)B#2,% )03% '*#,1. % ; #.(% ) *0 .#)1 g8% g)03% $ # #)1g% 12 % ).(,3%
( '@1,C,2% ,^53, #)1 % .( .% 2)$#1 .,% $,,.#1: % * '@% -).(% .(,% 53,'# #)1%
12% .(,% ')*)3 . #)1% .( . % (,% 53,/,3 % .)% (, 3D% L(,.(,3 % 5,)5*,% 5)50* ., %
#*,1',%;#.(%()**);% ,1.,1', 8%)3%#/% 0'(%$,,.#1: %53, ,1.% 1C%.30,%$,3#.8%
(,% 2), % 1).% @1);h% . % 1C% 3 .,%(,%2#2%1).% ; 1.% .)% -,% 5 3. %)/% #.D% <12,,2%
&,3)U % ,^.,1 #B,% )'# *% *#/, % #1'*02, % *$) .% 1)% -0 #1, % 5,)5*, D% J0.%
01*#@,% $,% O<% ' 1% -,%,^.3,$,*C% (0$#*# .#1:% ;(,1% )$,)1,% 30- % $,% .(,%
;3)1:% ; C% ;#.(% #1,*,: 1.% 5)$5)0 1, R8% &,3)% ( 12*, % (#$ ,*/% ;#.(%
:,1.*,% *))/1, % #1%.(, ,% '#3'0$ . 1', D%
>)8% &,3) % ;#.'(,2 % ' 3,,3% .) % ;( .% # % ' **,2 % 53)53#,. 3C % .3 2 #1:D%
+3 2,3 % 3,% ,.%05% %#12,5,12,1.% ,1.#.#, 8%#1.,31 *% /012 %;#.(%.(,#3%);1%
**)' .#)1% )/%' 5#. *D% +(,C% 3,%*,/.% *)1,%.)% 2)% %.(,C% 5*, ,8% 53)B#2,2%
)/%')03 ,% .( .%.(,#3% 3, 0*. % .# /C% .(,% ,^,'0.#B, D% +(,% 1 $,% 53)53#,. 3C%
')$, % /3)$% .(,% / '.% .( .% .(,C% .3 2,% .(,%')$5 1CU % );1%$)1,CD% K.%.(,%
,12% ) /% .(,% C, 3% .(,C% 3,',#B,% -,.;,,1% Ql % 12% I Gl % )/% .(,% 53)/#. %
:,1,3 .,2D% +(,% 53)53#,. 3C% .3 2,3% ( % **% .(,% -,1,/#. % )/% ,*/%
,$5*)C$,1.8% 12%1)1,% )/% .(,% -032,1 % )/%3011#1:% .(,% $012 1,% 2,. #* %
)/% (# % );1% -0 #1, D% E,% ' 1% ;)3@% 1C% ()03 % (,% *#@, 8% ' 1% .3 B,*% .% %
;(#$% 12%,1: :,%#1% **%$ 11,3%)/%5,3 )1 *%503 0#. D%<.%# %5 3 2# ,%/)3% 1 %
#1.,**,'.0 *% *#@,%&,3)%;()%2# *#@, %$ 10 *%;)3@% 12%B *0, %01 '(,20*,2%
$,2 #. .#)1D% E,% ( % -,,1% 2)#1: % .( .% /) 3% .(,% 5 .% .,1% C, 3 8% #1% .(,%
,$5*)C$,1.% )/% .;)% 2#//,3,1.% .3 2#1:% /#3$ D%
H8Xf4$ 8-6;@ X2$
K%;)32% )1%&,3)U %$,.()2 D%E,% # % %')1 ,3B .#B,% %.3 2,3% %)1,%' 1%-,%
#1% 0'(% % -0 #1, D%<1%.(,%5 .%(,%( %( 2%:))2%C, 3 % 12%*, %.( 1% :))2%
C, 3 %9% -0.%B#3.0 **C%1)%.30*C% g- 2g%C, 3 D%TB,3%.(, ,%C, 3 %(,%( % *);*C%
-0#*.%/)3%(#$ ,*/% % . -*,%1, .%,::8%.( 1@ %.)% 1%#1')$,%3 1:#1:% -,.;,,1%
p[HH 8 HHH% 12 % O .% .(,% 5, @R% pG 8 \HH 8HHH D% T1% B,3 :,8% (,% $ 1 :, % .)%
''0$0* .,%p\HH 8H HH% %C, 3%#1% /.,39. ^%$)1,C%O/3)$% 1% B,3 :,%#1')$,%
)/% -)0.% pI 8HHH 8HHHR h% .( # % :), % .3 #:(.% #1 .) % (# % B#1: % '')01.D% <1 %
IPP[ 8% (,% ( 2% % /* .% C, 3% 12% ; % $ 2,% .)% /,,*% 01')$/)3. -*, % #1 % (# %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 31/219
< F% ? T A U S 4% >T% S < 6 E% L E ?% K S 4 & U +% ? TA% >T% >= K S + a% D% I \%
')$5 1CD% T.(,3% .3 2,3 % $ 2,% )0.% $0'(% -,..,38% ) % .(,% ' 5#. *% .% (# %
2# 5) *%; % ,B,3,*C%3,20',28% 12%(,%; %$ 2,%.)%/,,*%012, #3 -*,% .%.(,%
#1 .#.0.#)1D%E,% .(,1%;,1.%.)%:,.% 1% #2,1.#' *%i)- 8% 2);1%.)% 1% #2,1.#' **C%
2, #:1,2%;)3@ 5 ',8%-0.%#1% %2#//,3,1.%/#3$%.( .%; %/3#,12*#,3D%<1%.(,%/ **%
)/% IP PW% .(,%.3 2,3 %;()% ( 2%-,,1%')$5,.#1:% /)3%.(,%:3, .% 5,3/)3$ 1',%
; 32% -*,;% 05%#1%01# )1%203#1:%.(,%;)3*2;#2,% -)12%$ 3@,.% '3 (% .( .%
3, 0*.,2%/3)$% .(,%3 12)$% .#:(.,1#1:%-C%.(,%F,2,3 *%S, ,3B,%J 1@% )/%.(,%
A1#.,2% >. ., D% +(,C% 3,% ** % '033,1.*C% )0.% )/% .(,% $ 3@,.8% 5,3/)3$#1:% %
B 3#,.C% )/%. @ D%+(# % -0 #1, % ( % %(#:(%$)3. *#.C% 3 .,D%
L(C% 2), 1U.%&,3)%$ @,%$)3,%$)1,Ca% J,' 0 ,% )/%(# %.3 2#1:% .C*,% 9
)3%5,3( 5 %(# %5,3 )1 *#.CD%E # %3# @% B,3 #)1%# %,^.3,$,D%&,3)U % )-i,'.#B,%
# % 1).% .)% $ ^#$#j,% ( # % 53)/#. 8% ) % $0'(% % #.% # % .)% B)#2% ( B#1:% .( # %
,1.,3. #1#1: % $)1,C % $ '( #1,% ' **,2 % .3 2 #1:% . @,1 % ; C % /3)$% (#$D%
J*);#1:%05%;)0*2%$, 1%3,.031#1:%.)%.(,%.,2#0$%)/%.(,%01#B,3 #.C%)3%.(,%
1)19.3 2#1:% *#/,D% 4B,3C%.#$,%(# %3# @ % #1'3, ,8%(,% ')1i03, % 05%.(,%#$ :,%
)/% .(,% `0#,.% ( * *; C% .% .(,% 01#B,3 #.C8% .(,% *)1:% $)31#1: % .% (# % 2, @%
5,1.% #1% 3,B# #1:% % 5 5,38% @,5.% ; @,% -C% - 2% ')//,,D% &) 8% (,% 2), % 1).%
; 1.%.)%( B,%.)%/ ',%.(,% )*,$1%01#B,3 #.C% *#-3 3C%;(,3,%(,%; %-)3,2%.)%
., 3 D% g<% $% ()).#1:% /)3% *)1:,B#.Cg8% (,% # %;)1.% .)% CD%
&,3)% ( % ,,1%$ 1C%.3 2,3 Y58? B:N% 12%2), % 1).%; 1.% .)% :,. % #1.)%
.( .% #.0 .#)1D
X58? B:
% #1% .(,% *#1:)% ( % % 53,'# ,% $, 1#1:h% #.% 2), % 1).%
i0 .% $, 1% .)% *) ,% $)1,Ch% #.% $, 1 % .)% *) ,% $)3,% $)1,C% .( 1% )1,% ,B,3 %
,^5,'.,2 8% .)% .(,% 5)#1.% )/% -,#1:% .(3);1% )0.% )/% .(,% -0 #1, % O.(,%
,`0#B *,1.% )/% % 2)'.)3% *) #1:% (# % *#',1 ,% .)% 53 '.#',% )3% % * ;C,3% -,#1:%
2# - 33,2RD% &,3)% 3 5#2*C% ,^#. % .3 2, % /.,3% % 53,2,.,3$#1,2% *) D% E,%
1,B,3% ,** % g1 @,2% )5.#)1 g% O % .3 .,:C%.( .%;)0*2%*, B,%(#$% ,^5) ,2% .)%
* 3:,%5) #-*,%*) , RD% E,% 1,B,3%50. %(#$ ,*/% #1% % #.0 .#)1%;(,3,%(,%' 1%
*) ,%$)3,% .( 18% C8% pI 8HH H8H HH% 9 % 3,: 32*, % )/% .(,%53)- -#*#.C% )/% 0'(%
1 % ,B,1.D% +( .% $)01.% ( % *; C % -,,1 % B 3# - *,h% #.% 2,5,12 % )1 % (# %
''0$0* .,2% 53)/#. %/)3%.(,%C, 3D%+(# % 3# @% B,3 #)1% 53,B,1.,2%(#$% /3)$%
$ @#1:% % $0'(% $)1,C% % .(,% ).(,3% .3 2,3 % )1% L **% > .3,,.% ;()% 3, %
)/.,1% ' **,2% g= .,3 % )/ % .(,% A1#B,3 ,gD% +(,% /#3$ % (,% ( % ;)3@,2% /)3 %
:,1,3 **C% **)' .,%$)3,%$)1,C%.)% .3 2,3 %;#.(% % 2#//,3,1.% .C*,8%*#@,%f)(1%
;()$%;,%;#**% ,1')01.,3% ))1D%
&,3)U % .,$5,3 $,1.% # % 0'(% .( .% (,% 2), % 1).% $ #12 % *) #1:% $ **%
$)1,CD%g <% *)B,%. @#1:% $ **% *) , g8%(,% C D%g <% i0 .%1,,2%$C%; #11,3 % .)%
-,%* 3:,gD% <1%1)%'#3'0$ . 1', %2), %(,%; 1.% .)% -,%,^5) ,2%.)% .() ,%3 3,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 32/219
I X%
> T 7 T& U>% L K S& <& V%
,B,1. 8%*#@,%5 1#' % 12% 022,1%'3 (, % .( .%;#5,% %.3 2,3% )0.%#1% % /* (D%
+)% .(,% ')1.3 3C8% (,%; 1. % .)% -,1,/#.% /3)$% .(,$D%L(,1% 5,)5*,% @% (#$%
;(C% (,% 2), % 1).% ()*2% )1% .)% *) ,3 8% (,% #1B 3# -*C% 1 ;,3 % .( .% (,% ; %
.3 #1,2%-C%g.(,%$) .%'(#'@,1%)/%.(,$% **g8%.(,%6(#' :)%.3 2,3%>.,B)%;()%
. 0:(.%(#$%.(,%-0 #1, D%+(# %# %1).%.30,h%.(,%3, *%3, )1% # %(# %.3 #1#1:%#1%
53)- -#*#.C% 12%(# % #11 .,% @,5.#'# $D%
+(,3,% # % 1).(,3% 3, )1 % ;(C% &,3) % # % 1).% % 3#'( % % ).(,3 % #1 % (# %
#.0 .#)1D% E# % @,5.#'# $% 2), % 1).% **);% (#$% .)% #1B, . % 1C% )/% (# % );1%
$)1,C%)0. #2,%)/%.3, 03C%-)12 D%E,%.(,3,/)3,%$# ,2%)0.%)1%.(,%:3, .%-0**%
$ 3@,.D% +(,% 3, )1% (,%)//,3 % # %.( .% #.%')0*2% ( B,%.031,2%)0.%.)% -,% %-, 3%
$ 3@,.% 12% %.3 5 D%&,3)%( 3-)3 % %2,,5% 0 5#'#)1%.( .%.(,% .)'@%$ 3@,.%# %
)$,%/)3$%)/% 1 %#1B, .$,1.% ' $% 12%' 11).% -3#1:%(#$ ,*/%.)%);1% % .)'@D%
+(,% 2#//,3,1',% ;#.(% 5,)5*,% 3)012% (#$%;()%;,3,%,13#'(,2% -C%.(,% .)'@%
$ 3@,.%; %.( .%(,%; %' (9/*);% 3#'(8%-0.%(# % ,. %2#2%1).%#1/* .,% .% **%
*)1:% ;#.(% .(,% 3, .% )/% .(,% ;)3*2% O(# % .3, 03C% -)12 % ( 32*C% '( 1:,2% #1%
B *0,RD% E,% ')1.3 . % (#$ ,*/% ; #.( % )1,% ) /% .() ,% . 3.05 % .,'(1)*):C %
')$5 1#, % .( . % ;,3,% $ #B,*C% ' (9/*);% 1,: .#B,8% -0.% /)3% ;(#'(% .(,%
()32, %2,B,*)5,2% )$,% #1/ .0 .#)1D% +(# % **);,2%.(,% );1,3 % .)% -,')$,%
3#'(% /3)$% .(,#3% .)'@%B *0 .#)18% 12%.(0 %2,5,12,1.%)1% .(,%3 12)$1, %)/%
.(,%$ 3@,.U % ,*,'.#)1% )/%.(,%;#11,3D%+(,% 2#//,3,1',%;#.(%(# %/3#,12 %)/%.(,%
#1B, .#1:% B 3#,.C% # % .( .% (,% 2#2% 1).% 2,5,12% )1% .(,% -0**% $ 3@,.8% 128%
'')32#1:*C8% 2), % 1).% ( B,%.)%;)33C% -)0.% % -, 3%$ 3@,.% .% **D% E# % 1,.%
;)3.(%# %1).% %/01'.#)1%)/%.(,%#1B, .$,1.%)/%(# % B#1: %9% (,%2), %1).%; 1.%
.)%2,5,12%)1%(# %#1B, .$,1. 8%-0.%)1 %(# %' (%, 31#1: 8%/)3%(# %,13#'($,1.D%
E,% . @, %1).% 1% #1'(%) /%3# @%;#.(%(# % B#1: 8%;(#'(%(,%#1B, . %#1%.(,% /, .%
5) #-*,% B,(#'*, D% +3, 03C% -)12 % 3,% /,h% .(,C% 3,% # 0,2% -C%.(,%A1#.,2%
>. ., %V)B,31$,1.8% 12%:)B,31$,1. % ' 1% ( 32*C% :)% - 1@305.% #1',%.(,C%
' 1%/3,,*C%53#1.%.(,#3%);1%'033,1'C%.)%5 C%- '@%.(,#3%)-*#: .#)1D%
8$ 7 8 ; 5$ 6 EK 2S 4$
+)2 C8% .% [P 8% /.,3% IW% C, 3 % #1 % .(,% -0 #1, 8% (, % ' 1 % ')1 #2,3% ( #$ ,*/%
')$/)3. -*C % ,..*,2D% E# % 5,3 )1 *% 5)3./) *#) % ')1. #1 % ,B,3 *% $#**#)1%
2)** 3 % #1% $,2#0$% $ .03#.C% +3, 03C% J)12 8% ,1)0:(% .)% ,*#$#1 .,% 1C%
;)33C% -)0.%.(,%/0.03,D%L( .%(,%*#@, %$) .% -)0.%53)53#,. 3C%.3 2#1:%# %
.( .% #.% 3,`0#3, % ')1 #2 ,3 -*C% *, % .#$ ,% .( 1% ) .(,3% (#:(95 C#1:%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 33/219
< F% ? T A U S 4% >T% S <6E% L E ?% K S 4 & U +% ? T A% >T% >= K S + a% D% I Q%
53)/, #)1 h% #1 % ).(,3% ;)32 % #.% # % 5,3/,'.*C % ')$5 .#- *, % ;#.( % (# % 1)19
$#22*,9'* % ;)3@% ,.(#' D%+3 2#1:% /)3', % )$,)1,% .)% .(#1@% ( 32h% .() ,%
;()%$,3,*C%;)3@%( 32%:,1,3 **C% *) ,%.(,#3%/)'0 % 12 %#1.,**,'.0 *% ,1,3:CD%
<1% 22#.#)18% .(,C% ,12% 05% 23);1#1:% #1% 3 12)$1, h% ;)3@% ,.(#' 8% &,3)%
-,*#,B, 8% 23 ;% 5,)5*, % .)% /)'0 % )1% 1)# , % 3 .(,3% .( 1% .(, % #:1 *% O.(, %
2#//,3,1',% ;,%, . -*# (,2% #1%+ -*,% M D*% )1% 5 :,% [RD%
+(# % /3,,% .#$,% ( % **);,2% (#$% .) % ' 33C % )1 % % B 3#,.C % ) /% 5,3 )1 *%
#1.,3, . D%K %&,3) % 3, 2 %B)3 '#)0 *C% 12% 5,12 %')1 #2,3 -*,%.#$,% #1%.(,%
:C$% 12% $0 ,0$ 8% (,% ' 11).% ( B,% % * ;C,3 U % )3% % 2)'.)3 U % '(,20*,D%
&,3)% /)012% .(,% .#$,% .)%:)% - '@% .)% .(,% . .# .#' % 2,5 3.$,1.% ;(,3,% (,%
. 3.,2% (# % 2)'.)3 *% .02#, % 12%/#1# (,2% .(,% g( 32,3% '#,1',g% 2)'.)3 .,%
#1% . .# .#' 8% -C% 3,;3#.#1:% (# % .(, # % #1% $)3,% ')1'# ,% .,3$ D% &,3)% 1);%
., '(, 8% )1',% % C, 38% % ( */9 ,$, .,3% ,$ #1 3% ' **,2 0%)(8$, 8<
;$8Y'Y%5%)(%/ FA%->%-+% #1% .(,% $ .(,$ . #' % 2,5 3.$,1.% ) /% &,; % ?)3@%
A1#B,3 #.C8% % ' * % )/
+$#'(
% )3#:#1 *#.C% .( .% 23 ; % ,^',* *,1.% :3 20 .,%
.02,1. D%E,% ( % B,2%,1)0:(%$)1,C%.)% -,% -*,%.)%$ #1. #1%(# %*#/, .C*,%
#1% .(,% /0.03,% 12% ( % ')1.#1:,1'C% 5* 1 % 5,3( 5 % .)% 3,.#3,% #1.)% ;3#.#1:%
5)50* 3% , C % )/% .(,% '#,1.#/#'9*#.,3 3C% B 3#,.C8% ;#.(% .(,$, % 3,B)*B#1:%
3)012% 53)- -#*#.C% 12
%-1#(#$.%-%).
% 9% -0.% )1*C % #/% )$,% ,B,1.% #1% .(,%
/0.03,% ' 0 , % .(,%$ 3@,. % .)% (0.% 2);1D%
EK6;6 $ @;6$ @*7@%4$ 46S;6E4 $
&,3)U % 53)- -#*# . #' % #1.3) 5,'.#)1% $ C% ( B,% -,,1% (,*5,2% )0.% -C% )$,%
23 $ .#'% ,B,1.% #1% (# % *#/,% 9 % )1,% .( . % (,% @,5.% .)% (#$ ,*/D% K% 5,1,.3 .#1:%
)- ,3B,3% $#:(.% 2,.,'.% #1%&,3)% %$, 03,% )/% 0 5#'#)0 % ,^0-,3 1',8% 1%
011 .03 *% 23#B,D% F)3% (# % *#/,% # % 1).% % '3C . **#1,% % #. %$ C% ,,$D% &,3)%
( 3-)3 % % ,'3,.8 % )1,% .( .% ;#**% -,% 2# '0 ,2%#1% .#$,D%
6#'/& %'(& 7.8'9:.(12& 4*)2(*&
+(3)0:(% $) .%)/% .(,% IPPH 8 % '3) % .(,% .3,,.% /3)$% &,3)U % ()0 ,% .))2%
f)(1U %9% %$0'(%* 3:,3%)1,D%f)(1%; % %(#:(9C#,*2%.3 2,38%-0.%(,%; %1).%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 34/219
I Z%
> T 7T & U>% L K S& <& V%
%.3 2,3%#1%.(,% .C*,%)/%&,3)D%K %-3#,/%53)/, #)1 *%')1B,3 .#)1%; #.(%(#$%
;)0*2 % ( B,% 3,B, *,2 % .( .% (,% 53, ,1.,2 % .(,% #1 .,**,'.0 *% 2,5.( % 12 %
( 351, %) /%$#12%)/% 1% ,3)-#' %#1 .30'.)3% O.()0:(%1).%.(,95(C #`0,RD%K%
503-*#12%$ 1%')0*2%( B,% ,,1%.( .%f)(1%( 2%-,,1%2)#1:%$ 3@,2*C%-,..,3%
.( 1% &,3)% O)38 % .% *, .8% /,*.% ')$5,**,2%.)% ();%#.RD %E ,% 5 3@,2% .;)% .)59
)/9.(,9*#1,% V,3$ 1% ' 3 % #1% (# % 23#B,; C% O(# % 12% (,3 R8% #1% 22#.#)1% .)%
.;)% ')1B,3.#-*, % O)1,% )/% ;(#'(% ; % % ')**,'.#-*,% F,33 3#R 8% ;(#*,% &,3)%
( 2%-,,1% 23#B#1:%.(,% $,%YL% ' -3#)*,.% /)3% *$) .% %2,' 2,%9% 12% .#**%
2), D%
+(,% ;#B, % )/% f)(1% 12%&,3)% ;,3,% '`0 #1. 1', 8% )/% .(,% (, *.(9'*0-%
.C5,% )/% '`0 #1. 1',8% -0.% &,3) U % ;#/,% /,*.% ,^.3,$,*C% 01')$/)3. -*,% #1%
.(,% ')$5 1C% )/%f)(1U D % >(,% /,*.% .( .% .(,% * 2C%; % 1).%$,3,*C% .3C#1:% .)%
#$53, %(,38%-0.%; %.3, .#1:%(,3%*#@,% )$,)1,%#1/,3#)3D%L(#*,%&,3)%( 2%
-,')$,% #103,2%.)%.(,% #:(.%)/%.3 2,3 %:,..#1:%3#'(%O 12%.3C#1:%.))%( 32%.)%
-,')$,% )5(# .#' .,2% -C%.031#1:%#1.)%;#1,%')**,'.)3 % 12%)5,3 % *)B,3 R8%
(# % ;#/, % ( 2% 3 3, *C % ,1')01.,3,2% 3,53, ,2% 1,;% ;, *.( % 9% .(, % .C5, % )/%
5,)5*,%;()% ( B,% /,*.% .(,% .#1:% )/% #12#:,1',% .% )$,% 5)#1.% #1%.(,#3% *#B, %
12%; 1.% .)% :,. % ,B,1% -C%,^(#-#. #1:% .(,#3%; 3, D% +(,% )1*C% 2 3@% #2,% )/%
-,#1:% %.3 2,38%& ,3)%) /.,1% C 8%# %.(,% #:(.%)/%$)1,C% -,#1:% ();,3,2%)1%
0153,5 3,2%5,)5*,%;()% 3,% 022,1*C% . 0:(.%.( .%Y #B *2#U V8B$ *#')8-)
# % g3,/#1,2g% $0 #'D% J0.% #.%; %( 32% /)3% (# % 5)0 ,%.)% -,%,^5) ,2% *$) .%
2 #*C% .)% .(,% 1,#:(-)3%;()% @,5.% -) .#1:% )/%.(,%1,;% 2,')3 .)3% .(,C% i0 .%
(#3,2D%f)(1% 12% (# %;#/,%;,3,%1).% .(,%*, .%01')$ /)3. -*,% ;#.(% .(,% / '.%
.( .% .(,#3% g*#-3 3C g% ' $,%; #.(% .(,%*, .(,39-)012% -))@ % O(,3%3, 2#1: % .%
.(,%(, *.(%'*0-%; %*#$#.,2%.) ;#8:5# 3 '+'Z%-#% -0.%(,3% (,*B, %#1'*02,2%
% ,*,'.#)1% )/% 01.)0'(,2% -))@ % -C% 2, 2% K$,3#' 1% 0.()3 R D% >(,% * )%
@,5.% 2# '0 #1:% 0153)1)01', -*, % ,^).#'% *)' .#)1 % ;(,3,% .(,C% ;)0*2%
3,5 #3% 203#1:%.(,#3%B ' .#)1 % ;#.()0.% )%$0'(% %@1);#1:% .(,% $ **, .%
.( #1:% -)0.% .(,% 5 * ', % 9% (, % ;)0*2% ( B, % -,,1 % ( 32% 50.% .)% ,^5* #1 % #1 %
;(#'(% ')1.#1,1.% .(,% >,C'(,**, % < * 12 % ;,3,% *)' .,2D% &,3)U % ;#/,% # % **%
.))% (0$ 1h% *.()0:(% (,%@,5.%.,**#1:%(,3 ,*/%.( .% (,%2#2%1).%; 1.%.)%-,%
#1% .(,% (), % ) /% f)(1 U % ; #/,8% (,% /,*.% % #/% (,% ( 2% -,,1% )$,;( .%
; $5,2%#1%.(,%')$5,.#.#)1% )/%*#/,D%>)$,();%;)32 % 12%3, )1% -,' $,%
#1,//,'.0 *% #1%/3)1 .% )/% 1% )B,3 #j,2% 2# $)128% %$)1 .3)0 % ()0 ,8% 12% %
5)3. % ' 3% ')**,'.#)1D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 35/219
< F% ? T A U S 4% >T% S <6 E% L E ?% K S 4 & U +% ?TA% >T% >= K S + a% D% I P%
@ $ 8 b 6 ;- @ 2X$ K 2S 5$
&,3)% * )% 0//,3,2% .(,% $,% $-#:0)0 % /,,*#1:% .); 32 % (# % 1,#:(-)3 D%
E,%; %`0#.,% ')1.,$5.0)0 % )/%f)(18%;()%3,53, ,1.,2% -)0.% ,B,3C.(#1:%
(,%# %1).% 12%2), %1).%; 1.%.)%-,%9% -0.%.(,3,%; %.(,% )'# *%53, 03,%.( .%
; % . 3.#1:%.)% ;,#:(%#1% )1%(#$D% <1% 22#.#)18% (,%.))%;)0*2% *#@,% .)%( B,%
$5*,2% 0'(% ,^', #B,% ;, *.(D% <1.,**,'.0 *% ')1.,$5.% 2), % 1).% ')1.3)*%
5,3 )1 *% ,1BCD% +( .% ()0 ,% '3) % .(,% .3,,.% @,5.% :,..#1:% -#::,38% ;#.(%
22#.#)1% /.,3% 22#.#)1%9% 12%&,3)U % 2# ')$/)3.%@,5.% 5 ',D%L(#*,%&,3)%
( 2% 0'',,2,2% -,C)12%(# %;#*2, .% 23, $ 8% -).(% 5,3 )1 **C% 12% #1.,**,'9
.0 **C8% (,% ; % . 3.#1:% .)% ')1 #2,3% (#$ ,*/% % ( B#1:% $# ,2% % '( 1',%
)$,;(,3,D%<1%.(,%5,'@#1:%)32,3%) /%L **% >.3,,.8%.(,% 33#B *% )/% 0'(%.C5, %
%f)(1% ( 2%' 0 ,2%(#$%1)% *)1:,3%.)% -,% % #:1#/#' 1.%.3 2,3%9% -0.%;(#*,%
(, % 0 ,2% .)% 1).% ' 3, % -)0.% .( # 8% f)(1% 12% (# % ()0 , % 12% (# % ' 3 % ( 2%
. 3.,2% .)%:1 ;% ; C% .%(#$D%K**%;)0*2%( B,% -,,1%;,**%#/%&,3)% ( 2%1).%
( 2 % .( .% .05#2% * 3:,% ()0 ,% '3) % .(,% .3,,.% i02:#1:% (#$ % ;#.(% %
05,3/#'# *% . 12 32% ,B,3C%$)31#1:D%L % #.%.(,%:,1,.#'% 5,'@#1:% )32,3% .%
5* C8%;#.(%f)(1U % ()0 ,% #j,%$ @#1:%(#$% %-,. %$ *,a%L)3 ,%,B,18%f)(1%
; % -)0.% /#B,% C, 3 % (# % i01#)38% 128% 2, 5#.,% % ()3.,3% ' 3,,38% ; %
$ @#1:% .% *, .%.,1%.#$, % (# % #1')$,D%
L(,1% .(,C% 0 ,2%.)%301% #1.)%, '(% ).(,3%& ,3)% ( 2% %'*, 3% /,,*#1:% .( .%
f)(1% .3#,2% .)%50.% (#$% 2);1%9% ;#.(% - 3,*C% 2,.,'. -*,% -0.%1)% *, %5).,1.%
#:1 % )/% ')12, ',1 #)1D% >)$,% 2 C %f)(1% #:1)3,2% (#$% ')$5*,.,*CD% E 2%
f)(1% -,,1% % 3,$).,% '( 3 '.,38% )1,% &,3)% ')0*2% )1*C% 3, 2% -)0.% #1% .(,%
5 5,3 8% .(,% #.0 .#)1% ;)0*2% ( B,% -,,1% 2#//,3,1.D % J0.% .(,3,%f)(1% ; % #1%
/*, (% 12%-)1, % 12%(,%; %(# %1,#:(-)3D%+(,%$ # . @,%&,3)%$ 2,%; %.)%
. 3.%. *@#1:%.)% (#$8% %.(,%30*,%)/% 5,'@#1:% )32,3% #$$,2# .,*C% ,$,3:,2D%
&,3)% .3#,2%.)% )).(,%(# %2# ')$/)3.% -C%3,' **#1:% .(,% -,( B#)3%) /% >; 118%
.(,%'( 3 '.,3% #1%M3)0 .U
M- *#'$/A 8< F%.# a8)(N
% %3,/#1,2% 3.%2, *,3% 12%
$ 1%)/%*,# 03,%;()%; % .%, ,%;#.(% 0'(%$,1% %(# %5,3 )1 *% /3#,12%.(,%
.(,1% M3#1',% )/%L *, 8% -0.% '.,2% *#@,% (,% ( 2% .)% 53)B,% )$,.(#1:% #1% .(,%
53, ,1',% )/%.(,%$ #22*,%'* D%<.%; %$0'(%, #,3% /)3%>; 11% .)%$#^%;#.(%
.(,% 3# .)'3 .#'% 12%;,**%, . -*# (,2% ,.%) /%V0,3$ 1., % .( 1% #.%; %;#.(%
.(,% )'# *9'*#$-#1:% )1,%) /%.(,% Y,3203#1 8% 1)% 2)0-.% -,' 0 ,% (,%; % / 3%
$)3,%')1/#2,1.% #1%.(,#3%53, ,1',D% 7#@,;# ,%&,3)%' 1%,^ '.% )$,%/)3$% )/%
3, 5,'.% /3)$% 53, .#:#)0 % 12%53)$#1,1.% 5,)5*,D%E,% 3,:0* 3*C%. @, % *)1:%
$,2#. .#B,%; *@ %#1%M 3# % 12%Y,1 #',%;#.(% 1%,302#.,%&)-,*% 53#j,9' *#-,3%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 36/219
G H%
> T 7 T & U >% L K S& <& V%
'#,1.# .% O.(,%@#12% )/%5,3 )1%;()% 1)% *)1:,3% ( %.)% 53)B,% 1C.(#1:R%;()%
'.#B,*C% ,,@ %(# %')1B,3 .#)1D%K %B,3C%/ $)0 %-#**#)1 #3,% 5,'0* .)3%' ** %
(#$%3,:0* 3*C% .)% @%(#$%(# %)5#1#)1%)1% .(,%B *0 .#)1%)/% )$,%2,3#B .#B,%
,'03#.#, D%J0.%.(,3,%(,%; %)- , #B,*C%.3C#1:%.)%: #1%.(,%3, 5,'.%) /% )$,%
)B,35 #2%(#'@%;#.(% %'(, 5%&,;%f,3 ,C%g&))9f) CjC g% '',1.D% OE 2 %<%-,,1%
#1%&,3) U % (), %<%;)0*2%( B,%5 3 2,2% )$,%)/%$C% ')31%.)%f)(1%;#.(%.(,%
0 ,%)/% -)2C%* 1:0 :,8% -0.% : #18%&,3)% # % %1#',% 5,3 )1DR%
6*, 3*C8% f)(1% ; % 1).% % ;,**% ,20' .,28% ;,**% -3,28% 5(C #' **C% /#.8% )3%
5,3',#B,2% % -,#1:% % #1.,**#:,1.% %& ,3)%9% -0.%.( .%; % 1).% **h %(,%; %
1).%,B,1% % .3,,.9 $ 3.% %(#$b%&,3)%( %$,.%.30,% .3,,.9 $ 3.%5,)5*,%#1%
.(,%5#. %) /%6(#' :)%;()%,^(#-#.% %3 5#2#.C% )/%.(#1@#1:% .( .%(,%')0*2%1).%
2,.,'.% #1% f )(1 D% &,3)% ; % ')1B#1',2 % .( .% .(,% $ 1% ; % % ')1/#2,1.%
( **);9.(#1@,3%;()%( 2%2)1,%;,**%-,' 0 ,%(,%1,B,3%$ 2,% 1% **); 1',%
/)3%(# %B0*1,3 -#*#.CD% J0.%&,3)% ')0*2% 1).8% .%.#$, 8%3,53, % (# %,1BC%9% (,%
;)12,3,2%;(,.(,3%#.%; % 1%)-i,'.#B,%,B *0 .#)1% )/%f)(18% )3%#/%#.%; %(# %
/,,*#1: % )/% -,#1:% *#:(.,2% .( . % *,2% (#$% .)% 0'(% 1% , $,1.% )/% f)(1D%
M,3( 5 %#.%; %&,3)%;()%; %1).%`0#.,%.(,%-, .%.3 2,3D%= C-,% #/%(,%( 2%
50 (,2% (#$ ,*/% ( 32,3% )3%( 2% )0:(.% .(,%3#:(.% )55)3.01#.C%9% #1 ., 2% )/%
g.(#1@#1:g8%;3#.#1:% 3.#'*, % 12%3, 2#1:%')$5*#' .,2% 5 5,3 D% M,3( 5 %(,%
()0*2% ( B,% -,,1% #1B)*B,2% #1% .(,% (#:(9C#,*2% -0 #1, 8% ;(,3,% (,% ;)0*2%
( B,% (#1,2% $)1:% .() ,% ( **);9.(#1@,3 % *#@,% f)(1 D%
>)% &,3)% .3#,2% .) % )).(,% ( # % i, *)0 C% -C% #1B, .#: .#1:% .(,% 30*, % )/%
5,'@#1:% )32,3D% M C'()*):# . % _ (1,$ 1% 12%+B,3 @C% ();,2%.( .% $) .%
5,)5*,% 53,/,3% .)% $ @,% pQH 8HHH% ;(,1% ).(,3 % 3)012% .(,$% 3,% $ @#1:%
pXH 8HHH % .( 1 % .) % $ @,% pZH 8HHH % ;(,1% ).(,3 % 3)012% .(,$% 3, % $ @#1:%
pPH 8H HH D%4')1)$#' 8% '($,')1)$#' 8%#.%# % **%5,'@#1:%)32,38%(,%.()0:(.D%
&)% 0'(% 1 *C # % ')0*2% 53,B,1.% (#$% /3)$% , #1:% (# % ')12#.#)1% #1% 1%
- )*0.,%3 .(,3%.( 1% %3,* .#B,%; CD%L#.(%f)(18%&,3)%/,*.%.( .8% /)3% **%(# %
#1.,**,'.0 *% .3 #1#1:8% (,%; %i0 .% 1).(,3%)1,%)/%.() ,%;()%;)0*2%53,/,3%
.)%$ @,% *, %$)1,C% 53)B#2,2%).(,3 % $ 2,%,B,1% *, D%
&,3)% .()0:(.%.( .%.(,3,%; % .%*, .%)1,%5#,',% )/%,B#2,1',%.)% 055)3.%
.(,% #2, % )/% f)(1% -,#1:% $,3,*C% *0'@C% 9% #1 % ).(,3 % ;)32 % &,3)8% /.,3% ** 8%
$#:(.%1).%1,,2%.)%$)B,% ; C%/3)$%(# %1,#:(-)3U % . 3.,3%5 * jj)D%+(,3,%
; %()5,% .( .%f)(1%;)0*2%$,,.% (# %012)#1:D%F)3%f)(1% ,,$,2%01 ; 3,%
)/% )1,% * 3:,% (#22,1% 3# @% (,% ; % . @#1:8% .(,% 3# @% )/% -*);% 058% % 3# @% (,%
')0*2%1).% ,,%-,' 0 ,%(,%( 2%.))% ()3.% 1%,^5,3#,1',%)/%.(,%$ 3@,.%O-0.%
* )%-,' 0 ,%(,%; %1).%.()0:(./0*%,1)0:(%.)% .02C%(# .)3CRD%E);%')0*2%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 37/219
< F% ? T A U S 4% >T% S <6 E% L E ?% K S 4 & U +% ?TA% >T% >= K S + a% D% G I%
f)(18%; #.(%(# %') 3 ,%$#128% ).(,3;# ,%-,%$ @#1:% )%$0'(%$)1,Ca%+(# %
-0 #1, % )/% i01@% -)12 % 2,5,12 % )1% )$,% @1);*,2:,% )/ % .(,% g)22 g 8% %
' *'0* .#)1% )/% .(,% 53)- -#*#.C% )/%.(,% 3 3,% O)3% 3 12)$R% ,B,1. D%L ( .% 2)%
0'(%/))* %@1);% -)0.% )22 a%+(, ,%.3 2,3 %0 ,%g`0 1.#. .#B,%.)) * g% .( .%
:#B,% .(,$% .(,% )22 % 9 % 12%&,3)% 2# :3,, % ;#.(% .(,% $,.()2 % 0 ,2D% +(# %
(#:(9C#,*2% $ 3@,.% 3, ,$-*, % % 1 5% )1% % 3 #*; C% .3 '@D% T1,% /.,31))18%
.(,% 0353# ,% .3 #1% ;)0*2% 301% C)0% )B,3D % ?)0% $ @,% $)1,C% ,B,3C% $)1.(%
/)3% %*)1:%.#$,8%.(,1%*) ,% %$0*.#5*,%) /%C)03%'0$0* .#B,%5,3/)3$ 1',%#1% %
/,;%()03 D% E,%( % ,,1%#.%;#.(% )5.#)1% ,**,3 % #1% IPZ Q8 % IPZ P8 % IP PG8 % 12%
IP PZ D% T1,% 2 C%.(,C% 3,%. @,1%) //% .(,%,^'( 1:,% /*))3 8% '')$5 1#,2% -C%
)B,3 #j,2% ,'03#.C%$,18% 12%1)-)2C% ,B,3% ,, %.(,$% : #1D%+(,% -#:%()0 ,%
# % #$5*C% %*) 1h%f)(1%$#:(.%,12%05% % %*0^03C%' 3% *, $ 1% )$,;(,3,%
#1%&,;%f,3 ,C8% ,**#1:% .)%.(,%1,;% 1,;*C% 3#'(%;()% 1)% 2)0-.%;)0*2% /,,*%
')$/)3. -*,% #1% (# % 53, ,1',D% &,3)% ' 11).% -*);% 05D% E# % *, % )B,3 #j,2%
-)2,8% ;#.(% #. % W 8H HH% -))@ 8% # % (# % );1D% &)% $ 3@,.% ,B,1.% ' 1% . @,% #.%
; C% /3)$% (#$D% 4B,3C% )1,% )/% (# % *) , % # % *#$#.,2D% E# % .3 2,3U % 2#:1#.C%
;#**% 1,B,38% 1,B,38% -,% .(3, .,1,2D%
f)(18 % /)3% (# % 5 3.8% .()0:(.% )/%& ,3)% % % *) ,38% 12% % 1)--# (% )B,39
,20' .,2% *) ,3% .% .( . D% &,3)% ; % #1B)*B,2% #1 % % $ .03, % -0 #1, D% E,%
-,*#,B,2%.( .% (,%; %; C%)B,3%.(,%(#**D%g+( , ,% U53)5U%.3 2,3 % 3,%2C #1:g8%
`T
%0 ,2% .)% CD% g+(,C% .(#1@% .(,C% 3,% $ 3.,3% .( 1% ,B,3C-)2C% ,* ,8% -0.%
.(,C% 3, :'))#he
4'(& ;(297#%& <$==(*&
F#1 **C8% #1% >,5.,$-,3% IPP Z8 % &,3)% ; % B#12#' .,2D% T1,% $)31#1:% ;(#*,%
*, B#1:%.)% :)%.)%;)3@%(,% ;%f)(1 % #1%(# %/3)1.%C 32%010 0 **C% $)@#1:% %
'#: 3,..,D% E,% ; % 1).% ;, 3#1:% % -0 #1, % 0#.D% E,% *))@,2% (0$-*,h% (# %
'0 .)$ 3C% ; ::,3% ; % :)1,D% &,3)% #$$,2# .,*C% @1,;% .( .% f)(1% ( 2%
-,,1 % /#3,2 D% L( .% (,% 2#2 % 1).% 0 5,'.% ; % .( .% f)(1% * ) % *) .% *$) .%
,B,3C.(#1:%(,%( 2D%L,%; #**% ,,%$)3,%2,. #* %) /%f)(1 U %*) , %#1%6( 5.,3%\ D%
&,3)% /,*.% ( $,2% )/% (# % /,,*#1: % )/ )/A'1#-<$#B1#8% .(,% i)C% (0$ 1 %
' 1%,^5,3#,1',%05)1%.(,#3%3#B * U%$# /)3.01,D%J0.%(,%')0*2%1).% 3,53, % #.D%
K #2,%/3)$% #.% -,#1:%01'(#B *3)0 8% #.%; % #2%.)% -3#1:% - 2% *0'@% O&,3)%# %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 38/219
G G% > T 7 T & U >% L K S& <& V%
;, @*C% 05,3 .#.#)0 RD% J0.% #1%.(# % ' ,8% &,3)U % $,33#$,1.% 2#2%1).% ')$,%
/3)$% .(,%/ '.%.( .%f)(1% ;,1.% - '@% .)%(# %5* ',%#1%*#/,8% )%$0'(% %#.%; %
/3)$ % .(,% / '.% .( .% &,3) U % $,.()2 8% -,*#,/ 8% 12% .3 ' @ 93 ,' )32% ( 2%
022,1*C%: #1,2%#1%'3,2#-#*#.CD%&,3)%;)0*2%-,% -*,%.)%3 # ,%50-*#'%$)1,C%
)1% (# % .3 '@% 3,')32% 53,'# ,*C% -,' 0 ,% 0'(% % .(#1:% ')0*2% 1).% 5) #-*C%
( 55,1% .)% (#$D% K% 3,5,.#.#)1% )/% 0'(% 1% ,B,1.%;)0*2% 5 C% )//% $ #B,*C%
/)3%(#$D%M 3.%)/%&,3)U %,* .#)1% * )%' $,%/3)$%.(,%/ '.%.( .%(,%/,*.%53)02%
)/%(# % .#'@#1:%.) %(# % .3 .,:C% /)3% )%*)1:8%#1% 5#.,%) /%.(,%53, 03,%.)% -,%.(,%
*5( %$ *,D%<.%; % * )%-,' 0 ,%(,%;)0*2%1)% *)1:,3%`0, .#)1%(# %.3 2#1:%
.C*, % ;(,1% ).(,3 % ;,3,% :,..#1:% 3 #'(% -,' 0 ,% .(,C% $# 012,3 .))2% .(,%
.30'.03,% )/% 3 12)$1, % 12%$ 3@,.% 'C'*, D%
46;8E8 2 $ @ X$ ;@ X8H 644 $
6 1%;,% i02:,% .(,% 0'', % )/% 5,)5*,% -C%.(,#3% 3 ;% 5,3/)3$ 1',% 12% .(,#3%
5,3 )1 *% ;, *.(a% >)$,.#$, % 9% -0.% 1).% *; C D%L,%;#**% ,,%(); 8% .% 1C%
5)#1.% #1 % .#$,8% % * 3:,% ,'.#)1% )/% -0 #1, $,1% ;#.(% )0. . 12#1:% .3 '@%
3,')32 %;#**% -,%1)% -,..,3%.( 1% 3 12)$*C%.(3);1% 2 3. D %= )3,% '03#)0 *C8%
12% );#1:% .) % % 5,'0*# 3% - # 8% ' , % ;#**% -)012% )/% .(, % *, .9 @#**,2%
-0 #1, $,1% -,#1: % .(,% 3#'(, .D% E);,B,38% .(,C % ;#**% / #*% .) % $ @,% 1 %
**); 1',% /)3% .(,% 3)*,% )/% *0'@%#1% .(,#3% 5,3/)3$ 1',D%
70'@C% /))* % 2)% 1).% -, 3% .(, % *#:(., .% 0 5#'#)1% .( . % .(,C% $ C% -, %
*0'@C% /))* % 9% -C% 2,/#1#.#)18% .(,C% 2)%1).% @1);% .( .% .(,C% -,*)1:% .)% 0'(%
' .,:)3CD% +(,C%;#**% '.% % #/% .(,C% 2, ,3B,2% .(,%$)1,CD% +(,#3% .3#1: % )/%
0'', , % ;#**% #1 i,'.% .(,$% ;#.( % ) % $0'( )#$8(8-%-% O)3% )$,% #$#* 3%
0- . 1',R % .( .% .(,C% ;#**% ,B,1% /))*% .(,$ ,*B, % -)0.% .(,#3 % -#*#.C% .)%
)0.5,3/)3$%$ 3@,. % O)03%()3$)1 *% C .,$%2), % 1).%@1);%;(,.(,3% )03%
0'', , % 2,5,12%)1% 3 12)$1, RD% T1,% ' 1%1).#',% #.% #1% .(,#3% 5) .03,h% %
53)/#. -*,% .3 2,3%;#**% ; *@% 053#:(.8% 2)$#1 1.%g .C*,% 9% 12%;#**% .,12% .)%
. *@% $)3,% .( 1% % *) #1:% .3 2,3D% >'#,1.# . % /)012% )0.% .( . % ,3).)1#18% %
1,03).3 1 $#..,38% ,,$ % .)% ')$$ 12% % * 3:,% ( 3,% ) /% )03% (0$ 1%
-,( B#)3D% <.% ,. % % 5) #.#B,% /,,2- '@8% .(,% B#3.0)0 % '#3'*,8% -0.8% );#1:% .)%
1%,^.,31 *%@#'@% /3)$%3 12)$1, 8%' 1% . 3.% %3,B,3 ,%$).#)1% 12%' 0 ,%
% B#'#)0 %'#3'*,D% <.%( %-,,1% ();1%.( .%$)1@,C %#1i,'.,2%;#.(% ,3).)1#1%
;#** % 3# ,% #1% .(,% 5,'@#1:% )32,38% ;(#'(% #1% .031% ' 0 , % 1% #1'3, ,% )/% .(,%
,3).)1#1% *,B,*%#1%.(,#3%-*))2%9% 01.#*%.(,%B#3.0)0 %'C'*,% -3, @ % 12% . 3. %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 39/219
< F% ? T A U S 4% >T% S <6 E% L E ?% K S 4 & U +% ? T A% >T% >= K S + a% D% G [%
% B#'#)0 % )1,% O203#1:% .(,% B#'#)0 %'C'*,% / #*03,%;#**% ' 0 ,% )1,% .)% *#2,%#1%
.(,% 5,'@#1:% )32,38% ' 0 #1:% % -,( B#)3% .( . % ;#**% -3#1:% -)0.% /03.(,3%
23)5 % #1% .(,% 5,'@#1:% )32,3RD% 7#@,; # ,8% 1% #1'3, ,% #1% 5,3 )1 *%
5,3/)3$ 1',% O3,: 32*, % )/% ;(,.(,3 % #.% # % ' 0 ,2% 2,.,3$#1# .#' **C% )3%
-C%.(,% :,1'C%) /%* 2C%F)3.01 R% #120', % % 3# ,%)/% ,3).)1#1% #1%.(,% 0-i,'.8%
#. ,*/%' 0 #1:% 1% #1'3, ,% )/%;( .%# %')$$)1*C% ' **,2 5#'1#$)A%:% -#*#.CD%
T1,% # % g)1% % 3)**gD % >)$,%#$5,3',5.#-*,% '( 1:, % #1% 2,5)3.$,1.8 % *#@,% 1%
- #*#.C % .) % ,^53, % )1, ,*/% ; #.( % ,3,1#.C % 12 % ')1/#2,1',8% $ @, % .(,%
0-i,'.% *))@% '3,2#-*,% 9% % #/% (,%.30*C%2, ,3B,2% .(,% (,@,* D % S 12)$1, %
;#**% -,% 30*,2% )0.% % % 5) #-*,% / '.)3% #1% .(,% 5,3/)3$ 1',8% 01.#*% #.% 3, 3 %
#. % (, 2% )1',% : #1% 12% 2,*#B,3 % .(,% @#'@% .( .% ;#** % #120',% .(,% B#'#)0 %
'C'*,D%
M,)5*,% ( B,%)/.,1%( 2%.(,%- 2%. .,%)/% @#1:%$,%#1% % )'# *% ,..#1:% #/%
$C% 2 C% #1 % .3 2#1:% ; % 53)/#. -*, D% < /% $C% / .(,3 % ;,3,% .(,3,8% (,% ;)0*2%
0 0 **C% .)5%.(,$% -C% C#1:% g1,B,3% @% %$ 1% #/%(,%# %/3)$% >5 3. d%#/%(,%
;,3,8% (,% ;)0*2% ( B,% *,.% C)0% @1);% 0'(% 1% #$5)3. 1.% / '. % 9 % 12% #/% (,%
;,3,%1).8%C)0%')0*2% (03.%(# %/,,*#1: gD%7 #@,;# ,8%1,B,3% @% %.3 2,3% #/%(,%
# % 53)/#. -*,h% C)0%' 1% , #*C% ,,% #.% #1% (# % :, .03,% 12%: #.D %M,)5*,% #1% .(,%
53)/, #)1% ' 1% , #*C% .,** % #/% .3 2,3 % 3,% $ @#1:% )3% *) #1:% $)1,Ch% (, 2%
.3 2,3 % 3,%`0#'@% .%#2,1.#/C#1:% 1%,$5*)C,,%;()%# %/ 3#1:%5))3*CD% +(,#3%
DD/ ',% ;#**% ,*2)$% 3,B, *% $0'(8% % 5,)5*,% ')1 '#)0 *C% ..,$5.% .)% : #1%
')1.3)*% )/%.(,#3%/ '# *%,^53, #)1 D% J0.%.(,%; C%.(,C%; *@8%.(,%; C%.(,C%
()*2%.(,%.,*,5()1,8% 12% .(,% (, #. .#)1% #1%.(,#3% -,( B#)38%; #**% 1).% / #*% .)%
3,B, *% .(,#3%.30,% 2# 5) #.#)1D% T1% .(,%$)31#1:% /.,3%f)(1% ( 2% -,,1% /#3,28%
(,%',3. #1*C% *) .%$0'(%)/%(# % ,3).)1#1%9% 01*, %#.%; % 1).(,3% 0- . 1',%
.( .% 3, , 3'(,3 % ;#**% 2 # ')B,3 % #1 % 1).(,3 % 2,' 2,D% T1,% ' - % 23#B,3% #1 %
6(#' :)%,^5* #1,2%.)%$,%.( .%(,%')0*2%.,**%#/%.3 2,3 %(,%5#'@,2%05%1, 3%
.(,%6(#' :)%J) 32%)/%+3 2,8% %/0.03, %,^'( 1:,8%;,3,%2)#1:%;,**D% g+(,C%
:,.% **%50//,2%05g8%(,% #2D%<%/)012%#.%#1.,3, .#1:% O 12%$C .,3#)0 R%.( .%(,%
')0*2% 2,.,'.% #.% )% 3 5#2*CD% < % * .,3% :).% )$,% 5* 0 #-*,% ,^5* 1 .#)1% /3)$%
,B)*0.#)1 3C% 5 C'()*):C8% ;(#'(% '* #$ % .( . % 0'(% 5(C #' *% $ 1#/, . 9
.#)1 % ) /% )1,U % 5,3/)3$ 1',% #1% *#/,8% i0 .% *#@,% 1% 1 #$ *U % 2)$#1 1.%
')12#.#)18% ' 1% -,% 0 ,2% /)3% #:1 *#1:d% #.% $ @, % .(,%;#11,3 % ,,$% , #*C%
B# #-*,8%;(#'(% # % ,//#'#,1.% #1%$ .,% ,*,'.#)1D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 40/219
G W%
> T 7 T & U >% L K S& <& V%
:#$*& >(/%.,%& ?,& ;.@' A& B(*C & ;.@' &
L,% '*) ,%.(# %'( 5.,3%;#.(% % (#1.%)1%.(,%1,^.% 2# '0 #)1% )/%3, # . 1',% .)%
3 12)$1, D% S,' **%.( .%& ,3)%' 1% ')1 #2,3,2%53) 5,3)0 % -0.% 1).% gB,3C%
3 #'(g% -C% (# % 2 C U % . 12 32 D% E);,B,38% '')32#1:% .) % )$,% .3 1:,%
'')01.#1:%$, 03,%;,%; #**% ,,%#1%.(,%1,^.% '( 5.,38%(,% # %,^.3,$,*C% 3#'(%
8- (A# '&#$'+# 8< 5%&#)% (,%')0*2% ( B,% *,2%9 % (,%. @, % )% *#.. *,%3# @% #1%(# %
.3 2#1:% ' 3,,3% .( .% .(,3,%')0*2% ( B,%-,,1%B,3C%/,;% 2# .3)0 % )0.')$, D%
+(,% / '.%.( .%(,%2#2%1).%,^5,3#,1',%f)(1U % 0'', %; %.(,%3, )1%(,%2#2%
1).% 0//,3%(# %2);1/ **D%E,%;)0*2% -,%.(,3,/)3,%;, *.(C% '')32#1:%.)%.(# %
010 0 *%O 12%53)- -#*# .#'R%$,.()2%)/% '')01.#1:%/)3%;, *.(D%S,' **%.( .%
&,3)% 53).,'. % (#$ ,*/% /3)$% .(,% 3 3,% ,B,1.D %E 2% &,3)% ( 2%.)% 3,*#B,%(# %
53)/, #)1 *% * #/,% % /,;%$ #**#)1% .#$, 8% B,3C% /,;% $5*,% 5 .( % ;)0*2% -,%
$ 33,2% -C% - 2% *0'@%9% -0.8% );#1:% .)% (# %')1 ,3B .# $8% B,3C% /,;% %;,**%
;)0*2% -,% //,'.,2% -C% ,^.3,$,% :))2% *0'@D% +( .% # 8% (# % *#/, % #1 % . -#*#.C%
;)0*2% -,% #$#* 3% .)% .( .% )/% 1% ,''*, # .#'% '*)'@% 3,5 #3$ 1D% & .03 **C8%
;,% 3,% 2# '0 #1:% )1*C% (# % 53)/, #)1 *% * #/,8% ,^'*02#1:% (# % O )$,.#$, %
B)* .#*,R% 53#B .,% )1,D%
K3:0 -*C8 %- #7:#/('(%8-8% % 2,1.# .% # % ')1 #2,3 -*C % 3#'(,3% .( 1 % .(,%
3)'@%$0 #'# 1% ;()% # %23#B,1%#1% %5#1@% S)** % S)C',8%.(,% 5,'0* .)3%;()%
-#2 % 05% .(,% 53#',% )/% #$53, #)1# . % 5 #1.#1: 8% )3% .(,% ,1.3,53,1,03% ;()%
')**,'. %53#B .,%i,. D%F)3%)1,%' 11).%')1 #2,3% %53)/, #)1%; #.()0.%. @#1:%
#1.)% '')01.% .(,% B,3 :,% )/% .(,% 5,)5*,% ;()% ,1.,3% #. 8% 1).% .(,% $5*,% )/%
.() ,%;()%( B,% 0'',,2,2%#1%#.D%L,%;#**%,^ $#1,%.(,%5)#1.%* .,3%/3)$%.(,%
B 1. :,%5)#1.%)/%.(,% 03B#B)3 (#5%-# 8%-0.%(,3,8%#1%M 3.%<8%;,%;#**%*))@% .%
#.%;#.(% 3, 5,'.% .)%g3, # . 1',% .)% 3 12)$1, D%
6)1 #2,3 % .;)% 1,#:(-)3 8% f)(1% N),% K8% % i 1#.)3% ;()% ;)1% .(,% &,;%
f,3 ,C% *)..,3C% 12%$)B,2%.)% %;, *.(C%1,#:(-)3())28%')$5 3,2%.)%f)(1%
N),% J8%(# %1,^.92))3% 1,#:(-)3%)/%$)3,%$)2, .%')12#.#)1%;()%( % -,,1%
23#**#1:% .,,.(% ,#:(.% ()03 % % 2 C%)B,3%.(,%5 .% [\% C, 3 D% 6*, 3*C% )1,%' 1%
C%.( .8%.( 1@ %.)% .(,%20**1, % )/%(# %' 3,,38% #/%f)(1%N),%J% ( 2%.)%3,##B,%
(# % *#/,% % /,;% .()0 12% .#$, % #1',% :3 20 .#)1% /3)$% 2,1. *% '())*8% .(,%
3 1:,% )/% 5) #- *, % )0.')$, % ;)0*2% -, % 3 .(,3% 1 33);% O 0$#1:% (, % # %
53)5,3*C% #1 03,2RD%K.%.(,%-, .8%(,%;)0*2%,12%05%23#**#1:%.(,%3#'(%.,,.(% )/%
.(,%&,;% ?) 3@% M 3@% KB,10,%3, #2,1. 8%;(#*,%.(,%;)3 .%;)0*2% ();%(#$%
23#**#1:%.() ,% )/% )$,% ,$#92, ,3.,2% .);1% /0**%)/%.3 #*,3 % #1%.(,% 6 . @#** D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 41/219
< F% ? T A U S 4% >T% S < 6 E% L E ?% K S 4 & U +% ?TA% >T% >= K S + a% D% G \%
F03.(,3$)3, 8% 0$#1:% (, % :3 20 .,2% /3)$% % B,3C % 53, .#: #)0 % .,,.(9
23#**#1:% '())*8%.(,%3 1:,% )/%)0.')$, %;)0*2%-,%,B,1%$)3,% ')$53, ,2D%
K %.)%f)(1%N),%K 8%#/%(,%( 2%.)%3,*#B,%(# %*#/,% %$ #**#)1%.#$, 8% *$) .% **%)/%
.(,$% ;)0*2% ,, % ( #$% 5,3/)3$#1:% i 1 #.)3# *% '.#B #.#, % O 12% 5,12#1:%
,12*, % 2)** 3 % )1% /30#.*, % *)..,3C% .#'@,. R8% 12%)1,% #1% % $#**#)1% ;)0*2%
,,% (#$% ;#11#1:% .(,%&,;% f,3 ,C% *)..,3CD%
+(,% #2, % )/% . @#1:% #1.)% '')01.% -).(% .(,% )- ,3B,2% 12% 01)- ,3B,2%
5) #-*,% )0.')$, % )012 % *#@,% *01 'CD% F)3% $) .% 5,)5*,8% 53)- -#*#.C% # %
-)0.% ;( .%$ C% ( 55,1% #1% .(,% /0.03,8% 1).% ,B,1. % #1% .(,%)- ,3B,2% 5 .h%
1% ,B,1.% .( .% ( % *3, 2C% . @,1% 5* ',% ( % I H Hl % 53)- -#*#.C8% #D,D8%
',3. #1.CD% < % ( B,% 2# '0 ,2% .(,% 5)#1.% ;#.(% $ 1C% 5,)5*,% ;()% 5* .#.02#9
1)0 *C% ''0 ,% $,% )/% ')1/0 #1:% $C.(% 12% 3, *#.CD% =C.( 8% 5 3.#'0* 3*C%
;,**9 :,2%)1, 8% %;,% ;%;#.(% >)*)1U %; 31#1:8%' 1% -,%/ 3%$)3,% 5).,1.%
O 12% 53)B#2,% 0 %;#.(% $)3,% ,^5,3#,1',R% .( 1% 5* #1% 3, *#.CD%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 42/219
+LT%
K%J <]KSS4% K66TA&+<&V% =4+ETN%
9- '5(#$-'(%&# A%)(8$%#)N ' :$8Y'Y%5%)(%/ &%#? 8< (A# ?8$51N
%-(#55#/(B'5 <$'B1N '-1 (A# $'-18.-#)) ?%)18. 8< ' V$#-/A.'-
?%(A )(#'1, Y'(A%-+ A'Y%()e 08? g8B$-'5%)() '$# Y$#1 (8 -8(
B-1#$)('-1 $'-18. )#$%#) 8< #&#-()e X#?'$# Y8$$8?#1 ?%)18.2
A8? '5.8)( '55 +$#'( %1#') /8-/#$-%-+ $'-18. 8B(/8. #) '$#
'+'%-)( /8-&#-(%8-'5 )':%#-/#e 9 - (A# 1%<<#$#-/# Y#(?##-
/8$$#/(-#)) '-1 %-(#55%+%Y%5%(,e
1%(*/)%.D(& 7.,%#*C&
. 3.% ;#.(% .(,% 5* .#.02,% .( .% )1,%' 11).% i02:,% % 5,3/)3$ 1',% #1% 1C%
:#B,1%/#,*2%O; 38%5)*#.#' 8%$,2#'#1,8%#1B, .$,1. RD-C%.(,%3, 0*. 8%-0.%-C%
.(,%') . % )/% .(,% *.,31 .#B,% O#D,D% #/%(# .)3C%5* C,2%)0.%#1% % 2#//,3,1.% ; CRD%
>0'(% 0- .#.0.,%')03 , %) /%,B,1. % 3,%' **,2
'5(#$-'(%&# A%)(8$%#)e
% 6 *, 3*C 8%
.(,%`0 *#.C% )/% % 2,'# #)1% ' 11).% -,% )*,*C% i02:,2% - ,2%)1% #. % )0.')$,8%
-0.% 0'(% %5)#1.% ,,$ %.)% -,%B)#',2% )1*C% -C%5,)5*,%;()% / #*% O.() ,%;()%
0'',,2% ..3#-0.,% .(,#3% 0'', % .)% .(,% `0 *#.C% )/% .(,#3% 2,'# #)1RD% >0'(%
)5#1#)1% # %;( .% 5)*#.#'# 1 % )1%.(,#3%; C% )0.% )/% )//#',% @,,5% .,**#1:%.() ,%
$,$-,3 % )/%.(,%53, %;() % .#**%*# .,1%.)% .(,$% .( .%.(,C%/)**);,2% .(,%-, .%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 43/219
K% J < ] K SS 4% K 66 T A& + < & V% = 4 +E T N%
G Q%
')03 ,% 9% , *#' #.#1:% .(,% '0 .)$ 3C% ')$$# ,3 .#1:% gC, 8% ;,% @1);g% .( .%
$ @, % .(,% .#1:% ,B,1% ;)3 ,D% K12%*#@,% $ 1C% 5* .#.02, 8% .(# % )1,8% ;(#*,%
-,#1:%.))% )-B#)0 8% # % 1).% , C%.)% ' 33C% )0.% #1% 53 '.#',D%
; f4 42@ $ ; 8 f * 6 E E 6$
T1,%' 1% #**0 .3 .,% .(,% .3 1:,%')1',5.%)/% *.,31 .#B,% (# .)3#, % %/) **); D%
<$ :#1,% 1% ,'',1.3#' % O 12% -)3,2R% .C'))1% )//,3#1:% C)0% pIH% $#**#)1% .)%
5* C%S0 # 1% 3)0*,..,8% #D,D% .)%50.% %3,B)*B,3%')1. #1#1:% )1,% -0**,.%#1%.(,%
#^% B #* -*,% '( $-,3 % .)% C)03% (, 2% 12% 50**% .(,% .3#::,3D% 4 '(%
3, *#j .#)1% ;)0*2 % ')01.% % )1,% (# .) 3C 8% /) 3% % .) . *% ) /% #^% 5) #-*,%
(# .)3#, %) /%,`0 *%53)- -#*#.#, D%F#B,%)0.%) /%.(, ,% #^%(# .)3#, %;)0*2%*, 2 %
.)%,13#'($,1.h% )1,%;)0*2% *, 2%.)% % . .# .#'8%.( .% # 8% 1%)-#.0 3C%;#.(% 1%
,$- 33 #1:% O-0.%',3. #1*C%)3#:#1 *R%' 0 ,%) /%2, .(D%+(,%53)- *,$% # %.( .%
)1*C% )1,% )/% .(,% (# .)3#, % # % )- ,3B,2% #1% 3, *#.Ch% 12%.(,% ;#11,3% )/% pIH%
$#**#)1%;)0*2%,*#'#.%.(,% 2$#3 .#)1% 12%53 # ,%)/% )$,%/ .0)0 %i)031 *# .%
O.(,% B,3C% $,% )1, % ;()% 01')12#.#)1 **C% 2$#3,% .(,% F)3-, % \ H H%
-#**#)1 #3, RD% 7#@,% *$) .% ,B,3C% ,^,'0.#B,% <% ( B,% ,1')01.,3,2% 203#1:% %
I\9C, 3% ' 3,,3% )1%L **% >.3,,.% O.(,% 3)*,% )/% 0'(% ,^,'0.#B, % #1% $C% B#,;%
-,#1:% 1)%$)3,% .( 1% % i02:,% )/% 3, 0*. % 2,*#B,3,2% #1% % 3 12)$% $ 11,3R8 %
.(,% 50-*#'% )- ,3B, % .(,% ,^.,31 *% #:1 % )/%;, *.(% ;#.()0.% ,B,1% ( B#1:% %
:*#$5 ,% .%.(,% )03',% O;,%' **% 0'(% )03',% .(, +#-#$'(8$de% 6)1 #2,3% .(,%
5) #-#*#.C% .( .% .(,% S0 # 1% 3)0*,.., % ;#11,3% ;)0*2% -,% 0 ,2% % % 3)*, %
$)2,*% -C%(# % / $#*C8% /3#,12 8% 12% 1,#:(-)3 D%
L(#*,% .(,% 3,$ #1#1:% /#B,% (# .)3#, % 3,% 1).% )- ,3B -*,8% .(,% ;# ,% 12%
.()0:(./0*% 5,3 )1% ')0*2% , #*C% $ @,% % :0, % % .)% .(,#3 % . .3 #-0., D% <.%
3,`0#3, % )$,%.()0:(./0*1, % 12%5,3 )1 *%')03 :,D%<1% 22#.#)18%#1%.#$,8%
#/%.(,%3)0*,..,9-,..#1:% /))*% @,,5 %5* C#1:%.(,%: $,8%.(,% - 2%(# .)3#, %;#**%
.,12 % .)% ' .'(% 05% ; #.(% (#$ D% +(0 8% #/% % G \9C, 39) *2 % 5* C,2 % S0 # 1%
3)0*,..,8% C8% )1',% % C, 38% .(,3,%;)0*2% -,% %B,3C% *#$% 5) #-#*#.C% )/% (# %
03B#B#1: % (# % \H .( % -#3.(2 C % 9% -0.8% #/% .(,3,% 3,% ,1)0:( % 5* C,3 8% C %
.()0 12 % )/% G\9C, 39)*2 % 5 * C,3 8% ;,% ' 1% ,^5,'.% .)% ,, % % ( 12/0*% )/%
O,^.3,$,*C% 3#'(R% 03B#B)3 % O 12% % B,3C% * 3:,% ',$,.,3CRD% E,3,% <% ( B,% .)%
2$#.%.( .% .(,% ,^ $5*,% )/% S0 # 1% 3)0*,..,% # %$)3,%.( 1%#1.,**,'.0 *% .)%
$,D%< % *) .% %')$3 2,% .)%.(# % g: $, g% 203#1:%.(,%7,- 1, ,%; 38%;(,1%;,%
;,3,%#1%)03%.,,1 D%J0.% .(,3,%# %$)3,D%<%2# ')B,3,2%.( .%<%( 2%$)3,% .( 1% %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 44/219
G Z% > T 7 T & U >% L K S& <& V%
( **);% #1.,3, . % #1% * #.,3 .03,% .( 1@ % .)% .(,% ,//,'.% )/% V3 ( $% V3,,1,U %
'')01 .%)/%(# %/*#3.%;#.(% 0'(% %: $,h%#.%-)3,% % .3)1:,3%,//,'.%)1%$,%.( 1%
.(,% '.0 *% ,B,1. %<% ( 2%3,',1.*C%;#.1, ,2D% V3,,1,%'* #$,2% .( .% (,%)1',%
.3#,2% .)% )).(,% .(,% 20**1, % )/% (# %'(#*2())2% -C%50**#1:%.(,% .3#::,3% )1% %
3,B)*B,3%9% $ @#1:%$,% (#B,3% .%.(,%.()0:(.%.( .%<%( 2% .%*, .% %)1,%#1% #^%
53)- -#*#.C% )/% ( B#1:% -,,1%;#.()0.% (# % 1)B,* D%
+(,%3, 2,3%' 1% ,,%$C%010 0 *%1).#)1% )/% *.,31 .#B,% '')01.#1:d% pI H%
$#**#)1%, 31,2%.(3)0:(%S0 # 1% 3)0*,..,%2), %1).%( B,%.(,% $,%B *0,% %
pI H% $#**#)1% , 31,2%.(3)0:(% .(,%2#*#:,1.% 12% 3./0*% 53 '.#',%) /% 2,1.# .3CD%
+(,C% 3,%.(,% $,8%' 1%-0C%.(,% $,%:))2 8%,^',5.%.( .%)1,U %2,5,12,1',%
)1%3 12)$1, %# %:3, .,3%.( 1%.(,%).(,3D%+ )% 1% '')01. 1.8%.()0:(8%.(,C%
;)0*2% -,%#2,1.#' *D% +)% C)03%1,^.92))3% 1,#:(-)3%.))D% ?,.8 % 2,,5%2);18%<%
' 11).% (,*5% -0.%')1 #2,3%.(,$% % `0 *#. .#B,*C% 2#//,3,1.D % +(,% 1).#)1% )/%
0'(% *.,31 .#B,% '')01.#1:% ( % #1.,3, .#1:% #1.,**,'.0 *% ,^.,1 #)1 % 12%
*,12 % #. , */% .) % $ .(,$ .#' *% /)3$0* .#)18% % ;,% ;#**% ,, % #1 % .(,% 1,^.%
'( 5.,3%;#.(%)03%#1.3)20'.#)1%) /%.(,%=)1.,%6 3*)%,1:#1,D%&).,%.( .% 0'(%
0 ,%) /%$ .(,$ .#' % # %)1*C% #**0 .3 .#B,8% #$#1:% .% :,..#1:%.(,% #1.0#.#)1% )/%
.(,%5)#1.8% 12% ()0*2%1).% -,%#1.,353,.,2% % 1%,1:#1,,3#1:% # 0,D%<1%).(,3%
;)32 8%)1,% 1,,2%1).% '.0 **C% ')$50.,%.(,% *.,31 .#B,% (# .)3#, % )%$0'(%
% , %.(,#3% ..3#-0., D%= .(,$ .#' % # %1).%i0 .% %g10$-,3 %: $,g8%#.%# %
% ; C% )/%.(#1@#1:D%L,% ;#**% ,,%.( .%53)- -#*#.C% # % % `0 *#. .#B,% 0-i,'.D%
@ $ 6b6 $ H8;6$ b 2S 28f4$ ;8f*6EE6$
S, *#.C% # % / 3% $)3,% B#'#)0 % .( 1% S0 # 1% 3)0*,..,D% F#3 . 8% #. % 2,*#B,3 % .(,%
/ . *% -0**,.% 3 .(,3% #1/3,`0,1.*C8% *#@,% % 3,B)*B,3% .( .% ;)0*2 % ( B,%
(0123,2 8% ,B,1 % .()0 12 % ) /% '( $-,3 % #1 ., 2 % ) /% #^ D% K/.,3% % /,; %
2)j,1%.3#, 8%)1,%/)3:,. % -)0.% .(,%,^# .,1',%) /% % -0**,.8%012,3% %10$-#1:%
/ * ,% ,1 ,% )/% ,'03#.CD% +(,% 5)#1.%# %20--,2%#1%.(# 8%-))@% .(, Y5'/> )?'-
:$8Y5#.N% ;(#'(%;,%')B,3%#1%6( 5.,3% Q8 % %#.% # %*#1@,2%.)% .(,%53)-*,$% )/%
#120'.#)18% %53)-*,$% .( .%( %@,5.% %/,;%5(#*) )5(,3 % )/% '#,1',% ; @,%
.% 1#:(.D% <.% # % * )% 3,* .,2% .)% %53)-*,$% ' **,2 1#-%+$'(%8- 8< A%)(8$,% %
: $-*,3 8%#1B, .)3 8% 12 %2,'# #)1%$ @,3 %/,,*%.( .% .(,% )3.%) /%.(#1: %.( .%
( 55,1% .)% ).(,3 %;)0*2% 1).%1,', 3#*C% ( 55,1%.)% .(,$D%
>,')128% 01*#@,% % ;,**92,/#1,2% 53,'# ,% : $,% *#@,% S0 # 1% 3)0*,.., 8%
;(,3,%.(,%3# @ % 3,%B# #-*,%.)% 1C)1,%' 5 -*,%) /%$0*.#5*C#1:% 12%2#B#2#1:%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 45/219
K% J < ] K SS 4% K 66 T A& + < & V% = 4 +E T N%
G P%
-C% #^8% )1, % 2), % 1).% )- ,3B,% .(,% - 33, *% )/% 3, * #.C D% Y,3C % 3 3,*C % # % .(,%
:,1,3 .)3% B# #-*,% .)% .(,% 1 @,2% ,C,D% T1,% # % .(0 % ' 5 -*,% )/% 01;#..#1:*C%
5* C#1:%S0 # 1%3)0*,..,%9% 12%' **#1:%#. %-C% )$,% *.,31 .#B,% g*);% 3# @g%
1 $,D%L,% ,,%.(,%;, *.(% -,#1:%:,1,3 .,28%1,B,3%.(,%53)', )38% %$ ..,3%
.( .% $ @, % 5,)5*,% *) ,% #:(.% )/% .(,#3 % 3 # @ 8% 12% 1,B,3% .(,% *) ,3 D% +(,%
: $,% ,,$ % .,33#-*C% , C% 12%;,%5* C% *)1:% -*#.(,*CD%
<=##%'& E((*& ;(1)%.#/,&
+(,%2,:3,,%)/ $#)%)('-/# (8 $'-18. -#)) %- 8-#R) 5%<# %)% 1% - .3 '. %1#'N
5 3.%) /%#. %*):#'%')01.,3#1.0#.#B,8% 128%.)% ')1/0 ,%$ ..,3 8%#. % 3, *#j .#)1 %
1)19)- ,3B - *,D% J0.% <% ( B,% -,,1 % #1'3, #1:*C % 2,B).,2 % .)% #.% 9% /)3% %
')**,'.#)1% )/% 5,3 )1 *% 3, )1 % <%;#**% *, B,% /)3% * .,3D % 6*, 3*C% $C%; C% )/%
i02:#1:%$ ..,3 % # %53)- -#*# .#'% #1%1 .03,h% #.%3,*#, %)1% .(,%1).#)1% )/%;( .%
')0*2% ( B,
:$8Y'Y5,
% ( 55,1,28% 12% 3,`0#3, % % ',3. #1% $,1. *% ..#.02,%
;#.(% 3, 5,'.% .)% )1,U % )- ,3B . #)1 D% <% 2)% 1).% 3,')$$,12% ,1: :#1:% 1%
'')01. 1.% #1% %2# '0 #)1% -)0.% 0'(% 53)- -#*# .#'% ')1 #2,3 .#)1 D% F)3%
1% '')01. 1.% %10$-,3%# % %10$-,3D%</%(,%;,3,%#1.,3, .,2%#1%5 3)- -#*#.C%
(,%;)0*2% ( B,% :)..,1% #1B)*B,2% #1%$ )3,%#1.3) 5,'.#B,% 53)/, #)1 % 9% 12%
;)0*2% -,%#1'*#1,2% .)%$ @,% %') .*C%$# . @,% )1%C)03%. ^% 3,.031D%
L(#*,%;,%2)%1).% ,,%.(,%3)0*,..,%- 33,*%) /%3, *#.C8% )$,%5,)5*,%:#B,%#.%
%.3Ch%#.%. @, % % 5,'# *%$#12 ,.%.)%2) % )D%E B#1:% ,,1%(0123,2 %)/%5,)5*,%
,1.,3% 12%,^#.% $C% 53)/, #)1% O'( 3 '.,3#j,2% -C%,^.3,$,% 2,5,12,1',% )1%
3 12)$1, R8% <% ( B,% .) % C % .( .% .() ,% ;() % ( B,% ( 2 % % $)2#'0$% )/%
'#,1.#/#'% .3 #1#1:% .,12%.)% :)%.(,%,^.3 % $#*,D %F)3% $ 1C8% 0'(%.(#1@#1:%# %
,')12% 1 .03,D% +(# % $#:(.% 1).% 1,', 3#*C% ')$,% /3)$% .(,#3 % ' #,1.#/#' %
.3 #1#1: :#$ )#% O-,; 3, % )/% ' 0 *#.CR8% -0.% 5) #- *C % /3)$% .(,% / ' .% .( .%
5,)5*,% ;()% ( B,% 2,'#2,2% .% )$,% 5)#1.% #1% .(,#3% *#B, % .)% 2,B).,%
.(,$ ,*B, % .)% '#,1.#/#'% 3, , 3'(% .,12% .)% ( B,% 1% #1:3 #1,2% #1.,**,'.0 *%
'03#) #.C% 12% % 1 .03 *% .,12,1'C% /)3% 0'(% #1.3) 5,'.#)1D% M 3.#'0* 3*C%
.()0:(./0*% 3,% .() ,% ;()% ( 2% .)% - 12)1% '#,1.#/#'% .02#, % -,' 0 ,% )/%
.(,#3%#1 -#*#.C%.)% @,,5%/)'0 ,2% )1% %1 33);*C% 2,/#1,2%53)-*,$D%L#.()0.%
,^', #B,% #1.,**,'.0 *% '03#) #.C% #.% # % *$) .% #$5) #-*, % .)% ')$5*,., % %
M(DND% .(, # %.(, ,% 2 C 8%-0.%;#.()0.% % 2, #3,%.)% 1 33);*C% 5,'# *#j,% #.% # %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 46/219
[ H%
> T 7 T& U>% L K S& <& V%
#$5) #-*,% .)% $ @,% % '#,1.#/#'% ' 3,,3D% O+(,3,% # % % 2# .#1'.#)18% ();,B,38%
-,.;,,1% .(,%$#12% )/% % 503,%$ .(,$ .#'# 1% .(3#B#1:% )1% - .3 '.#)1% 12%
.( .% )/% % '#,1.# .% ')1 0$,2% -C%'03#) #.CD% K%$ .(,$ .#'# 1% # % - )3-,2%
#1%;( .%:), %#1.)% (# %(, 2 %;(#*,% % '#,1.# .% , 3'(, %#1.)%;( .%# %)0. #2,%
)/ % (#$ ,*/DR % E);,B,38% )$,% 5,)5*,U % ')1',31% /)3% 3 12)$1, % ' 1% -,%
,^', #B,h% <% ( B, % ,B,1 % ,,1 % 5,)5*,% .3 #1,2% #1 % )$,% /#, *2 8% *#@,% C 8%
`0 1.0$% $,'( 1#' 8% 50 (% .(,% #2, % .)% .(,% ).(,3 % ,^.3,$,8% )1*C% ,,#1:%
*.,31 .#B,% (# .)3#, '- 1% #:1)3#1:% .(,% )1,% .( .% '.0 **C% .))@% 5* ',D%
>)$,% .3 2,3 % ' 1% -,%01,^5,'.,2*C% #1.3) 5,'.#B,% -)0.% 3 12)$1, D%<%
3,',1.*C% ( 2% 2#11,3% .% .(,% - 3 % )/% .(,% T2,)1% ;#.(% 7 03,1% SD 8% % .3 2,3 %
;()% ; %3, 2#1:% %23 /.%)/%.(# % -))@ D%L,%/*#55,2% %')#1%.)% ,,%;()%; %
:)#1:%.)% 5 C% /)3% .(,% $, *D% < % *) .% 12% 5 #2D% E,% ; % -)0.% .)% .( 1@%$,%
;(,1%(,% -305.*C% .)55,2% 12% #2d% gS, 2#1:% C)03%-))@% C)0%;)0*2% C%
.( .% < %5 #2% /)3% ( */% )/%#.% 53)- -#*# .#' **CgD %
< % .(0 % B#,;% 5,)5*,% 2# .3#-0.,2% '3) % .;)% 5)* 3% ' .,:)3#, d% )1% )1,%
,^.3,$,8% .() , % ;()% 1,B,3% '',5.% .(,% 1).#)1% )/% 3 12)$1, h% )1 % .(, %
).(,38%.() ,%;()% 3,%.)3.03,2%-C%#.D%L(,1%<% . 3.,2%)1%L **%>.3,,.%#1%.(,%
IPZH 8% .3 2#1:% 3))$ % ;,3, % 5)50* .,2% ;#.( % 5,)5*, % ;#.( % % g-0 #1, %
)3#,1. . #)1g 8% .( .% # 8% :,1,3 **C% 2,B)#2% )/ % 1C% #1.3) 5,'.#)18% / * .% % %
5 1' @,8% 12%*#@,*C% .)% -,% /))*,2% -C%3 12)$1, D%+(,#3% / #*03,% 3 .,% ; %
,^.3,$,*C % ( #:(8% 5 3.#'0 * 3*C % ;(,1 % /#1 1'# *% #1 .30$,1. % : #1,2 % #1 %
')$5*,^#.C D% >)$,();% .3#'@C% 5 3)20'. 8% *#@,% ,^) .#'% )5.#)1 8% ;,3,%
#1.3)20',2% 12% ' 33#,2% ')01.,3#1.0#.#B,% 5 C)// % .( .% ;,3,% .))% 2#//#'0*.%
/)3% )$,)1,%) /% 0'(% '0*.03,% .)%( 12*,D%+(,C% 23)55,2% *#@,%/*#, h% <%2)%1).%
.(#1@% .( . % $ 1C% )/ % .(,% (0123,2 % )/% =JK % )/% $C% :,1,3 . #)1% <% $,.% )1%
L **% >.3,,.% #1% .(,% IPZH % .#** %,1: :,% #1% 0'(% /)3$ % )/%53)/, #)1 *% 12%
2# '#5*#1,2% 3# @% . @#1:D%
4@*b@E28 $ b2@ $ @6;8O*8E$
+(,% IP PH %; #.1, ,2%.(,% 33#B *%)/%5,)5*,9)/%3#'(,3% 12%$)3,% #1.,3, .#1:%
- '@:3)012 8% ;(#'(% $ 2,% .(,% .3 2#1:% 3))$ % / 3% $)3,% ,1.,3. #1#1:D% < %
; % B,2% /3)$% .(,% ')1B,3 .#)1% )/% =JK D% = 1C% ' #,1.# . 8% )$,% )/%
.(,$% ,^.3,$,*C% 0'', /0*% #1%.(,#3% /#,*28% 33#B,2%;#.(% %2, #3,%.)% $ @,% %
-0'@D% +(,C8% #1%.0318% (#3,2% 5,)5*,% ;()%3, ,$-*,2% .(,$D%L(#*,% $) .% )/%
.(, ,% 5,)5*,%;,3,% 1).% M(DND % O#12,,28%.(,%M(DND% # % .#**% %$#1)3#.CR8% .(,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 47/219
K% J < ] KS S 4% K 66 TA &+ < & V% = 4 + E T N%
[ I%
'0*.03,% 12 % B *0, % 022,1*C % '( 1:,2 8% -,')$#1:% $)3,% .) *,3 1.% ) /%
#1.,**,'.0 *% 2,5.(D% <.% ' 0 ,2% 1% #1'3, ,% #1%.(,% *3, 2C% (#:(%2,$ 12% /)3%
'#,1.# . % )1%L **% >.3,,.8% );#1:% .)% .(,% 3 5#2% 2,B,*)5$,1.% )/% /#1 1'# *%
#1 .30$,1. D%+(,% 2)$#1 1.% 5,'# *.C%; %5(C #' 8%-0.%)1,%')0*2%/#12% **%
$ 11,3% )/% `0 1.#. .#B,% - '@:3)012 % $)1:% .(,$D% S0 # 1 8% F3,1'( 8%
6(#1, ,8% 12%<12# 1% '',1. % O-C%)32,3R% -,: 1% 2)$#1 .#1:% #1% -).(% &,;%
?)3@% 12% 7)12)1D% <.% ; % #2 % .( .% ,B,3C % 5 * 1,% /3)$% =) ');% ( 2% . %
*, .% #. % - '@% 3);% /0** % )/% S0 # 1% $ .(,$ .#' *% 5(C #'# . #- $8B(#% .)%
L **% >.3,,.% O.(,C% * '@,2%.(,% .3,,.% $ 3. % .)%:,.%:))2% , . RD% T1,% ')0*2%
( #3,% B,3C % '(, 5 % * -)3% -C % :)#1: % .)% fF_% #35)3.% ; #.( % % O$ 12 .)3CR%
. 3 1 * .)38% 3 12)$*C% #1 .,3B#,;#1:% .() , % .( .% /#..,2% .(,% .,3,).C5, D%
<12,,28% -C% .(,% * .,% IPPH % )1,% ')0*2% :,.% )$,)1,% .3 #1,2% -C% % ;)3*29
'* % '#,1.# .% /)3% *$) .% ( */% .(,% 53#',% )/% 1% =JKD% K % .(,C% C8%
$ 3@,.#1:%# %,B,3C.(#1:h% .(, ,%:0C %2)%1).%@1);% ();%.)% ,**%.(,$ ,*B, D%
< %( 2% % .3)1:%-# % #1%/ B)3% )/%S0 # 1% '#,1.# . h %$ 1C%' 1% -,%50.% .)%
'.#B,%0 ,% %'(, %') '(, % O<% * )%:).% %5# 1)%., '(,3%)0.%)/%.(,%53)', RD%
<1% 22#.#)18% .(,C% 3,% ,^.3,$,*C% (,*5/0*% #1% .(,% #1.,3B#,;% 53)', D% L(,1%
=JK % 55*C% /)3 % .3 2#1:% 5) #.#)1 8% .(,C% /3,`0,1.*C% -) .% g 2B 1',2g%
'(, % @ #** % )1% .(,#3% 3, 0$, D% <% 3,' **% .(,% =JK% ' 3,,3% ')01 ,*)3% .%
L( 3.)1% 3,')$$,12#1:% )03% 2B,3.# #1:% '(, % @#** % g-,' 0 ,% #.% )012 %
#1.,**#:,1.% 12% .3 .,:#'gD%=JK 8%.C5#' **C8%' 1% #1.,353,.%.(,#3% 05,3/#'# *%
@1);*,2:,%) /%.(,%30*, %) /%.(,% : $,% #1.)% g,^5,3.# ,gD% L,% 0 ,2%.)% B,3#/C%
.(,% ''03 'C % ) /% '* #$ % ) /% '(, % ,^5,3.# ,% O 12 % .(,% '( 3 ' ., 3% ) /% .(,%
55*#' 1.R% -C%50**#1:% %'(, % ,.%)0.% )/% % 23 ;,3% 12%.,**#1:% .(,% .02,1.8%
1);% .031#1:% 5 *,d % g?03#% ;#**%( B,% %;)32%;#.(% C)0gD%
+(,% / #*0 3,% 3 .,% ) /% .(, ,% '#,1 .# . 8% .()0:(8% ; % -,.., 38% -0.% )1*C %
*#:(.*C% )%.( 1%.( .%) /%=JK h% -0.%#. %' $,% /3)$% 1).(,3%3, )18% *#1@,2%
.)%.(,#3%-,#1:%)1% B,3 :,%O-0.%)1*C%)1% B,3 :,R%2,B)#2%)/%.(,% $ **, .%-#.%
)/% 53 '.#' *% #1.,**#:,1',D% >)$,% 0'', /0*% '#,1.# . % ( 2% .(,% i02:$,1.%
O 12% )'# *%:3 ', R%)/% %2))3%@1)-%9% -0.%-C%1)%$, 1 % **%)/%.(,$D%= 1C%
5,)5*,%;,3,%' 5 -*,%)/%.(,%$) .%')$5*,^%' *'0* .#)1 %;#.(%0.$) .%3#:)3%
;(,1 % #.% ' $,% .)% ,`0 .#)1 8% -0.% ;,3,% .) . **C % #1' 5 -*,% ) /% )*B#1: % %
5 3)- *,$% ; #.(% .(,% $ **, .% ')11,'.#)1% .)% 3, *#.Ch% #.% ; % % #/% .(,C %
012,3 .))2%.(,%*,..,3%-0.%1).%.(,% 5#3#.% )/%.(,%$ .(D% <% $ %')1B#1',2%.( .%
c 8% % * #@, -*,% S0 # 1%$ 1% )/%$C% '`0 #1. 1',8% ( %.;)% -3 #1 d% )1,%/)3%
$ .(% 12% 1).(,38%')1 #2,3 -*C% #1/,3#)3% )1,8%/)3% ,B,3C.(#1:% ,* ,% O;(#'(%
#1'*02,2% )*B#1:%53)-*,$ %3,* .,2%.)%.(,%$ .(,$ .#' %) /%/#1 1',RD%J0.%)1%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 48/219
[ G% > T 7 T & U >% L K S & <& V%
)'' #)1% % / .9 .(#1@#1:% '#,1.#/#' 9$#12,2% 5,3 )1% ;#.(% .3,,.% $ 3. %
;)0*2 % ,$,3:,D% L( . ,B,3% .(,% -,1,/#. % )/% 0'(% 5)50* .#)1% (#/.8% #.%
#$53)B,2% )03% '(, % @#** % 12% 53)B#2,2% 0 % ;#.(% `0 *#.C% ')1B,3 .#)1%
203#1:% *01'(.#$,% 9% #.% ,^.,12,2% .(,% *01'(% ()03% ')1 #2,3 -*CD% 6)1 #2,3%
.( .%< %( 2%#1%.(,% IPZ H %.)%'( .%;#.(%')**, :0, %;()% ( 2% 1%=JK% )3% . ^%
'')01.#1:% - '@:3)012% 12%;,3,%' 5 -*,%)/%.(,%(,3)#'%/, .%)/%2# '0 #1:%
FK>J% . 12 32 D% <% ( B,% .)% C% .( .% .(,#3% #1.,3, . % ;,3,% 1).% .))%
')1. :#)0 D% +(,% #1.,3, .#1:% .(#1:% -)0.% .(, ,% 5(C #'# . % 2), % 1).% *#,% #1%
.(,#3 % -#*# .C% .)% 2# '0 % /*0#2% 2C1 $#' h% #.% # % .( .% .(,C% ;,3,% 1 .03 **C%
#1 .,3, .,2% #1 % % B 3#, .C % )/% #1 ., **,'.0 *% 0-i,'. % 12% 53)B#2,% 5 *, 1.%
')1B,3 .#)1D%
48*8 $ b242E4
K6SGE6R*
$ 2[KE$ S*fF$
K %.(,%3, 2,3%$ C% *3, 2C% 0 5,'.8%$C%)5#1#)1 % -)0.%3 12)$1, %( B,%
1).% , 31,2%$,%.(,% $)).(, .%) /%3,* .#)1 %; #.(% )$,% )/%$C%5,,3 % 203#1:%
$C%L **%>.3,,.%' 3,,3% O$ 1C%)/%;()$% .(,%3, 2,3%' 1% ,,%#12#3,'.*C%9% -0.%
)1*C% #12#3,'.*C% 9% 5)3.3 C,2% #1% .(, ,% '( 5.,3 RD% J0.% ;(,3,% <%( 2% 01,B,1%
3,* .#)1 % ; % ;#.(% )$,%)/% .() ,%;()% ( 2%.(,% $# /)3.01,% )/% -,#1:%$C%
-) , D% F)3% <%( 2% .;)% -) , % #1%$C%*#/,%) /%')1.3 .#1:% '( 3 '.,3# .#' % #1%
-)0.% ,B,3C% .3 #.D%
+(,% /#3 . 8% ;()$% <%;#** %' **% _,11C8% ; % .(,% ,5#.)$,% )/% .(,% 0-03- 1%
/ $#*C % $ 1D% E,% ;)0*2 % -,% ) /% .(,% .C5,% .) % ') '( % )'',3% )1 % > .032 C %
$)31#1:8% 12%#1B#.,%(# %-3).(,39#19* ;%/)3% %>012 C% /.,31))1%- 3-,'0,D%
E,% : B,% .(,% 55, 3 1',% )/% )$,)1,% <% ;)0*2% .30 .% ;#.(% $C% B#1: % 9
#12,,2% (,% 3) ,% `0#., % 3 5#2*C% #1 % .(,% #1 .#.0.#)1% #1 % 5#., % )/% (# % * '@% )/%
.,'(1#' *% ')$5,.,1',% #1% /#1 1'# *% 2,3#B .#B, % O(# % /#3$U % '* #$% .)% / $,RD%
J0.% (,%; % .))%$0'(% % 1)91)1 ,1 ,% 5,3 )1%.)% $ @,% )0.% $C%*):#'D% E,%
)1',%-* $,2%$,%/)3%1).%-,#1:%#$53, ,2%;#.(%.(,% 0'', , %)/% )$,%)/%(# %
.3 2,3 %;()%2#2%;,**%203#1:%.(,%-0**%$ 3@,.%/)3%403)5, 1%-)12 %)/% IPP[ 8%
;()$% <% )5,1*C% ')1 #2,3,2% 1).(#1:% -,..,3% .( 1% 3 12)$% :01 *#1:,3 D% <%
.3#,2% 53, ,1.#1:% (#$%;#.(% .(,%1).#)1% )/% 03B#B)3 (#5% -# % OM 3.%<<%)/% .(# %
-))@R% #1 % B #1D% E# % .3 2,3 % ( B,% **% ,^#.,2% .(,% -0 #1, % #1',% .(,1% g .)%
503 0,% ).(,3% #1.,3, . g% O#1'*02#1:% (#$RD% J0.% (,%: B,% .(,% 55, 3 1',% )/%
-,#1:% %' *$8%$, 03,2%$ 18%;()% 5)@,%(# %$#12% 12%@1,;%();%.)% 50.%
.(,% ) .(,3% 5,3 )1 % .% , ,% 203#1: % % ')1B,3 .#)1D% E,% ; % 3.#'0 * ., 8%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 49/219
K% J <] K SS 4% K 66 T A& + < & V% = 4 + E T N%
[ [%
,^.3,$,*C%53, ,1. -*,%.( 1@ % .)%(# % .(*,.#'% *))@ 8%;,**%$, 03,2% #1%(# %
5,,'(8% 12%; % ,12);,2% ;#.(% .(,% ,^.3,$,*C% 3 3,% `0 *#.C% )/% -,#1:% 1%
,^',**,1.%*# .,1,3D%E # %5,3 )1 *%'( 3$ % **);,2%(#$%.)%;#1%.(,%')1/#2,1',%
)/%.(,%'( #3$ 1%9% -0.% <%')0*2% 1).%')1', *%$C%2# 3, 5,'.8%5 3.#'0* 3*C% %
(,% ')0*2% 1).% $ @,% )0.% .(,% 1 .03,% )/% $C%')1B,3 .#)1D% <1 % 5#., % )/% (# %
')1 ,3B .#B,% *))@ % (,%; % % 5,3/,'.%.#$,% -)$-8% .#'@#1:% ; CD%
+(,% ,')128%;()$% <%;#**%' **%f, 19M .3#',8% #1%')1.3 .8% ; % %$))2C%
F3,1'($ 1% ;#.(% 1%,^5*) #B,%.,$5,3% 12% %(C5,39 ::3, #B,% 5,3 )1 *#.CD%
4^',5.%/)3%.() ,%(,%.30*C%*#@,2%O1).%.( .%$ 1CR8%(,%; %,^5,3.% .%$ @#1:%
(# % 0-)32#1 ., % 01')$/)3. -*, 8% 50..#1:% .(,$% #1 % % . ., % )/% ')1 . 1.%
1^#,.CD%E,%:3, .*C%')1.3#-0.,2%.)%$C%/)3$ .#)1% % %3# @9. @,3h% (,%# %)1,%
) /% .(,% B,3C % 3 3,% 5,)5*,% ;()% ( B,% .(,% :0. % .)% ' 3,% )1*C% -)0.% .(,%
:,1,3 .)38% ,1.#3,*C% )-*#B#)0 % )/% .(,% 3, 0*. D% E,% 53, ,1.,2% .(,%;# 2)$% )/%
>)*)18% -0.8%;(#*,%)1,%;)0*2%,^5,'.% )$,)1,%;#.(% 0'(%5,3 )1 *%;# 2)$%
12% 0'(% 012,3 . 12#1:% )/% 3 12)$1, % .)% *, 2% % 20**% * #/,8% (,% *#B,2% %
')*)3/0*% )1,D% <1% ')1.3 .% ;#.(% _,11C8%;()% ;)3,%')1 ,3B .#B,% 2 3@% 0#. %
12%;(#.,% (#3. % O(# %)1*C%#120*:,1',%; %/* (C%,`0, .3# 1%E,3$, % .#, R8%
f, 1 9M .3#',% 23, ,2%*#@,% %5, ')'@d% -*0,% (#3. 8%5* #2% 5)3. %') . % .0//,2%
;#.(%: 02C% #*@%5)'@,.% `0 3, D%&) %/ $#*C9$#12,2%$ 18%(,%3 3,*C%' $,%.) %
;)3@%-,/)3,%1))1%9% .()0:(%<%' 1% /,*C% C%.( .%(,%' 33#,2%(# %;)3@%;#.(%
(#$% .)%.(,%$) .% 01*#@,*C%5* ', D% E,% /3,`0,1.*C% ' **,2%$,% /3)$ K#+%-#R)N
1%05 ' *,%1#:(.9'*0-%#1%&,;%?)3@8%; @#1:%$,%05% .%.(3,,%#1%.(,%$)31#1:%
.)%2# '0 % )$,% $ **%O 12%#33,*,B 1.R%2,. #* %)/%$C%3# @%,^5) 03,D% <1% 5#.,%
)/% (# % *#:(.% ')350*,1', 8% ;)$,1% ,,$,2% .) % /#12% (#$% #33, # .#- *,h% (, %
/3,`0,1.*C% 2# 55, 3,2% .% $#22 C% 12%; % 013, '( -*,% /)3% ()03 D% E# %
2B 1. :,% $#:(.% ( B,% -,,1% #1% (# % -,#1:% % &,;% ?)3@% F3,1'($ 1% ;#.(%
., 2C% - .(#1:%( -#. D%T1',8%3,',1.*C8%(,% #1B#.,2%$,%.)% 2# '0 % 1% 03:,1.%
-0 #1, %# 0,%;#.(%(#$D%6( 3 '.,3# .#' **C8%<%/)012%(#$%$ #29 /.,31))1% #1%
% .3 1:,%g '*0 -g% #1%M 3# %.( .%' 33#,2%1)%1 $,5* .,% 12%;(,3,%(,% .%;#.(%
2)'0$,1. % .3,;1% '3) %.(,%. -*,%/3)$%(#$D%>#55#1:%'( $5 :1,8%(,%; %
#$0*. 1,)0 *C% ' 3, ,2% -C%.;)% ' 1.#*C%23, ,2%C)01:%* 2#, D% >.3 1:,*C8%
(,%#1B)*B,2%.(,$% #1%.(,%')1B,3 .#)1% %#/%.(,C%;,3,%5 3.%)/%.(,%$,,.#1:D%
E,%,B,1%( 2%)1,%)/%.(,%* 2#, %5#'@%05%(# %')1 . 1.*C%3#1:#1:%$)-#*,%5()1,%
%(,%2#2%1).%; 1.%)03%')1B,3 .#)1% .)% -,%#1.,3305.,2D%
<% $% .#**% $ j,2% .%.(# %/* $-)C 1.%$ 1U %)- , #)1%;#.(%3# @ 8%;(#'(%
(,%')1 . 1.*C%5* C,2%#1%(# %(, 2%9% (,%*#.,3 **C%.()0:(.% )/%,B,3C.(#1:% .( .%
')0*2%5) #-*C%( 55,1D%E,% /)3',2%$,%.)%$ @,% 1% *.,31 .#B,%5* 1% ()0*2%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 50/219
[ W%
> T 7 T& U>% L K S& <& V%
%5* 1,%'3 (%#1.)%.(, 8<<%/#% -0#*2#1:%9 % 12%/0$,2% . %$C '-)?#$ (A'( (A#
/#1 1' # *%')12#.#)1% )/%(# %2,5 3.$,1.%;)0*2%-,%)/% $ **%#1.,3, .%.)%$,%#1%
0'(% ' #3'0$ . 1', D% E,% ( 2% % ()33#-*, % 3,50. .#)1% % % 5(#* 12,3,38% %
.,$5,3 $,1. *% -) %' 5 -*,%) /%/#3#1:% )$,)1,% .% %;(#$8%C,.%(,%*# .,1,2%
.)%$,% 12%012,3 .))2%,B,3C%;)32%<%( 2%.)% C8%,1')03 :#1:%$,%.)%:)%.(,%
,^.3 % $#*, % #1 % $C% .02C% )/% 3 12)$1, D% E,% . 0:(.% $,% .)% *))@% /)3 % .(,%
#1B# #-*,% 3# @ % )/% -*);05%#1% 1C%5)3./)*#)D%&).%')#1'#2,1. **C8% (,%( % 1%
#$$,1 ,% 3, 5,'.% /)3% '#,1',% 12 % 1% *$) .% / ;1#1:% 2,/,3,1',% /) 3%
'#,1.# . h% % 2,' 2,% )3% )% /.,3% ;,% ;)3@,2 % .):,.(,3% (,% ();,2 % 05%
01,^5,'.,2*C% 203#1:%.(,%2,/,1 ,% )/%$C%2)'.)3 *% .(, # 8% $#*#1:%/3)$% .(,%
- '@% )/% .(,% 3))$D % L(#*, % _,11C% @1,;% ();% .)% ' *#$-% .(,% * 22,3% )/% 1%
#1 .#.0.#)18%3, '(#1:% %(#:(%*,B,*%#1%.(,%)3: 1#j .#)1%-,/)3,%-,#1:%/)3',2%
)0.8%f, 19M .3#',% 2#2%1).%( B,% 0'(% %( 55C%' 3,,38% %$ ..,3%.( .% . 0:(.%
$,%.)% -,; 3,% )/%$ .03,% /#1 1'# *% #1 .#.0.#)1 D%
<.% ' 1 % -,% 2 # .03-#1: % /)3% $ 1C% ,*/9 .C*,2 % g-)..)$% *#1,g% )3#,1 .,2 %
5,)5*,%.)%-,%`0, .#)1,2% -)0.%.(,%(# .)3#, %.( .%2#2%1).% . @,% 5* ',%3 .(,3%
.( 1% .(,% )1, % .( .% '.0 **C%( 55,1,2D% 6*, 3*C8% .)% % 1)91)1 ,1 ,% 5,3 )1%
)/% .(,% g 0'', /0 *% #1 % -0 #1, g% B 3#, .C 8% $C% * 1:0 :,% O 128% <% ( B, % .) %
3,'@)18% )$,% .3 #. % )/% $C% 5,3 )1 *#.CR% 55, 3% .3 1:,% 12% #1')$53,9
(,1 #-*,D% +)% $C% $0 ,$,1.8%.(,% 3:0$,1.% 55, 3 % )//,1 #B,% .)% $ 1CD%
+(,% ')1.3 .% -,.;,,1% _,11C% 12% f, 19M .3 #',% # % 1).% % $,3, % ')#19
'#2,1',% #1% % 53).3 '.,2% ' 3,,3D% J,; 3,% .(,% 5,12.(3#/. % g-0 #1, ;# ,g%
5,3 )1h% .(,%',$,.,3C% )/%$ 3@,. %# %2# 53)5)3.#)1 .,*C% ;,**% .)'@,2%;#.(%
.(,% ,*/9 .C*,2% g-)..)$% *#1,g% 5,)5*,D% <1% ')1.3 .% ;#.(% .(,#3% '0 .)$ 3C%
= .,3 % )/%.(,%A1#B,3 ,%2,$, 1)38%.(,C% 022,1*C%*))@%5 *,8%(0$-*,% 12%
()3$)1,92,53#B,2% )1%.(,%; C%.)% .(,%5,3 )11,*% )//#',% /)3%.(,%'0 .)$ 3C%
2# '0 #)1% )/% .(,% ,B,3 1',% :3,,$,1.D%
F(#*8(& G.11& ?,& 3#& <#1#/H&
I/& 0#$/%(*./%$.%.D(A& 4*$%',&
S, *# $%' 1%-,%501# (#1:D%M3)- -#*# .#'% @,5.#'# $% # %;)3 ,D%<.%# %2#//#'0*.%
.)% :)% -)0.% *#/,% ;, 3#1:%53)- -#*# .#'% :* , 8% % )1,% . 3. % ,,#1:% /))* %
)/%3 12)$1, % **% 3)0128% #1% % B 3#,.C% )/% #.0 .#)1 % 9% )-203 .,% #1%.(,#3%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 51/219
K% J <] K SS 4% K 66 T A& + < & V% = 4 + E T N%
[ \%
5,3',5.#)1 *% #**0 #)1D% +)% . 3.8% #.% # % #$5) #- *, % .) % 3, 2% % ( # .)3# 1U %
1 *C # %;#.()0.% `0, .#)1#1:%.(,%#1/,3,1', d%;,%@1);% .( .%E 11#- *% 12 %
E#.*,3% ;,3,% $ 2% #1 % .(,#3 % 503 0#. 8% % S)$,% # % 1).% .)2 C% M(),1#' # 19
5, @#1:% 12% +#$ , % >`0 3,% #1% & ,;% ? )3@% '033,1.*C% ,^(#-#. % 1)%
; .#@ D% J0.% ;( .% )/% **% .() , % :,1,3 * % ;()% ;,3, % ,`0 **C % /))*# ( 8%
-0.% ,12,2% 05 % ;#11#1:% .(,% ; 3% 12% ')1 ,`0,1.*C % .(,% , .,,$% )/% .(,%
(# .)3#' *% '(3)1#'*,3a%<.%# %( 32%.)%.(#1@%)/%K*,^ 12,3%.(,%V3, .%)3%f0*#0 %
6 , 3% %$,1%;()%;)1%)1*C% #1%.(,%B# #-*,%(# .)3C8% -0.%;()% ')0*2%( B,%
0//,3,2% 2,/, .% #1%).(,3 D% </%;,%( B,% (, 32% )/% .(,$8%#.% # % #$5*C% -,' 0 ,%
.(,C% .))@% ')1 #2,3 -*,% 3# @ 8% *)1:% ; #.(% .()0 12 % ) /% ).(,3 % 12 %
( 55,1,2% .)% ;#1D% +(,C% ;,3,% #1.,**#:,1.8% ')03 :,)0 8% 1)-*,% O .% .#$, R8%
( 2% .(,% (#:(, .% 5) #-*, % )-. #1 -*, % '0*.03,% #1 % .(,#3% 2 C% 9% -0.% )% 2#2%
.()0 12 % )/% ).(,3 %;()% *#B,%#1%.(,%$0 .C%/)).1)., % )/%(# .)3CD% K: #1%<%
$%1) .%')1., .#1:%.( .%.(,C%;)1%.(,#3%; 3 %9% )1*C%.(,%'* #$ % ')1',31#1:%
.(,% `0 *#.C% )/% .(,#3% .3 .,:#, D% O=C% B,3C% /#3 .% #$53, #)1% 05)1% % 3,',1.%
3,3, 2#1:%) /%.(,
M5%'1N
% .(,%/#3 .% #1%$C% 20*.())28%# %.( .%.(,%,5#'%5),.%2#2%
1).% i02:, % (# % (,3), % -C% .(,% 3, 0*.d% (,3), % ;)1% 12% *) .% - ..*, % #1 % %
$ 11,3% .( .% ; % .). **C % #12,5,12,1.% )/% .(,#3% );1% B *)3h% .(,#3 % / ., %
2,5,12,2% 05)1% .). **C% ,^.,31 *% /)3', 8% :,1,3 **C% .(,% ,^5*#'#.% :,1'C% )/%
.(,% '(,$#1:% :)2 % O1).% 2,B)#2% )/%1,5).# $RD% E,3), % 3,%(,3), % -,' 0 ,%
.(,C% 3,%(,3)#'% #1%-,( B#)38%1) .%-,' 0 ,% .(,C%;)1%)3%*) .D%M .3)'*, %2), %
1).% .3#@,% 0 % % % (,3)% -,' 0 ,% )/% (# % '')$5*# ($,1. % O(,%; % 3 5#2*C%
@#**,2R% -0.% -,' 0 ,% (,% 53,/,33,2% .)% 2#,% .( 1% ,,% K'(#**, % 0*@#1:% #1.)%
#1 '.#)1D% 6*, 3*C%.(,%,5#'%5),. %012,3 .))2% #1B# #-*,% (# .)3#, D%K* )%* .,3%
.(#1@,3 % 12 % 5),. % ( 2 % $)3,% ,* -)3 .,% $,.()2 % /) 3% 2, *#1:% ; #.(%
3 12)$1, 8% %;,%;#**% ,,%;#.(% .)#'# $DR%
7# .,1#1:%.)% .(,%$,2# 8%$) .*C% -,' 0 ,% <% $ %1) .%0 ,2%.)%#.8%' 1% ' 0 ,%
$,% )1% )'' #)1% .)% i0$5%)0.%)/%$C% , .% 12% -,')$,% ,$).#)1 *% #1% /3)1.%
)/% .(,%$)B#1:% #$ :,% O<%:3,;% 05%;#.(% 1)% .,*,B# #)1% 12%; % #1%$C% * .,%
.;,1.#, % ;(,1 % <% *, 31,2 % .) % )5,3 .,% % +Y % ,.RD% T1,% #**0 .3 .#)1% ) /% %
2 1:,3)0 % 3,/0 *% .)% ')1 #2,3% *.,31 .#B,% (# .)3#, % # % 53)B#2,2% -C% .(,%
#1.,3B#,;% .( .% $,2# % 5,3 )1 % V,)3:,% L# **8% % g ')$$,1. .)3g% ) /% .(,%
,^.,1 #B,*C % ')$$,1.#1:% B 3#,.C 8% ')120'.,2% ;#.( % M3)/, )3% S)-,3.%
>(#**,38% % $ 1% @1);1% .)% .(,% 50-*#'% /)3% (# % -, .9 ,**#1:% -))@ M$$'(%8-'5
67BY#$'-/#N
% -0.%@1);1% .)% .(,% ')11)# ,03% /)3 %(# % 3,$ 3@ -*, % #1 #:(. %
-)0.% .(,% .30'.03,% )/% $ 3@,.% 3 12)$1, % 12% B)* .#*#.C% O,^53, ,2% #1%
.(,%53,'# #)1% )/% $ .(,$ .#' RD %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 52/219
[ X% > T 7 T & U >% L K S& <& V%
+(,% #1.,3B#,;% # %#**0 .3 .#B,% )/%.(,%2, .30'.#B,% 5,'.% )/% .(,%$,2# 8%#1%
' .,3#1:%.)%)03%(, B#*C%; 35,2%')$$)1% ,1 ,% 12%-# , D%<%; %.)*2%.( .%
V,)3:,% L#**% ; % B,3C% / $)0 % 12% ,^.3,$,*C% 3, 5,'.,2% O.( .% # 8% /)3 % %
i)031 *# .RD% E,% $#:(.% ,B,1% -,% )$,)1,% )/% 0.$) .% #1.,**,'.0 *% #1.,:3#.Ch%
(# %53)/, #)18% ();,B,38% # %$,3,*C%.)% )012% $ 3.% 12% #1.,**#:,1.% .)% .(,%
()32, D% >(#**,38% )1 % .(,% ).(,3% ( 128% 012,3 . 12 % .(,% #1 % 12% )0. % )/%
3 12)$1, h%(,%# %.3 #1,2% .)%2, *%;#.(%3#:)3)0 % 3:0$,1. .#)18% -0.%2), %
)012% *, % $ 3.% #1% 50-*#'% -,' 0 ,% (# % 0-i,'.% $ ..,3% # % (#:(*C%
')01.,3#1.0#.#B,D% >(#**,3% ( 2% -,,1% 53)1)01'#1:% .(,% .)'@% $ 3@,.% .)% -,%
)B,353#',2% /)3% % *)1:% . #$,D% V,)3:,% L#**% #12#' .,2% .)% >(#**,3% .( . % ( 2%
5,)5*,% *# .,1,2% .)% (#$% #1% .(,% 5 . % .(,C% ;)0*2% ( B,% *) . % $)1,C8% % .(,%
$ 3@,.% ( % $)3,% .( 1% 2)0-*,2% #1',% (,% . 3.,2% 53)1)01'#1:% #.%
)B,3B *0,2D% +)% 0'(% % i)031 *# .#'% 12% ;,**% )012#1:% O-0.% ,1 ,*, R %
3:0$,1.8% >(#**,3%; % 01 -*,% .)% 3, 5)12%,^',5.% .)% ,^5* #1% .( .% .(,% / '.%
.( .% (,% ; % ;3)1:% #1 % )1,% #1:*, % $ 3@,.% ' **% ()0*2% 1).% ' 33C% 0120,%
#:1#/#' 1',D% >(#**,38% % % '#,1.# .8% 2#2%1).% '* #$% -,#1:% % 53)5(,.% )3%)1,%
)/% .(,% ,1.,3. #1,3 % ;()% ')$$,1.% )1% .(,%$ 3@,. % )1% .(,% ,B,1#1:% 1,; D%
?):#%J,33 %;)0*2%( B,%( 2% %-,..,3%.#$,%;#.(%(# %')1/#2,1.%')$$,1.%)1%
.(,% / .% * 2C%1).% ( B#1:% 01:% C,.D %
<%')0*2% 1).% 012,3 . 12% ;( .% >(#**,38% 01.3 #1,2% .)% ')$53, % (# % #2, %
#1 .) % B 5#2% )0129-#., 8% ; % 2)#1:% )1% 0'( % % +Y% ();D% 6*, 3*C 8% #.% # %
/))*# ( % .)% .( #1@% .( . % 1 % #3 3 .#)1 *% $ 3@,.% ' 11).% -,')$,% ,B,1 % $)3, %
#33 .#)1 *h% >(#**,3U % B#,; % )1 % .(,% 3 .#)1 *#.C % ) /% .(,% $ 3@,.% 3,% 1).%
#1B *#2 .,2%-C%.(,% 3:0$,1.%.( .%(,%; %;3)1:%#1%.(,%5 .D%E,3,% <%')0*2%
1).% (,*5% ,,#1:% #1% .(,% 5,3 )1% )/% V,)3:,% L#**% .(,% 3,53, ,1. .#B,% )/% )%
$ 1C%1#:(.$ 3, %#1%$C%' 3,,3h%$C% ..,$5.#1:% .)%53,B,1.% )$,)1,% /3)$%
5* C#1:% S0 # 1% 3)0*,..,% /)3% pI H% $#**#)1% 12% ,,#1:% i)031 *# . % V,)3:,%
L #**% (0$#*# .#1:%$,%#1% 50-*#'% -C% C#1:%.( .% ( 2%.(,% 5,3 )1% *# .,1,2%.)%
$,% #. % ;)0*2% ( B,% ') . % (#$% % ')1 #2,3 -*,% /)3.01,D% <1% 22#.#)18% L#** U %
')$$,1.% ; % 1).% 1 % )//9 .(,9'0/ /% 3,$ 3@h% (, % ;3)., % 1 % 3.#' *, % )1% .(,%
$ ..,3% 2# '0 #1:% >(#**,3U % - 2% g53)5(,'CgD% >0'(% .,12,1'C%.)%$ @,% 12%
01$ @,%53)5(,. %- ,2%)1%.(,%/ .,%) /%.(,%3)0*,..,%;(,,*%# % C$5.)$ .#'%
) /% )03% :,1,.#'% #1 -#*#.C% .)% ')5,% ; #.(% .(,% ')$5*,^% .30'.03,% ) /%
3 12)$1, % 53,B #*#1: % #1% .(,% $)2,31% ;)3*2 D% =#^ #1:% /) 3,' .% 12 %
53)5(,'C% # % C$5.)$ .#'% )/% 3 12)$1, % /))*# (1, % O53)5(,'C% -,*)1: %
.)% .(,%3#:(.% ')*0$18% /)3,' .% # % #. %$,3,% *,/.9')*0$1% ,`0#B *,1.RD%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 53/219
K% J < ] K SS 4% K 66 T A& + <& V% = 4 +E T N%
[ Q%
K fH 2 * 2@ E 6 X$ 2 $ X 6 F@ E 64$
6*, 3*C8% .(# % #2, % )/% *.,31 .#B,% (# .)3C% 2), % 1).% $ @,% #1.0#.#B,% ,1 ,8%
;(#'(%# %;(,3,%.(,%/01%-,:#1 D%F)3% . 3.,3 8%;,% 3,%1).%;#3,2%#1% %; C%.)%
012,3 . 12% 53)- -#* #.C8% % 5)#1.% .( .% ;,% ;#**% ,^ $#1,% - '@; 32% 12%
/)3; 32% #1%.(# % -))@D% <%;#**% i0 .% C% .% .(# % 5)#1.% .( .% 3, , 3'(,3 % )/%.(,%
-3 #1% -,*#,B,% .( .% $ .(,$ .#' *% .30.( % $ @,% *#. .*,% ,1 ,% .)% )03% $#128%
5 3.#'0* 3*C% ;(,1% #.% ')$, % .)% .(,% ,^ $#1 . #)1% )/% 3 12)$% )0.')$, D%
=) .% 3, 0*. % #1 % 53)- -#*# .C% 3,% ,1.#3,*C% ')01.,3#1.0#.#B,h% ;,% ;#**% ,,%
5*,1.C%) /%.(,$D%+(,1%;(C% 3:0,%;#.(% %$,3,%i)031 *# .%;() ,%5 C'(,'@%
')$, % /3)$%5* C#1:% )1%.(,%')1B,1.#)1 *%;# 2)$% )/%.(,%()32, a% <%3,' **%
.( .%,B,3C%.#$,% <%( B,%-,,1%(0$#*# .,2% #1% %50-*#'%2# '0 #)1%)1%$ 3@,. %
-C% )$,)1,% O)/% .(,% V,)3:,%L#**% B 3#,.CR% ;()% ,,$,2% .)% 53, ,1.% $)3,%
5 * . -*,% 12%, #,3%.)% 012,3 . 12% 3:0$,1. 8%<%.031,2%)0.% O$0'(%* .,3R%
.)% -,%3#:(.D%<%2) %1).% 2# 50.,% .( .% 3:0$,1. % ()0*2%-,% #$5*#/#,2%.)% .(,#3%
$ ^#$0$%5).,1.# *h% -0.%5,)5*,%)/.,1%')1/0 ,%')$5*,^%#2, %.( .%' 11) .%
-,% #$5*#/#,2 % #1 .) % % $,2# 9/3#,12*C % . .,$,1.% % C$5.)$ .#'% ) /% %
')1/0 ,2% $#12D% =JK % *, 31% .(,% ')1',5.% )/% '* 3#.C% 12% #$5*#'#.C8% .(,%
/#B,9$#10.,9$ 1 :,3% . @, % )1 % .( #1: D% +(,% ')1',5.% $ C% 55*C % .) % .(,%
-0 #1, % 5* 1 % /)3% % /,3.#*#j,3% 5 * 1 .8% -0.% 1).% .) % (#:(*C % 53)- - #*# .#'%
3:0$,1. % 9% ;(#'(% # % .(,% 3, )1% <% ( B,% 1,'2). *% ,B#2,1',% #1% $C%
-0 #1, % .( .% =JK % .,12% .)% -*);% 05% #1% /#1 1'# *% $ 3@,. 8% % .(,C% 3,%
.3 #1,2%.)% #$5*#/C%$ ..,3 % %')05*,% )/% .,5 % -,C)12%.(,#3%3,`0#3,$,1.% O<%
-,:%.(,%=JK% 3, 2,3%1).%.)%. @,% )//,1 ,h%<% $%$C ,*/%.(,%01( 55C%()*2,3%
)/%.(,%2,:3,,RD%
J,; 3,% .(,% ')1/0 #)1% -,.;,,1% ')33,'.1, % 12% #1.,**#:#-#*#.CD% M 3.% )/%
')1B,1.#)1 *% ; # 2)$ % / B)3 % .(#1: % .( .% ' 1% -,% ,^5* #1,2% 3 .(,3%
#1 . 1.*C % 12 % g#1 % % 10. (,**g% 9% #1 % $ 1C% '#3'*, % #.% # % ')1 #2,3,2 % * ; D%
E B#1:% ..,12,2% % F3,1'(% ,*,$,1. 3C% '())*8% 5,/## :$%.'%$#N% <% ; %
.3 #1,2% .)%3,( (% .(,%5)50* 3% 2 :,d%
@# CB% )# /8-+8%( Y%#- )R#-8-/# /5'%$#.#-(
6( 5#) .8() :8B$ 5# 1%$# &%#--#-( '%)#.#-(
T A'( %) #'), (8 /8-/#%&# %) /5#'$ (8 #7:$#))iT8$1) (8 )', %( ?8B 51 /8.#
#<<8$(5#))5,e
+(,% 3, 2,3% ' 1% #$ :#1,% $C% 2# 55)#1.$,1.% .% 3, *#j#1:8% ;(#*,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 54/219
[ Z% > T 7 T & U >% L K S& <& V%
:3);#1:% 05% % %53 '.#.#)1,3% )/%3 12)$1, 8% .( .%$) .%5),.#'% )012#1:%
2 :, % 3,% 5* #1% ;3)1:D% J)33);,2% ;# 2)$% ' 1% -,% B#' #)0 D% <% 1,,2% .)%
$ @,% %(0:,%,//)3.%1).%.)% -,% ; C,2%-C%;,**9 )012#1:%3,$ 3@ D%<%3,$#12%
$C ,*/% )/% 4 #1 .,#1U % 3,$ 3@% .( .% ')$$)1% ,1 ,% # % 1).(#1:% -0.% %
')* *,'. #)1% )/% $# ')1',5.#)1 % '`0#3,2% -C% :,% IZD% F03.(,3$)3,d ?A'(
)8B-1) %-(#55%+#-( %- ' /8-&#$)'(%8- 8$ ' .##(%-+N 8$N :'$(%/B5'$5, %- (A#
.#1%'N %) )B):%/%8B)e
K1C%3, 2#1:% )/% .(,% (# .)3C% )/% '#,1',%;)0*2% ();% .( .% *$) .% **% .(,%
$ 3.% .(#1: %.( .% ( B,% -,,1%53)B,1% -C% '#,1',% 55, 3,2% *#@,% *01 '#, % .%
.(,% .#$,% .(,C% ;,3,% /#3 .% 2# ')B,3,2D% +3C% .)% ,^5* #1% .)% a8-18- F%.#)
i)031 *# .%#1%I PH \% .( .%.#$,% *); %2);1%;(,1%)1,%.3 B,* % O,B,1%.(,%&)-,*%
')$$#..,,% 1,B,3%:3 1.,2%4#1 .,#1% .(,%53#j,%)1% '')01.% )/%(# %#1 #:(.% )1%
5,'# *%3,* .#B#.CRD%T 3% .)% )$,)1,%;#.(%1)% ,^5) 03,%.)% 5(C #' %.( .% .(,3,%
3,% 5* ', % #1% )03% 01#B,3 ,% ;(,3,% .#$,% 2), % 1).% ,^# .D% +3C% .)% ,^5* #1% .)%
_,11C%.( .8% *.()0:(%(# % . 3%.3 2,3%( 2%$ 2,%(#$% %*).%)/%$)1,C8%<%( B,%
,1)0:(% 3:0$,1. % .)%')1B#1',% (#$%.( .% (,%# % %2 1:,3)0 % #2#).D%
;245$ H@ @[6;4$
6)35)3 .#)1 % 12%/#1 1'# *% #1 .#.0.#)1 %( B,%3,',1.*C% '3, .,2%.(,% .3 1:,%
5) #.#)1% )/% 3# @ % $ 1 :,38% )$,)1,% ;()% # % 055) ,2% .)% $)1#.)3% .(, %
#1 .#.0.#)1% 12%B,3#/C%.( .%#.%# %1).% .))% 2,,5*C%#1B)*B,2% #1%.(,% -0 #1, % )/%
5* C#1:% S0 # 1% 3)0*,..,D % 6*, 3*C8%( B#1:% -,,1% -031,2% % /,;% .#$, 8% .(,%
#1',1.#B,% # % .(,3,% .)% ( B,% )$,)1,% . @,% % *))@% .% .(,% :,1,3 .)38% .(,%
3)0*,..,%.( .%53)20', % .(,%53)/#. % 12%*) , D%K*.()0:(% #.% # %$)3,%/01%.)%
.3 2,8%$ 1C%,^.3,$,*C% $ 3.% 5,)5*,% $)1:%$C% /3#,12 % O#1'*02#1:%f, 19
M .3#',R% /,*.% ..3 '.,2% -C% 0'(%5) #.#)1 D%<.%# % 1% #$5)3. 1.% 12% ..3 '.#B,%
/ '. % .( .% .(,% B,3 :,% 3# @% $ 1 :,3% , 31 % $)3,% .( 1% .(,% B,3 :,% .3 2,3%
O5 3.#'0* 3*C% ;(,1%;,%. @,% #1.)% '')01.%.(,%10$-,3%) /%.3 2,3 % .(3);1%
)0.%) /%.(,%-0 #1, RD% J0.%.(,#3%i)-% /,,* % .3 1:,8%/)3% .(,%/)**);#1:% 3, )1d%
%;,% #28%.(,%:,1,3 .)3%)/% 3, *#.C%# %1).%)- ,3B -*,D%+(,C% 3,%*#$#.,2%#1%
.(,#3% 5);,3%.)% .)5%53)/#. -*,% .3 2,3 %/3)$% . @#1:% 3# @ 8%:#B,1%.( .% .(,C%
;)0*28 #7 :8)(% -,% ''0 ,2% -C% .(,% V,)3:,% L#** % 3)012% )/ % ') .#1:% .(,%
( 3,()*2,3% )$,% 53,'#)0 % )55)3.01#.C% (,@,* D% T1% .(,%).(,3%( 128%.(,%
)''033,1',%)/% %-*);05%;)0*2%' 0 ,%.(,$%.)% -,%3, 5)1 #-*,%/)3%#.D%L( .%
.)% 2)% #1% 0'(% '#3'0$ . 1', a%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 55/219
K% J < ] K S S 4% K 6 6 T A & + <& V% = 4 + E T N% [ P%
+(,#3% /)'0 % -,')$, % .)% 5* C% 5)*# .#' 8% ')B,3 % .(,$ ,*B, % -C% # 0#1:%
B :0,*C % 5(3 ,2% #1 .,31 *% $,$)3 12 % .( .% ; 31 % : #1 .% 3# @9. @#1:%
'.#B#.#, % C,.% .)5% ()3.%) /%')$5*,.,*C% ')12,$1#1:% #.8%*, .%.(,C%*) ,%.(,#3%
i)- D%7#@,% %2)'.)3%.)31%-,.;,,1%.(,%.;)%.C5, %)/%,33)3 8%.(,%/ * ,%5) #.#B,%
O.,**#1:%.(,%5 .#,1.% (,%( %' 1',3%;(,1% #1%/ '.%(,%2), %1).R% 12%.(,% / * ,%
1,: .#B,% O.,**#1:% .(,% 5 .#,1.% (,%# % (, *.(C% ;(,1% #1% / '.% (,%( % ' 1',3R8%
.(,C% 1,,2% .)% - * 1',% .(,#3% ,^# .,1',% ;#.(% .(,% / '.% .( .% .(,C% #1(,3,1.*C%
1,,2% )$,%$ 3:#1%)/% ,33)3%#1%.(,#3%-0 #1, D%F)3%$C%5 3.8% <%3, )*B,2%.(,%
53)-*,$% *)1:% :)% -C% -,#1:% -).(% .(,% 3# @% $ 1 :,3% 12% .(,% -) % . % $C%
'033,1.% )5,3 .#)1D%
< % ')1'*02,% .(,%'( 5.,3% ;#.(% %53, ,1. .#)1% )/%.(,%',1.3 *% 5 3 2)^% )/%
$C%' 3,,3% #1%/#1 1'# *% 3 12)$1, D%JC% 2,/#1#.#)18%<%:)% : #1 .%.(,%:3 #18%
)% #.% ()0*2% ')$,% %1)% 0353# ,% .( .%$C% .C*,% 12%$,.()2 % 3,%1,#.(,3%
5)50* 3%1)3% , C%.)%012,3 . 12D%J0.%<%$ 1 :,%$)1,C%/)3%).(,3 8% 12%.(,%
;)3*2%# %1).%i0 .%5)50* .,2%;#.(%- --*#1:%-0.%0*.#$ .,*C% #1')1 ,`0,1.# *%
i)031 * # . % ;#.( % 1)% $)1,C% .) % #1B, .D% >)% $C% ;# ( % # % /)3% #1B, .)3 % #1 %
:,1,3 *%.)% 3,$ #1%/))* % )/%3 12)$1, % O )%<%' 1% .3 2,% : #1 .%.(,$R8%C,.%
.( .%.(,3,%3,$ #1% %$#1)3#.C%#1.,**#:,1.%,1)0:(%.)%B *0,%$C%$,.()2 % 12%
055*C%$,%;#.(% ' 5#. * D% < %; % /)3.01 .,% .)% $,,.%N)1 *2% >0 $ 1% ;()%
')33, 5)12 % .)% 0'(% #2, *% #1B, .)3h%(,% (,*5,2%$,%#1% .(,% ,')12% . :,% )/%
^1C% ' 3,,3% -C% - '@#1:% .(,% . 3.05% )/% 4$5#3#' 8% $C% .3 2#1:% /#3$8% .(0 %
/3,,#1:%$,%/3)$% .(,% #** %)/%L **% >.3,,.% ,$5*)C$,1.D%=C% :3, ., .% 3# @%# %
.)% -,')$,% 0'', /0*8% % #.% ;)0*2% $, 1% .( .% $C% -0 #1, % # % -)0.% .)%
2# 55, 3h% .3 1:,% -0 #1, 8% )03 D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 56/219
+ES44 %
9- 38- (# @'$58 )%.B5'(%8- ') ' .#(':A8$ (8 B-1#$)('-1%-+ '
)#CB#-/# 8< $'-18. A%)(8$%/'5 #&#-()e 9- $'-18.-#)) '-1
'$(%<%/%'5 A%)(8$,e =+# %) Y#'B(,N '5.8)( '5?',)N '-1 (A# -#? '-1
(A# ,8B-+ '$# +#-#$'55, (87%/e *#-1 ,8B$ A%)(8$, :$8<#))8$ (8 '-
%-($81B/(8$, /5')) 8- )'.:5%-+ (A#8$,e
6f;8-*@%F8%$ H@EK6H@E2S4$
T
(,% .,3,).C5,% )/% % 503,% $ .(,$ .#' # 1% 53, ,1. % 1% 1,$#' % $ 1%
;#.( % % ( ::C % -, 32 % 12 % :3#$C% 12 % 01'0.% /#1:,31 #* % #*,1.*C %
* -)3#1:% )1% % >5 3. 1% -0.%2# )3: 1#j,2%2, @D%L #.(%.(#1% ()0*2,3 % 12% %
5).% -,**C 8% (,% #. % #1 % % :30--C % ) //#', 8% .) . **C % - )3-,2 % #1 % (# % ;)3@ 8%
)-*#B#)0 % .)% .(,% :301:#1, % ) /% (# % 033)012#1: D% E,% :3,; % 05% #1% %
')$$01# .% 3,:#$,% 12% 5, @ % 41:*# (% ;#.(% 1% .3#1:,1.% 12% .(3) .C%
4 .,31% 403)5, 1% '',1.D%L(,1% (,%, . 8 %'30$- % )/% /))2% ''0$0* .,% #1%
(# %-, 32D%L#.(% .#$,%(,%-,')$, %$)3,% 12%$)3,% - )3-,2%#1%(# % 0-i,'.%
$ ..,3% )/%503,%.(,)3,$ 8% 3, '(#1:% *,B,* % )/%,B,3% #1'3, #1:% - .3 '.#)1D%
+(,% K$,3#' 1% 50-*#' % ; % 3,',1.*C% ,^5) ,2% .)% )1,% )/% .(, ,% '( 3 '.,3 %
;#.(%.(, B-'Y8.Y#$N% .(,%-, 32,2% 12%3,'*0 ,%$ .(,$ .#'# 1% ;()%*#B,2%
#1% % (0.% 12% .))@% .)% $032,3#1:% 5,)5*,% ;()% 53)$).,2% $)2,31%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 57/219
K% = K + E4 =K + < 6 K 7% = 4 N <+ K + <T &% T&% E <> + T S ?%
W I%
.,'(1)*):CD% &)% i)031 *# .% ; % ' 5 -*,% )/% ,B,1% ')$ #1:% '*) ,% .)%
2, '3#-#1:% .(,% 0-i,'. % $ ..,3% )/% (# % .(, # 8 @8. :5#7 X8B-1'$%#)8% % #.%
( % 1)% #1.,**#:#-*, % ,`0#B *,1.% 9 % % ')$5*,^% 10$-,3% -,#1:% 1% ,1.#3,*C%
- .3 '.% 12%#$ :#1 3C%10$-,38%.(,% `0 3,%3)).%) /%$#10 %)1,8% 1% )-i,'.%
.( .%( % 1)% 1 *):% )0. #2,% )/%.(,%;)3*2%) /% $ .(,$ .#' D%
+(,% 1 $,%=)1.,% 6 3*)%')1i03, %05%.(,%#$ :,% )/% % 01. 11,2% 03- 1,%
$ 1% )/%.(,% 403)5* C-)C% B 3#,.C% ,1.,3#1:% % ' #1)% 012,3% %;(#//% )/%.(,%
=,2 #.,33 1, 1% -3,,j,D%E,%# % 1% 5.% @#,3% 12% .,11# %5* C,38% -0.% * )%' 1%
()*2%(# %);1% #1%'(, % 12%-3#2:,D%E,%23#B, % %:3 C% 5)3. %' 3 8%23, , %#1%
%;,**% #3)1,2%<. *# 1% ( 12$ 2,% 0#.8% 12% 5, @ % ' 3,/0**C% 12% $)).(*C%
-)0.%$012 1,8% -0.%3, *8%$ ..,3 8%.() ,% %i)031 *# .% ' 1% , #*C% 2, '3#-,%
.)%.(,%50-*#'%#1%')$5 '.% ,1.,1', D%<1 #2,% .(,%' #1)%(,% .0.,*C% ')01. %
.(,% ' 32 8% $ .,3#1:% .(,% )22 8% 12% -,. % #1% % .02#,2%$ 11,38% (# %$#12%
53)20'#1:% 53,'# ,% ' *'0* .#)1 % )/% (# % )5.#$ *% -,..#1:% #j,D%E,% ')0*2% -,%
f $, % J)12U % $ 3.,3%*) .% -3).(,3D%
&);% ;(,1% < % .(#1@% )/%= )1.,% 6 3*)% $ .(,$ .#' 8% <% .(#1@% )/% % ( 55C%
')$-#1 .#)1% )/% .(,% .;)d% .(,% =)1.,% 6 3*)% $ 1U % 3, *# $% ;#.()0.% .(,%
( **);1, % ')$-#1,2% ;#.(% .(,%$ .(,$ .#'# 1U % #1.0#.#)1 % ;#.()0.% .(,%
,^', #B,% - .3 '.#)1D% F)3% #12,,2 % .( # % -3 1'( % ) /% $ .(,$ .#' % # % ) /%
#$$,1 ,%53 '.#' *% 0 ,%9% #.%2), %1).%53, ,1.% .(,% $,%23C1, % ')$$)1*C%
)'# .,2 % ;#.( % $ .(,$ .#' D% <% -,' $,% 22#'.,2 % .) % #.% .(,% $#10.,% <%
-,' $,% % .3 2,3D% <.% ( 5,2 % $C% .(#1@#1:% #1% $) .% $ ..,3 % 3,* .,2 % .)%
3 12)$1, D% =) .% )/%.(,% ,^ $5*, % 0 ,2%#1%.(,% -))@%;,3,% '3, .,2%;#.(%
$C%=)1.,% 6 3*)%:,1,3 .)38 %;(#'(%<% #1.3)20',% #1% .(# % '( 5.,3D% ?,.8 % #. % # %
/ 3%$)3,% %; C%) /%.(#1@#1:%.( 1% %')$50. .#)1 *% $,.()2D% = .(,$ .#' %
# %53#1'#5 **C% %.))*% .)%$,2#. .,8% 3 .(,3% .( 1% .)% ')$50.,D%
EK6$ E88*4$
+(,% 1).#)1% )/% *.,31 .#B,% (# .)3#, % 2# '0 ,2% #1% .(,% * .% '( 5.,3% ' 1% -,%
,^.,12,2% ')1 #2,3 -*C% 12% 0-i,'.,2% .)% **% $ 11,3% )/% .,'(1#' *% 3,/#1,9
$,1.D% +(# % -3#1: % 0 % .)% .(,% .))* % 0 ,2% #1 % $C% 53)/, #)1% .) % .)C% ;#.( %
01',3. #1.CD% < %;#** % )0.*#1,% .(,$% 1,^.D% =)1.,% 6 3*)% $,.()2 8% #1% -3#,/8%
')1 # .% #1%'3, .#1:% 3.#/#'# *% (# .)3C% 0 #1:% .(,% /)**);#1:% ')1',5. D%
F#3 .8% ')1 #2,3% .(,% $5*,% 5 .(D% +(,% #1B# #-*,% (# .)3#, % ( B,% % '#,19
.#/#'%1 $,8
'5(#$-'(%&# )'.:5# :'(A)N
% %1 $,% -)33);,2%/3)$%.(,%/#,*2%)/%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 58/219
W G%
> T 7T & U>% L K S& <& V%
$ .(,$ .#' % )/% 53)- -#*#.C% ' **,2% .)'( .#' % 53)', , D% +(,% 1).#)1% )/%
5 .(8% % )55) ,2%.)% )0.')$,8% #12#' ., % .( .% #.% # %1).% %$,3,%=JK 9 .C*,%
',1 3#)% 1 *C # 8 % -0.%.(,% ,^ $ #1 .#)1% )/% % ,`0,1',% )/% ',1 3#) % *)1:%
.(,%')03 ,%) /%.#$,D%L,% 3,%1).%i0 .%')1',31,2% .%;(,3,% %-#32%' 1%,12%05%
.)$)33); % 1#:(.8% -0.%3 .(,3% .% **%.(,%B 3#)0 %5* ', % #.%' 1% 5) #-*C% B# #.%
203#1:%.(,%.#$,% #1.,3B *D%L,% 3,%1).%')1',31,2%;#.(%;( .%.(,%#1B, .)3U %
;)3.(% ;)0*2% -,%#18% C8% % C, 38% -0.%3 .(,3% )/%.(,%(, 3.9;3,1'(#1:% 3#2, %
(,% $ C% ,^5,3#,1',% 203#1:% .( .% 5,3#)2D% +(,% ;)32
)'.:5#
% .3, , % .( .%
)1,% ,, %)1*C%)1,%3, *#j .#)1% $)1:% %')**,'.#)1% )/%5) #-*,%)1, D%&);% %
$5*,%5 .(%' 1%-,%-).(% 2,.,3$#1# .#'% )3%3 12)$ 8%;(#'(% -3#1: %.(,%1,^.%
2# .#1'.#)1D%
K
$'-18. )'.:5# :'(A
8 % * )%' **,2% %3 12)$%3018%# %.(,%$ .(,$ .#' *%
1 $,% /)3% 0'(% 0'', #)1%) /%B#3.0 *% (# .)3#' *% ,B,1. 8% . 3.#1:% .% %:#B,1%
2 ., % 12% ,12#1:% .% 1).(,3 8% ,^',5.% .( .% .(,C% 3, % 0-i,'.,2% .) % )$,%
B 3C#1:% *,B,*%) /% 01',3. #1.CD% E);,B,38% .(,%;)32%3 12)$% ()0*2% 1).% -,%
$# . @,1 % /)3% ,`0#53)- -*, % O#D, D% ( B#1:% .(, % $,% 53)- -#*#.CRD% >)$,%
)0.')$, % ;#** % :#B,% % (#:(,3% 53)- -#*#.C% .( 1% ).(,3 D% K1% ,^ $5*,% )/% %
3 12)$% $5*, % 5 .( % ' 1 % -, % .(,% -)2C% .,$5,3 .03, % )/% C)03% ,^5*)3,3%
')0 #1% 203#1:%(# % * ., .% -)0.%; #.(% .C5()#2% /,B,38%$, 03,2% ()03*C% /3)$%
.(,%-,:#11#1:% .)%.(,%,12%)/%(# %,5# )2,D%<.%' 1% * )% -,% % #$0* .#)1%) /%.(,%
53#',% )/% C)03% / B)3#.,% .,'(1)*):C% .)'@8% $, 03,2% 2 #*C% .% .(,% '*) ,% )/%
.(,%$ 3@,.8% )B,38 % C8%)1,%C, 3D% >. 3.#1:% .% pI HH 8% #1%)1,% ',1 3#)% #.%' 1%
,12% 05% .% pGH% ( B#1:% ,,1% % (#:(% )/% pG GH 8% #1% 1).(,3% #.% ' 1% ,12% 05% . %
pIW\ % ( B#1:% ,,1 % % *);% )/% pIH D% K1).(,3% ,^ $5*, % # % .(,% ,B)*0.#)1% )/%
C)03%;, *.(%203#1:% 1%,B,1#1:% .% %' #1)D%?)0% . 3.%;#.(%p IHHH% #1%C)03%
5)'@,.8% 12%$, 03,% #. %,B,3C% I\% $#10., D%<1%)1,% $5*,% 5 .(% C)0%( B,%
pG GH H% .% $#21#:(.h% #1% 1).(,3% C)0% - 3,*C%( B,% pGH% *,/.% /)3% %' -% / 3,D%
>.)'( .#'% 53)', , % 3,/,3% .)% .(,% 2C1 $#' % )/% ,B,1. % 01/)*2#1:% ;#.(%
.(,%')03 ,% )/% . #$,D% >.)'( .#'% # % % / 1'C% V3,,@% 1 $,% /)3% 3 12)$D% +(# %
-3 1'(% )/%53)- -#*#.C% ')1',31 % #. ,*/%;#.(% .(,% .02C% )/%.(,%,B)*0.#)1% )/%
0'', #B,%3 12)$ %,B,1. %9% )1,%')0*2%' **%#.%.(,%$ .(,$ .#' % )/%(# .)3CD%
+(,% @,C% -)0.% %53)', % # % .( .% #.% ( % .#$,%#1%#. D%
L( .% # % %=)1.,% 6 3*)% :,1,3 .)3a% <$ :#1,% .( .% C)0% ' 1% 3,5*#' .,% %
5,3/,'.% 3)0*, ..,% ;(,,*% #1% C)03% ..#'% ; #.()0.% ( B#1: % 3,')03 ,% .) % %
' 35,1.,3D% 6)$50.,3% 53):3 $ % ' 1% -,% ;3#..,1% .)% #$0* ., % i0 .% -)0.%
1C.(#1:D% +(,C% 3,% ,B,1% -,..,3% O 12% '(, 5,3R% .( 1% .(,% 3)0*,..,% ;(,,*%
-0#*.% -C% C)03% ' 35,1.,38% % .(# % $ C% -,% #1'*#1,2% .)% / B)3% )1,% 10$-,3%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 59/219
K% = K + E 4 = K + < 6 K 7% = 4 N < + K + < T &% T&% E < > + T S ?% W [%
$)3,% .( 1% ).(,3 % );#1:%.)% % 5) #-*,% * 1.% #1% #. % -0#*2% )3% .(,% /*))3% )/%
C)03% ..#'D% +(, ,% 3,% ' **,2% .(,% -# , D%
=)1.,% 6 3*)% #$0* .#)1 % 3,%'*) ,3%.)% %.)C%.( 1% 1C.(#1:%<%( B,% ,,1%
#1 % $C% 20*.% *#/,D% T1,% ' 1 % :,1,3 .,% .()0 12 8% 5,3( 5 % $#**#)1 % ) /%
3 12)$% $5*,%5 .( 8% 12%*))@% .%.(,%53,B *,1.% '( 3 '.,3# .#' % )/% )$,%
)/%.(,#3% /, .03, D%+(,% # . 1',% )/%.(,%')$50.,3% # %#1 .30$,1. *% #1% 0'(%
.02#, D% + (,% :* $)3)0 % 3,/,3,1',% .)% =)1.,% 6 3*)% #12#' ., % .(,%
$,. 5()3% )/% #$0* .#1:% .(,% 3 12)$% ,B,1. % #1% .(,% $ 11,3% )/% % B#3.0 *%
' #1)D%T 1,% ,. %')12#.#)1 % -,*#,B,2%.)% 3, ,$-*,%.(,%)1, % .( .%53,B #*% #1%
3, *#.C8% 12% * 01'(, % %')**,'.#)1% )/% #$0* .#)1 % 3)012%5) #-*,% ,B,1. D%
L#.(%1)%$ .(,$ .#' *% *#.,3 'C%;,%' 1%* 01'(% %=)1.,% 6 3*)% #$0* .#)1%
) /% 1 % IZ9C, 39) *2 % 6(3# .# 1 % 7,- 1, ,% 5* C#1: % 0'', #B,*C % S0 # 1 %
3)0*,..,% /)3% % :#B,1% 0$8% 12% ,,%();% $ 1C%) /%.(, ,% ..,$5. % 3, 0*.% #1%
,13#'($,1.8% )3%();% *)1:%#.%. @, % )1% B,3 :,%-,/)3,%(,%(#. %.(,% )-#.0 3CD%
L,% ' 1% '( 1:,% .(,% - 33,*% .) % ')1. #1 % \HH % ()*, 8% % $ . .,3% .( .% ;)0*2%
2,'3, ,% .(,%5 3)- -#*#.C% )/% 2, .(8% 12% ,,% .(,% 3, 0*. D%
=)1.,% 6 3*)% #$0* .#)1% $,.()2 % ;,3,% 5#)1,,3,2% #1%$ 3.# *% 5(C #' %
#1 % .(,% 7) % K* $) % * -)3 .)3C% 203#1:% .(,% K% -)$-% 53,5 3 .#)1D% +(,C%
-,' $,% 5)50* 3% #1% /#1 1'# *% $ .(,$ .#' % #1% .(,% IPZH 8 % 5 3.#'0* 3*C% #1%
.(,%.(,)3#, % )/%.(,%3 12)$%; *@% )/% ,.% 53#', D% 6*, 3*C8%;,%( B,%.)% C%
.( .%.(,%,^ $5*,% )/% S0 # 1% 3)0*,..,% 2), % 1).% 1,,2% 0'(% 55 3 .0 8% -0.%
$ 1C% 53)-*,$ 8% 5 3.#'0 * 3*C % .() ,% 3, ,$-*#1: % 3, *9*#/,% #.0 .#)1 8%
3,`0#3,% .(,% 5).,1'C% )/% %=)1.,% 6 3*)% #$0* .)3D%
H8 E 6$ S @ ;* 8$ H @ E K 6H @ E 2S 4$
<.%# % %/ '.%.( .%g.30,g%$ .(,$ .#'# 1 % 2)%1).%*#@,%=)1 .,%6 3*)%$,.()2 D%
+(,C% -,*#,B,%.( .%.(,C%3)-%0 %)/%.(,%/#1, ,% 12%,*,: 1',%)/%$ .(,$ .#' D%
+(,C% ' **% #.% g- 30 .,% /) 3', gD% F)3% ;,% ' 1% 3,5* ',% % * 3:,% 5)3.#)1% ) /%
$ .(,$ . #' *% @1);*,2:,% ;#.( % % =)1.,% 6 3 *) % #$0* .)3% O 12 % ) .(,3%
')$50. .#)1 *%.3#'@ RD%F)3%#1 . 1',8% )$,)1,%;#.(%1)%/)3$ *%@1);*,2:,%
)/%:,)$,.3C%' 1% ')$50.,% .(,%$C .,3#)0 8% *$) .% $C .#' *% M#D %E );a% JC%
23 ;#1:% %'#3'*,% #1 #2,%)/% % `0 3,8% 12%g ()) .#1:g% 3 12)$% -0**,. % #1.)%
.(,%5#'.03,%O %#1% 1% 3' 2,R8% 5,'#/C#1:%,`0 *%53)- - #*#.#, % )/%(#..#1:% 1C%
5)#1.%)1%.(,%$ 5%O )$,.(#1:%' **,2% %01#/)3$%2# .3#-0.#)1RD%+(,%3 .#)%)/%
-0**,. % #1 #2,%.(,%'#3'*,% 2#B#2,2%-C%.() , %#1 #2,% 12%)0. #2,%.(,%'#3'*,%;#**%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 60/219
W W% > T 7 T & U >% L K S& <& V%
2,*#B,3% % $0*.#5*,% )/% .(,% $C .#' *% M#8% ;#.(% 5) #-*C% #1/#1#.,% 53,'# #)1D%
6*, 3*C8% .(# %# %1).% 1% ,//#'#,1.%0 ,%)/% % ')$50.,3% %M#%' 1%-,% ')$50.,2%
1 *C.#' **C8% .( .% # 8% #1% % $ .(,$ .#' *% /)3$8% -0.% .(,%$,.()2% ' 1% :#B,%
)$,% 0 ,3 % $)3,% #1.0#.#)1% -)0.% .(,% 0-i,'.% $ ..,3% .( 1% *#1, % ) /%
,`0 .#)1 D% >)$,% 5,)5*,U % -3 #1 % 12% #1.0#.#)1 % 3,% )3#,1.,2% #1% 0'(% %
; C% .( . % .(,C% 3,% $)3,% ' 5 -*,% )/%:,..#1:% %5)#1. % #1% 0'(% %$ 11,3% O< %
')01.% $C ,*/% )1,% )/%.() ,RD% +(,% ')$50.,3% $#:(.% 1).% -,%1 .03 *% .)% )03%
(0$ 1% -3 #1h% 1,#.(,3% # % $ .(,$ .#' D%
< % $% 1).% % g1 .#B,g% $ .(,$ .#'# 18% .( . % # 8% < % $% )$,)1,%;()% 2), %
1).% 5, @%$ .(,$ .#' % % %1 .#B,%* 1:0 :,8%-0.% )$,)1,%;()% 5, @ %#.%
;#.(% %.3 ',%)/% %/)3,#:1% '',1.D%F)3%<% $%1).%#1.,3, .,2%#1%$ .(,$ .#' *%
53)5,3.#, :#$ )#N% )1*C% #1%.(,% 55*#' .#)18%;(#*,% %$ .(,$ .#'# 1% ;)0*2%
-,% #1.,3, .,2% #1 % #$53)B#1:% $ .(,$ .#' % OB# % .(,)3,$ % 12% 53))/ R D% <%
53)B,2% #1' 5 -*, % )/% ')1',1.3 .#1:% )1% 2,'#5(,3#1:% % #1:*, % ,`0 .#)1%
01*, % < %; % $).#B .,2% -C% % 3, *% 53)-*,$% O;#.(% % $)2#'0$% )/% :3,,2Rh%
.(0 % $) .% )/% ;( .% <% @1);% ')$, % /3)$% 2,3#B .#B, % .3 2#1:% 9% )5.#)1 %
50 (,2% $,% .)% .02C% .(,% $ .(% )/% 53)- -#*#.CD% = 1C% ')$50* #B,%
: $-*,3 8% ;()% ).(,3;# ,% ;)0*2% -,% )/% $#22*#1:% #1.,**#:,1',8% '`0#3,%
3,$ 3@ -*,% ' 329')01.#1:% @#** % .( 1@ % .)% .(,#3% 5 #)1 .,% :3,,2D%
K1).(,3% 1 *):C% ;)0*2 % -,% ;#.( % :3 $$ 3h% $ .(,$ .#' % # % ) /.,1 %
.,2#)0 % 12% #1 #:(.*, %: 3 $$ 3D% +(,3,% 3,%.() ,%;()% 3,%#1.,3, .,2% #1%
:3 $$ 3%/)3%: 3 $$ 3U % @,8% 12%.() ,%#1.,3, .,2%#1% B)#2#1:% )*,'# $ %
;(#*,% ;3#. #1:% 2)'0$,1. D% L,% 3,% ' **,2% g`0 1. g% 9 % *#@,% 5(C #'# . 8% ;,%
( B,%$)3,% #1.,3, .% #1%.(,%,$5*)C$,1.% )/%.(,%$ .(,$ .#' *% .))*% .( 1% #1%
.(,% .))*% #. ,*/ D% = .(,$ .#' # 1 % 3, % -)318% 1,B,3 % $ 2,D% M(C #'# . % 12%
`0 1. % .)) D% <% 2) % 1).% ' 3,% -)0.% .(,% g, *,: 1',g% 12 % g`0 * #.C g% ) /% .(,%
$ .(,$ .#' % <%0 ,% )%*)1:% %<%' 1%:,.%.(,%5)#1.%3#:(.D%<%( B,%3,')03 ,% .)%
=)1.,% 6 3*)% $ '(#1, % ;(,1,B,3% <% ' 1D% +(,C% ' 1% :,.% .(,% ;)3@% 2)1,D%
+(,C% 3,% * )%/ 3%$)3,%5,2 :):#' *8% 12%<%;#**% 0 ,%.(,$% #1%.(# % -))@% /)3%
.(,% ,^ $5*, D%
<12,,28% 53)- -#*#.C% # % 1% #1.3) 5,'.#B,% /#,*2% )/% #1`0#3C8% % #. % //,'. %
$)3,% .( 1% )1,% '#,1',8% 5 3.#'0* 3*C% .(,% $).(,3% )/% ** % '#,1', h% .( . % )/%
@1);*,2:,D% < .% # % #$5) #-*,% .)% , % .(,% `0 *#.C% )/% .(,% @1);*,2:,% ;,%
3,%: .(,3#1:%; #.()0.% **);#1:% % ( 3,% )/% 3 12)$1, % #1%.(,%$ 11,3% #. %
# %)-. #1,2% 12%'*, 1#1:%.(,% 3:0$,1.%/3)$% .(,%'( 1',% ')#1'#2,1',% .( .%
')0*2% ( B,% ,,5,2% #1 .) % #. % ')1 .30'.#)1D% <1 % '#,1',8% 53)- -#*#.C % 12%
#1/)3$ .#)1% 3,% .3, .,2% #1 % ,^ '.*C% .(,% $,% $ 11,3D% 7#.,3 **C% ,B,3C%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 61/219
K% = K +E 4= K + <6 K 7% = 4 N < + K + <T &% T&% E <> + T S ?%
W \%
:3, . % .(#1@,3% ( % 2 --*,2% ;#.(% #.8% $) .% )/% .(,$% )- , #B,*CD% +(,% .;)%
:3, ., .% $ #12 % .)% $ ,8% 4#1 .,#1% 12% _,C1, 8% -).(% . 3.,2% .(,#3%
#1.,**,'.0 *% i)031,C %;#.(% #.D% 4#1 .,#1% ;3).,% % $ i)3% 5 5,3% #1% IPH \8 % #1%
;(#'( % (,% ; % *$) .% .(,% /#3 .% .) % ,^ $#1, % #1 % 53)- -#*# .#'% .,3$ % .(,%
0'', #)1% ) /% 3 12)$% ,B,1. 8% 1 $,*C% .(,% ,B)*0.#)1% ) /% 0 5,12,2 %
5 3.#'*, % #1% % . .#)1 3C% *#`0#2D% E # % .(,)3C% )1% .(,% .(,)3C% ) /% .(,%
J3);1# 1% $)B,$,1.% ' 1% -,% 0 ,2% %.(,% - '@-)1,% )/% .(,%3 12)$%; *@%
.(,)3#, %0 ,2%#1%/#1 1'# *%$)2,*#1:D%K %/)3%_,C1, 8%.)% .(,%*#.,3 .,%5,3 )1%
(,% # % 1).% .(,% 5)*#.#' *% ,')1)$# .% .( .% .;,,29'* 2% *,/.# . % *)B,% .)% `0).,8%
-0.%.(,% 0.()3% )/% .(,%$ :# .,3# *8% #1.3) 5,'.#B,8% 12%5) .,1. F$#'(%)# 8-
;$8Y'Y%5%(,e% F)3% -,/)3,% (# % B,1.03#1:% #1.)% .(,% $03@C% /#, *2% )/% 5)*#. #' *%
,')1)$C8% _,C1, % ; % % 5 3)- - #*# .D% E,% * )% ( 2 % ).(,3% #1.,3, .#1:%
..3#-0., % O(,% -*,;% 05% .3 2#1:% (# % '')01.% /.,3% ,^5,3#,1'#1:% ,^', #B,%
)50*,1',%9% 5,)5*,U % 012,3 . 12#1:% )/%53)- -#*#.C%2), %1).%.3 1 * .,% #1.)%
.(,#3% -,( B#)3RD%
+(,% 3, 2,3% ' 1 % :0, % .( .% .(,% 1,^ .% .,5 % /3)$% 0'( % 53)- - #*# .#'%
#1.3) 5,'.#)1% # %.)%:,.%23 ;1%#1.)%5(#*) )5(C8%5 3.#'0* 3*C%.(,%-3 1'(% )/%
5(#*) )5(C% .( .% ')1',31 % #. ,*/%; #.(% @1);*,2:,8% ' **,2%,5# .,$)*):C% )3%
$,.()2)*):C8% )3% 5(#*) )5(C% )/% '#,1',8% 5)50* 3#j,2% -C% 0'(%5,3 )1 % %
_ 3*%M)55,3% 12%V,)3:,% >)3) D%L ,%;#**% 1).%:,.%#1.)%.(,%.)5#'% 01.#*% * .,3%
#1%.(,% -))@D %
J$/& ?/& +C& %%.@&
H @ 5 2 [$ K 2 4 E8 ; %$
<1% .(,% , 3*C% IPPH 8% *#@,% $ 1C% )/% $C% /3#,12 % #1% `0 1.#. .#B,% /#1 1',8% < %
-,' $,% 22#'.,2% .)% .(,% B 3#)0 % =)1.,% 6 3*)% ,1:#1, 8% ;(#'(% < % . 0:(.%
$C ,*/% .)% -0#*28% .(3#**,2% .)% /,,*% .( .% <% ; % :,1,3 .#1:% (# .)3C8% %
#.%B$+B)e
% <.%' 1%-,%,*,'.3#/C#1:%.)% :,1,3 .,%B#3.0 *%(# .)3#, % 12%; .'(%
.(,%2# 5,3 #)1% -,.;,,1%.(,% B 3#)0 % 3, 0*. D% >0'(%2# 5,3 #)1% # % #12#' .#B,%
)/%.(,%2,:3,,%)/%3, # . 1',%.)%3 12)$1, D%+(# %# %;(,3,%<% $% ')1B#1',2%
.( .% <% ( B,% -,,1 % ,^.3,$,*C % *0'@C% #1 % $C% '()#',% )/% ' 3,,3 d% )1, % )/% .(,%
..3 '.#B,% 5,'. %)/%$C%53)/, #)1% % %`0 1.#. .#B,%)5.#)1%.3 2,3%# %.( .%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 62/219
W X%
> T 7 T& U>% L K S& <& V%
<% ( B,% '*) ,% .) % P\l% )/% $C% 2 C% /3,,% .) % .( #1@8% 3, 2 8% 12 % 3, , 3'( % O)3%
g 3, /* ,' .g% #1 % .(,% :C$8% )1% @#% *)5, 8% )38% $)3,% ,//,'.#B,*C 8% )1 % % 5 3@ %
-,1'(RD % < % * )% ( 2% .(,%53#B#*,:,% )/% /3,`0,1.*C% g;)3@#1:g% /3)$%$C%;,**9
,`0#55,2% ..#'D%
+(,% 2#B#2,12% )/% .(,% ')$50.,3% 3,B)*0.#)1% .)% 0 % 2#2% 1).% ')$,% #1% .(,%
/*))2#1:% )/% ,*/95,35,.0 .#1:% ,9$ #*%$, :, % 12% '', % .)%'( .% 3))$ h%
#.%; %#1%.(,% 022,1% B #* -#*#.C% )/% / .%53)', )3 %' 5 -*,% )/% :,1,3 .#1:%
%$ #**#)1% $5*,%5 .( %5,3%$#10.,D%S,' **%.( .%<%1,B,3%')1 #2,3,2%$C ,*/%
-,..,3% .( 1% 1% 01,1.(0 # .#'% ,`0 .#)1% )*B,3% 12%; %3 3,*C%' 5 -*,% )/%
53);, %#1%.(,%$ ..,3%9% -,#1:%-,..,3% .% ,..#1:%05%,`0 .#)1 % .( 1% )*B#1:%
.(,$D% >022,1*C8%$C%,1:#1,% **);,2%$,%.)% )*B,%;#.(%$#1#$ *% ,//)3.% .(,%
$) .% #1.3 '. -*,% )/%,`0 .#)1 D% F,;% )*0.#)1 % -,' $,% )0.% )/% 3, '(D%
g8;[*fF4$ S;87X2 [ $ EK6$ @EE2S$
=C%=)1.,% 6 3*)%,1:#1,%.))@%$,%)1% %/,;%#1.,3, .#1:% 2B,1.03, D%L(#*,%
$C% ')**, :0, % ;,3,% #$$,3 ,2% #1% 1,; % .)3#, 8% ',1.3 *% - 1@%
11)01',$,1. 8% , 31#1: % 3,5)3. 8% ,')1)$#' % /)3,' . 8% 5)3. % 3, 0*. %
128%1).% *, .8% )//#',% 5)*#.#' 8%<% . 3.,2%.)C#1:%;#.(% #.% #1% /#,*2 % -)32,3#1:%
$C%()$,% - ,%)/% /#1 1'# *%53)- -#*#.CD %K% 1 .03 *% /#,*2%) /%,^5 1 #)1% /)3%
.(,% $ .,03%# %,B)*0.#)1 3C%- #)*):C%9% .(,%01#B,3 *#.C%) /%#. %$, :,% 12%
#. % 55*#' .#)1% .)% $ 3@,. % 3,% 55, *#1:D% <% . 3.,2% #$0* .#1:%
5)50* .#)1 % )/% / .% $0. .#1:% 1#$ * % ' **,2% ])3:*0- % 012,3% ' *#$ . #' %
'( 1:, % 12%;#.1, #1:% .(,% $) .% 01,^5,'.,2% )/% ')1'*0 #)1 % 9 % )$,% )/%
.(,%3, 0*. % 3,%3,'C'*,2%#1%6( 5.,3% \D%=C% #$8% % %503,% $ .,03% /*,,#1:%
.(,%-)3,2)$ % )/%-0 #1, % *#/,8%; %$,3,*C%.)% 2,B,*)5%#1.0#.#)1 % /)3%.(, ,%
,B,1. %9% .(,% )3.%) /%#1.0#.#)1 % .( .% $ .,03 % -0#*2% ; C% /3)$% .(,%)B,3*C%
2,. #*,2% )5(# .#' .#)1% )/% .(,%53)/, #)1 *% 3, , 3'(,3D% <% * )% .)C,2%;#.(%
$)*,'0* 3% - #) *):C8% :,1,3 .#1:% 3 12)$*C% )''033#1:% ' 1',3% ',** % 12%
;#.1, #1:% )$,% 0353# #1:% 5,'. % .)% .(,#3 % ,B)*0.#)1D% & .03 **C% .(,%
1 *):0,% .)% / -3#' .#1:% 5)50* .#)1 % ) /% ])3: *0- % ; % .) % #$0* .,% %
5)50* .#)1% )/% g #2#).#'% -0**g8% g #$5,.0)0 % -, 3g% 12% g' 0.#)0 g% .3 2,3 %
012,3% 2#//,3,1.% $ 3@,.% 3,:#$, 8% C% -))$ % 12% -0 . 8% 12%.)% ,^ $#1,%
.(,#3% ()3.9.,3$% 12%*)1:9.,3$% 03B#B *D%A12,3% 0'(% % .30'.03,8% g#2#).#'%
-0**g% .3 2,3 %;()%:,.%3#'(% /3)$%.(,%3 **C%;)0*2%0 ,%.(,%53)',,2 %.)% -0C%
$)3, % ,. 8% 23#B#1:% 53#', % ( #:(,38% 01.#*% .(,#3% 0 *.#$ ., % (,** '@#1:D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 63/219
K% = K +E 4= K + <6 K 7% = 4 N < + K + <T &% T&% E < > +T S?%
W Q%
J, 3# (% .3 2,3 8% .()0:(8% 3 3,*C%$ 2,% #.% #1% .(,% -))$% .)% :,.%.)% .(,% -0 .D%
=C% $)2,* % ();,2% *$) .% 1)-)2C% .)% 3, **C% 0*.#$ .,*C% $ @,% $)1,Ch%
-, 3 % 23)55,2 % )0.% *#@,% /*#, % #1% .(,% 3 **C % 12 % -0** % :).% 0*.#$ .,*C%
* 0:(.,3,28% % 5 5,3% 53)/#. % B 1# (,2% ;(,1% .(,% $0 #' % .)55,2D% J0.%
.(,3,% ; % )1,% ,^',5.#)1h% )$,% )/% .() ,% ;()% .3 2,2% )5.#)1 % O<% ' **,2%
.(,$% )5.#)1% -0C,3 R% ( 2% 3,$ 3@ -*,% . C#1:%5);,3% 12%<%; 1.,2%.)% -,%
)1,% ) /% .() ,D% E);a% J,' 0 ,% .(,C% ')0*2 % -0C% .(,% #1 03 1',% : #1 .%
-*);05h% .(,C % ')0*2 % :,.% 1^#,.C9/3,,% *,,5% .% 1#:(.8% .( 1@ % .)% .(,%
@1);*,2:,%.( .%#/%.(,#3%' 3,,3 %;,3,%.(3, .,1,28%#.%;)0*2%1).%-,%);#1:%
.)% .(,%)0.')$,% )/% % #1:*,% 2 CD%
</%.(,%.)1,%) /%.(# %-))@ % ,,$ % .,,5,2%#1%.(,%'0*.03,%)/%N 3;#1# $% 12%
,B)*0.#)1 3C% .( #1@#1:8% #.% 2), % 1).% ')$,% /3)$% 1C% 3,$).,*C % /)3$ *%
.3 #1#1: % #1 % .(,% 1 .03 *% '#,1', 8% -0.% /3)$% .(,% ,B)*0 .#)1 3C % ; C% ) /%
.(#1@#1:% . 0:(.% -C%$C%=)1.,% 6 3*)% #$0* .)3 D%
< % ( B,%.)% 3,'@)1% .( . % < %)0.:3,;% .(,% 2, #3,% .)% :,1,3 .,% 3 12)$% 301 %
,B,3C% .#$,% <% ; 1.% .)% ,^5*)3,% 1% #2, % 9% -0.% -C% 2#1.% )/% 5* C#1:% ;#.(% %
=)1.,% 6 3 *)% ,1:#1,% /) 3% C, 3 % <% ' 1 % 1)% *)1:,3% B# 0 *#j,% % 3, *#j,2 %
)0.')$,% ; #.()0.% 3,/,3,1',% .)% .(,% 1)193, *#j,2% )1, D% <% ' **% .( .%
g 0$$#1:% 012,3%(# .)3#, g8% -)33);#1:% .(,%,^53, #)1% /3)$%.(,% ')*)3/0*%
5(C #'# .% S#'( 32% F,C1$ 1% ;()% 55*#,2% 0'(% $,.()2 % .)% ,^ $#1,% .(,%
2C1 $#' % )/% 5 3.#'*, D%
A #1:% $C%= )1.,% 6 3*)% .)% 2)% 12% 3,2)% (# .)3C% 3,$#12,2% $,% )/% .(,%
,^5,3#$,1. *% 1)B,* % O.(,% )9' **,2 -#? -8)d% -C% 0'(%;3#.,3 % %K* #1%
S)--,9V3#**,.8 %5)50* 3%#1%.(,% IPX H % 12% IPQ H D% +(,3,% .(,% $,% '( 5.,3%
;)0*2%-,%;3#..,1% 12%3,B# ,28%.(,%;3#.,3%, '(%.#$,%'( 1:#1:%.(,%5*).%*#@,%
% 1,; % $5*,% 5 .(D% >)$,(); % .(,% 0 .()3% ; % /3,,2 % /3)$% .(,% 5 .%
#.0 .#)1% (,%(,*5,2%'3, .,% 12% **);,2 %(#$ ,*/%.(,% #120*:,1',%.)% '( 1:,%
.(,%5*).% 3,.3) '.#B,*CD%
, + < / ' C A < & +$ & 9$ > < L A & ' ?$
T1,% $)3,% ;)32% )1% (# .)3C% ,,1% /3)$% %=)1.,% 6 3*)% 5,3 5,'.#B,D% +(,%
;# 2)$% )/% 0'(%'* #' *% .)3#, % % >)*)1% 53)2 %$,%.)% 5,12%,B,1%$)3,%
.#$,% #1% .(,% ')$5 1C% )/% .(,%'* #' *% (# .)3# 1 8% ,B,1% #/%.(,% .)3#, 8% *#@,%
>)*)1U %; 31#1:8% ( B,% -,1,/#.,2% /3)$% .(,%5 .#1 % )/%.#$,D%E);,B,38%.(# %
:), % : #1 .%.(,%:3 #1d% *, 31#1:% /3)$%(# .)3C%2), %1).% ')$,% 1 .03 **C%.)%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 64/219
W Z%
> T 7 T& U>% L K S& <& V%
0 % (0$ 1 8% % / '.% .( .% # % )% B# #-*,% #1% .(,% ,12*, % 3,5,.#.#)1 % )/% #2,19
.#' **C%')1/#:03,2% -))$ % 12%-0 . %#1%$)2,31%$ 3@,. D%JC%(# .)3C%<%3,/,3%
.)% .(,% 1 ,'2)., 8% 1).% .(,% ( # .) 3#' *% .(,) 3#j#1: 8% .(,% 9:3 12 9 ' *,%
(# .)3#'# $ % .( .% #$ % .)% #1.,353,.% ,B,1. % ; #.(% .(,)3#, % - ,2% )1%
01')B,3#1:% )$,% * ; % #1% .(,% ,B)*0.#)1% )/% (# .)3C% 9% .(,% )3.% )/%
E,:,*# 1# $% 12% 5 ,02) '#,1.#/#'% (# .)3#'# $% *, 2#1:% .)% 0'(% ' ** % %
.(,%,12% )/% (# .)3C% O#.%# %5 ,02) '#,1.#/#'% -,' 0 ,% #.% 23 ; % .(,)3#, % /3)$%
5 .% ,B,1. % ;#.()0.% **);#1:% /)3% .(,% / '.% .( .% 0'( % ')$-#1 .#)1 % )/%
,B,1. %$#:(.% ( B,% 3# ,1% /3)$%3 12)$1, h% #.%# %$) .*C% 5 ,02) '#,1.#/#'%
-,' 0 ,%.(,3,%# %1)%; C%.)%B,3#/C%.(,%'* #$ %#1% %')1.3)**,2% ,^5,3#$,1.
G
RD%
< .% # % $,3,*C% . % .(,% *,B,*% )/% $C% 2, #3,2% ,1 #-#*#.C8% //,'.#1:% .(,% ; C% < %
;)0*2%;# (% .)% .(#1@% -C%3,/,3,1',% .)%5 .%,B,1. 8%-C%-,#1:% -*,%.)% -,..,3%
., *% .(,% #2, % )/% ).(,3 % 12% *,B,3 :,% .(,$8% ')33,'. % .(,% $,1. *% 2,/,'. %
.( .% ,,$ % .)% -*)'@% $C% -#*#.C% .)% *, 31% /3)$% ).(,3 D% <.% # %.(,%3, 5,'.% )/%
.(,%,*2,3 %.( .%<%;)0*2%*#@,%.)%2,B,*)58%3,#1/)3'#1:%.(,% ;,%<%#1 .#1'.#B,*C%
/,,*%/)3% 5,)5*,%; #.(%:3 C%( #38% -0.%.( .% ( %,3)2,2% #1%$C% *#/,% % %.3 2,3%
;(,3,% :,% 12% 0'', % 3,% )$,;( .%2#B)3',2D%<12,,28%<%( B,%.;)%; C %
)/%*, 31#1:% /3)$% (# .)3Cd% /3)$% .(,%5 .%-C%3, 2#1:%.(,%,*2,3 8% 12% /3)$%
.(,% /0.03,% .( 1@ % .)% $C%=)1.,% 6 3*)% .)CD%
A > $ L A & Q $ < L$ > & A$
K %<%$,1.#)1,2% -)B,8%#.%# %1).% 1 .03 *% /)3%0 %.)% *, 31%/3)$% (# .)3CD%L,%
( B, % ,1)0:(% '*0, % .) % -,*#,B,% .( . % )03% :,1,.#' % ,12);$,1.%
A8.8
#$#/(B)% 2), % 1).% / B)3% .3 1 /,3 % ) /% ,^5,3#,1',D% <.% # % % 5* .#.02,% .( .%
'(#*23,1% *, 31% )1*C%/3)$% .(,#3% );1%$ # . @, h%.(,C%;#**%', ,% .)%.)0'(% %
-031#1: % .)B,% )1*C % ;(,1 % .(,C % 3,% .(,$ ,*B, % -031,2 h% 1)% 5) #- *,%
; 31#1:%-C%).(,3 %' 1% *, 2%.)%2,B,*)5#1:%.(,% $ **, .% /)3$% )/% ' 0.#)0 9
1, D% K20*. 8% .))8% 0//,3% /3)$% 0'( % % ')12#.#)1D% +(# % 5)#1.% ( % -,,1 %
,^ $#1,2 % -C % -,( B #)3 *% , ')1)$#' % 5#)1,,3 % N 1 #, *% _ (1,$ 1 % 12%
K$) % +B,3 @C% ;#.( % 3,: 32 % .) % .(,% '()#', % 5,)5*, % $ @,% #1 % ,*,'.#1:%
3# @C%$,2#' *% .3, .$,1. % 9% < %$C ,*/%( B,% ,,1% #.% #1%$C% -,#1:% ,^.3,$,*C%
* ^% #1% .(,% 3, % )/% 2,.,'.#)1% 12%53,B,1.#)1% O#D,D8% < % 3,/0 ,% .)% 2,3#B,% $C%
3# @ % /3)$% .(,% 53)- -#*#.#, % ')$50.,2 % )1 % ) .(,3 8% /,,*#1: % .( .% <% $%
)$,;( .% 5,'# *R% C,.% ,^.3,$,*C% ::3, #B,% #1%.(,% .3, .$,1.% )/% $,2#' *%
')12#.#)1 % O<%)B,33, '.% ;(,1% <% $% -031,2R8% ;(#'(% # %1) .%')(,3,1.%;#.(%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 65/219
K% = K + E 4= K + < 6 K 7% = 4 N < + K + < T &% T&% E < > + T S ?% W P%
3 .#)1 *% -,( B#)3% 012,3%01',3. #1.CD% +(# % ')1:,1#. *% 2,1#:3 .#)1% )/% .(,%
,^5,3#,1',%)/%) .(,3 %# %1).%*#$#.,2%.)% '(#*23,1% )3%.)%5,)5*,%*#@,%$C ,*/h%#.%
//,'. % -0 #1, % 2,'# #)1% $ @,3 % 12% #1B, .)3 % )1% % :3 12% ' *,D%
K**% )/%$C% ')**, :0, % ;()$% <%( B,% @1);1% .)% 2,1#:3 .,% (# .)3C% -*,;%
05% 5,'. '0* 3*C% 9 % 12%< % ( B,% C,.% .)% ,1')01.,3% )$,% 0'(% 5,3 )1% ;()%
( %1).% -*);1% 05D% J0.% .(,% .30*C%#1.,3, .#1:% 5)#1.% *#, % #1% .(,% 3,$ 3@ -*,%
#$#* 3#.#, % #1 % .(,#3% 553) '(, D% <% ( B, % 1).#',2% 5*,1.C % )/% 1 *):#, %
-,.;,,1% .() ,% ;()% -*,;% 05% #1% .(,% .)'@% $ 3@,.% '3 (% )/% IPZ Q8 % .() ,%
;()%-*,;%05%#1%.(,%f 5 1%$,*.2);1%)/%IPPH8%.() ,%;()%-*,;%05%#1%.(,%
-)12%$ 3@,.%2,- '*,%)/% IP PW 8%.() ,%;()%-*,;%05%#1%S0 # %#1%I PP Z8% 12%
.() ,%;()%-*,;%05%-0C#1:%& 2 `% .)'@ %#1%GH HH D%+(,C% **%$ 2,%'* #$ %
.)% .(,% ,//,'.% .( .% g.(, ,% .#$, % 3,% 2#//,3,1.g% )3% .( .% g.(,#3% $ 3@,.% ; %
2 #/ /, 3,1 .g 8% 12% ) //,3,2% ,,$ #1:*C% ;,**% ')1 .30 '.,2% #1 ., **, '.0 *%
3:0$,1. % O)/% 1% ,')1)$#' % 1 .03,R % .)% i0 .#/C% .(,#3 % ' * #$ h% .(,C% ;,3,%
01 -*,%.)% '',5.%.( .%.(,%,^5,3#,1',%)/%).(,3 %; %)0.%.(,3,8%#1%.(,%)5,18%
/3,,*C% B #* -*,% .)% **8% ;#.(% -))@ % 2,. #*#1:% '3 (, % #1% ,B,3C% -))@ .)3,D%
K #2,%/3)$%.(, ,%:,1,3 *#j,2% C .,$#'%-*); %05 8%<%( B,% ,,1%(0123,2 %) /%
)5.#)1% .3 2,3 % /)3',2% .)% *, B,%.(,% -0 #1, % /.,3% -*);#1:%05%#1% % .05#2%
$ 11,38% #1% 5#.,% ) /% ; 31#1: % -C % .(,% B,.,3 1 8% #$ #* 3% .) % % '(#*2 U %
.)0'(#1:% .(,% .)B,D% +(# % < % /#12% .)% 3, ,$-*,% $C% );1% 5,3 )1 *% ..#.02,%
;#.(% 3, 5,'.% .)%.(,%2,.,'.#)1% 12%53,B,1.#)1% )/%.(,%B 3#,.C%) /% #*$,1. %<%
$ C% -,% 0-i,'.,2%.) D% 4B,3C%$ 1% -,*#,B, % (#$ ,*/%.)% -,%`0#.,% 2#//,3,1.8% %
$ ..,3% .( .% $5*#/#, % .(,% g;(C%$,ag% ()'@% 05)1% % 2# :1) # D%
L,% ' 1% 2# '0 % .( # % 5)#1.% /3)$% 2#//,3,1.% 1:*, D% 4^5,3. % ' **% )1, %
$ 1#/, . .#)1% )/% 0'(%2,1#:3 .#)1%)/%( # .)3C A%)(8$%/'5 1#(#$.%-%). e% <1% %
10. (,**%;,%.(#1@% .( .%;,%;)0*2%@1);%;(,1%(# .)3C%# %$ 2,h%;,%-,*#,B,%
.( . % 5,)5*,% ;()8% C8% ;#.1, ,2% .(,% .)'@% $ 3@,.% '3 (% )/% IPG P% @1,;%
.(,1% .( . % .(,C% *#B,2% 1% '0.,% (# .)3#' * % ,B,1.8% 12% .( . 8% ()0*2% .(, ,%
,B,1. %3,5, .% .(,$ ,*B, 8%.(,C%;)0*2%@1); % -)0.% 0'(%/ '. D% 7#/,%/)3%0 %
# %$ 2,%.)%3, ,$-*,% 1% 2B,1.03,%$)B#,8% %;,%@1);% (, 2%)/%.#$,% .( .%
)$,.(#1:% -#:%# % -)0.%.)% ( 55,1D% <.%# %( 32% .)%#$ :#1,%.( .%5,)5*,%;()%
;#.1, ,2%(# .)3C% 2#2%1).% @1);% .%.(,%.#$,%(); % #$5)3. 1.% .(,%$)$,1.%
; D% >)$,();% ** % 3, 5,'.% ;,%$ C% ( B,% /)3% (# .)3C% 2), % 1).% .3 1 * .,%
;,**% #1.)% )03%.3, .$,1.% )/%.(,% 53, ,1.D %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 66/219
\ H% > T 7 T & U >% L K S & <& V%
B ?$ L & . & + $
<%( B,% 1).(,3%3, )1%.)% -,%)- , ,2%;#.(% >)*)1U %; 31#1:D%< %( 3@% - '@%
.)% .(,% B,3C% $,% .3#5% )/% * 12% #1%.(,% 4 .,31%=,2#.,33 1, 1% ;(,3,% .(,%
.)3C%.))@% 5* ',D% =C% 1', .)3 % ,^5,3#,1',2% -)0. % )/% ,^.3,$,% )50*,1',%
12% ,$- 33 #1:% 5,103C% )B,3% .(,% ')03 ,% )/% % #1:*,% :,1,3 .#)18% ;#.(%
-305.% 3,:3, #)1 % .( .% 5,)5*, % 3)012% $,% ;()% ( B, % .(,% $,$)3C% )/%
., 2C% 12% *#1, 3% -,..,3$,1.8% 2)% 1).% .(#1@% /, #-*,% O . % *, . % 1).% .% .(,%
.#$,% )/%;3#.#1:RD% +() ,% 3)012% $,% ,#.(,3% ( B,% O )% / 3R% ( 2% /,;% / $#*C%
,.- '@ % O,^',5.% /)3% .(,% :3, . % 2,53, #)1R% )38% $)3,% :,1,3 **C8% 3,% 1).%
0//0 ,2%;#.(%,1)0:(% ,1 ,%)/%(# .)3C%.)%3,/*,'.%- '@; 32D% F)3%5,)5*,%) /%
$C% - '@:3)0128% 4 .,31% =,2#.,33 1, 1% V3,,@9T3.()2)^% 12% #1B 2,2%
4 .,31% S)$ 1% '#.#j,1 8% #. %; % % #/% )03% )0*%( 2% -,,1% ;#3,2% ;#.(% .(,%
3,$ ,$-3 1',% )/% .( .% 2% K53#*% 2 C /%$/'% \ HH% C, 3 % :)% ;(,1%
6)1 . 1.#1)5*,8% 012,3% .(,% #1B 2#1:% +03@ 8% /,**% )0.% )/% (# .)3C8% *, B#1:%
0 % .(,% *) .% 0-i,'. % )/% % 2, 2% ,$5#3,8% B,3C% 53) 5,3)0 %$#1)3#.#, % #1% 1%
< * $#'% ;)3*2 % 9% -0.% ; #.( % 1 % ,^.3,$,*C % /3 :#*,% ;, *.( D% =)3,)B,38% <%
B#B#2*C% 3,$,$-,3%.(,% #$ :,% )/%$C% );1%2#:1#/#,2%:3 12/ .(,38% % /)3$,3%
2,50.C%53#$,%$#1# .,3% 12% )1%)/% %2,50.C%53#$,%$#1# .,3%O;()$%<%1,B,3%
;% ;#.()0.% % 0#.R8% 3, #2#1:% #1% % 1)12, '3#5.% 5 3.$,1.% #1%K.(,1 8% (# %
, . .,%( B#1:%-,,1%-*);1%05%203#1:%.(,%7,- 1, ,%'#B#*%; 3D% <1'#2,1. **C8%
( B#1:% ,^5,3#,1',2% .(,% 3 B :, % ) /% ; 3 8% <% /#12% 012#:1#/#,2%
#$5)B,3# ($,1.% / 3% ( 3 (,3% .( 1% 5(C #' *% 2 1:,3% O )$,();% 2C#1:% #1%
/0**%2#:1#.C% 55, 3 %.)%$,%/ 3%53,/,3 -*,%.)%*#B#1:% %i 1#.)3# *%*#/,8%;(#'(%
# % )1, % )/% .(,% 3, )1 % <% 2# *#@, % /#1 1'# *% 3# @ % / 3% $)3, % .( 1% 5(C #' *%
)1, RD% <% $% ',3. #1 % .( .% 63), 0 % ;)33#,2% $)3, % -)0.% .(,% *) % )/% (# %
_#1:2)$% .( 1% .(,%5,3#* % .)% (# % *#/,D%
+(,3,% # % 1% #$5)3. 1.% 12% 1)19.3#B# *% 5,'.% )/% (# .)3#' *% .(#1@#1:8%
5,3( 5 %$)3,% 55*#' -*,%.) %.(,%$ 3@,. %.( 1% 1C.(#1:%,* ,d%01*#@,%$ 1C%
g( 32g% '#,1', 8% (# .)3C % ' 11).% *,12 % #. ,*/% .) % ,^5,3#$,1. .#)1D% J0.%
)$,();8% )B,3 **8% (# .)3C% # % 5).,1.% ,1)0:(% .)% 2,*#B,38 % )1% .#$,8% #1% .(,%
$,2#0$% .)% *)1:% 3018% $) .% )/ % .(,% 5) #-*, % ',1 3#) 8% -03C#1:% .(,% - 2%
:0CD%J 2% .3 2, % ' .'(% 05%;#.(% C)08% #.% # %/3,`0,1.*C% #2%#1% .(,%$ 3@,. D%
= .(,$ .#' # 1 % )/ % 53)- -#*#.C% :#B,% .( .% % / 1'C% 1 $,d #$+81%/%(,e% <.%
$, 1 8%3)0:(*C8% .( .% O012,3%',3. #1%')12#.#)1 R8% B,3C%*)1:% $5*,%5 .( %
;)0*2%,12%05%3, ,$-*#1:%, '(%) .(,3D%+(,%53)5,3.#, %)/% %B,3C8%B,3C%*)1:%
$5*,% 5 .( % ;)0*2 % -,% #$#* 3% .) % .(,% =)1.,% 6 3*) % 5 3)5,3.#, % ) /% 1 %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 67/219
K% = K + E4 =K + < 6 K 7% = 4 N <+ K + <T &% T&% E <> + T S?%
\ I%
B,3 :,%)/% ()3.,3%)1, D%+(,%i 1#.)3%#1%6( 5.,3%I%;()%;)1%.(,%*)..,3C8%#/%
(,% *#B,2% IHH H% C, 3 8% ' 11).% -,% ,^5,'.,2% .)% ;#1% $)3,% *)..,3#, D% +() ,%
;()% ;,3,% 01*0'@C% #1% *#/,% #1% 5#.,% )/% .(,#3% @#** % ;)0*2% ,B,1.0 **C% 3# ,D%
+(,% *0'@C% /))*% $#:(.% ( B,% -,1,/#.,2% /3)$% )$,% *0'@% #1% *#/,h% )B,3% .(,%
*)1:,3% 301% (,%;)0*2% *);*C% ')1B,3:,% .)% .(,% . .,% )/% % *, 9*0'@C% #2#).D%
4 '(% )1,%;)0*2% 3,B,3.% .)% (# % *)1:9.,3$% 53)5,3.#, D%
>.,%.11(2& 4'./K./8& #/& :#$*& E)1=E.1#%&
T ' C ( < + /$ + # L$
+(,% i)031 *# .8% $C Y#(# -8%$#N% ,1.,3,2 % .(# % -))@% ; #.(% V,)3:,% L#**%
2, *#1:% ;#.(% 3 12)$% )0.')$, D% <1 % .(,% 1,^.% .,5% <% ;#**% ();% ();% $C%
=)1.,% 6 3*)% .)C%. 0:(.%$,%.)%/ B)3%2# .#**,2%.(#1@#1:8% -C%;(#'(%<%$, 1%
.(,% .(#1@#1:% - ,2% )1% #1/)3$ .#)1% 3)012% 0 % .( .% # % .3#55,2% ) /%
$, 1#1:*, % -0.%2#B,3.#1:% '*0..,3D% F)3% .(,% 2#//,3,1',% -,.;,,1% 1)# ,% 12%
#1/)3$ .#)18% .(,%.)5#'%) /%.(# % -))@% O1)# ,%( %$)3,%3 12)$1, R% ( % 1%
1 *):d% .( .% -,.;,,1% i)031 *# $ % 12 % (# .) 3CD% +)% -,% ')$5,.,1 .8% %
i)031 *# .% ()0*2%B#,;%$ ..,3 % *#@,% % (# .)3# 18% 12%5* C%2);1% .(,%B *0,%
)/%.(,%#1/)3$ .#)1% (,%# %53)B#2#1:8% 0'(% %-C% C#1:d% g.)2 C% .(,%$ 3@,.%
;,1.%058% -0.%.(# % #1/)3$ .#)1% # %1).% .))% 3,*,B 1.% % #. %,$ 1 ., % $) .*C%
/3)$% 1)# ,gD% E,%;)0*2%',3. #1*C%*) ,% (# % i)-% -C%.3#B# *#j#1:% .(,%B *0,% )/%
.(,%#1/)3$ .#)1%#1%(# %( 12 D%&).%)1*C% # %#.%2#//#'0*.%/)3%.(,%i)031 *# .% .)%
.(#1@%$)3,% *#@,% % (# .)3# 18% -0.% #.% # % * %.(,% (# .)3# 1%;()% # % -,')$#1:%
$)3,% *#@,% .(,% i)031 *# .D%
F)3% 1%#2, 8% :,%# %-, 0.C%O#.%# %53,$ .03,%.)% 2# '0 %.(,%$ .(,$ .#' %
)/% .(,%5)#1.RD %+( ,% 55*#' -#*#.C% )/% >)*)1U % ; 31#1:%.)% % *#/,% #1% 3 12)$9
1, 8% #1 % ')1.3 .% ; #.( % .(,% ,^ '.% )55) #.,% $, :,% 2,*#B,3,2 % -C % .(,%
53,B #*#1:%$,2# 9 ) @,2% '0*.03,8%3,#1/)3', %$C%#1 .#1'.%.)% B *0,%2# .#**,2%
.()0:(.%)B,3%1,;,3%.(#1@#1:8%3,: 32*, % )/%#. % 55 3,1.% )5(# .#' .#)1% 9
1).(,3%3, )1%.)% ''0$0* .,%.(,%() 3C%B)*0$, %-C%$C%-,2 #2,%O<%')1/, %
.( .% .(,% )1*C% 1,; % #.,$ % < % '033,1.*C% 3, 2% 3,% .(,% / 3% $)3,% #1.,3, .#1:%
05 ' *,% )'# *%:) #5% .)3#, %/)012%#1 F'(5#$N ;'$%) 3'(/A% 12 4'-%(, V'%$
9% #1 % 22#.#)1% .) FA# 6/8-8.%)(de% K #2,% /3)$% .(,% 2,')30$% )/% 1'#,1.%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 68/219
\ G%
> T 7 T & U >% L K S& <& V%
.()0:(.% % )55) ,2% .)% .(,% ') 3 ,1, % )/% /3, (% #1@8% <% 5,1.% )$,% .#$,%
5(3 #1:% .(,% #2, % #1 % .(,% $ .(,$ .#' % )/% ,B)*0.#)1 3C% 3:0$,1. % 12%
')12#.#)1 *% 53)- -#*#.CD % F)3% 1% #2, % .)% ( B,% 03B#B,2% )% *)1:% '3) % )%
$ 1C%'C'*, %# %#12#' .#B,%)/%#. %3,* .#B,%/#.1, D%&) # ,8% .%*, . )8.#% 1)# ,8%
; % /#*.,3,2% )0.D% = .( ,$ .#' **C 8% 53):3, % $, 1 % .( .% )$,% 1,; %
#1/)3$ .#)1% # % -,..,3% .( 1 % 5 .% #1 /)3$ .#)18% 1).% .( .% .(,% B,3 :,% )/%
1,;%#1/)3$ .#)1% ;#**% 055* 1.%5 .%#1/)3$ .#)18% ;(#'(%$, 1 % .( .% #.%# %
)5.#$ *% /)3% )$,)1,8% ;(,1% #1% 2)0-.8% .)% C .,$ .#' **C% 3,i,'.% .(,% 1,;%
#2, 8% #1/)3$ .#)18% )3%$,.()2D% 6*, 3*C% 12% ()'@#1:*C8% *; C D%L(Ca%
+(,% 3:0$,1.% #1 % / B)3% )/% g1,;% .( #1: g% 12% ,B,1 % $)3, % g1,;% 1,;%
.(#1: g % :), % % /)**); d% *))@% .% .(,% 23 $ .#' % '( 1:, % .( .% ( B,% -,,1%
-3)0:(.% -)0.% -C% .(,% 33#B *% )/% 1,;% .,'(1)*):#, 8% 0'(% % .(,%
0.)$)-#*,8% .(,% #35* 1,8% .(,% .,*,5()1,8% 12% .(,% 5,3 )1 *% ')$50.,3D%
=#22*,-3);% #1/,3,1',% O#1/,3,1',% .3#55,2% )/% 53)- -#*# .#'% .(#1@#1:R%
;)0*2% *, 2% )1, % .) % -,*#,B,% .( . % **% 1,;% .,'(1)*):#, % 12% #1B,1.#)1 %
;)0*2% *#@,;# ,%3,B)*0.#)1#j,%)03%*#B, D%J0.%.(,% 1 ;,3%# %1).% )% )-B#)0 d%
(,3,%;,%)1*C% ,,% 12%')01.%.(,%; #11,3 8%.)%.(,%,^'*0 #)1% )/%.(,% *) ,3 % O#.%
# % *#@,% C#1:% .( .% '.)3 % 12% ;3#.,3 % 3, % 3 #'(8% #:1)3#1:% .(,% / '.% .( .%
' .)3 % 3, % * 3:,*C % ; #.,3 % 9% 12% *0'@C% .) % -, % )1, % /)3% .(,% *, % ')$,*C %
;3#.,3 %0 0 **C% ,3B,%F3,1'(%/3#, % .%= 'N)1 *2U RD% 7) ,3 a%+(,% > .032 C%
1,; 5 5,3% *# . % 2)j,1 % )/% 1,;% 5 .,1. % )/% 0'(% #.,$ % .( .% ' 1%
3,B)*0.#)1#j,% )03% *#B, D% M,)5*,% .,12% .)% #1/,3% .( .% -,' 0 ,
)8.#
% #1B,19
.#)1 % ( B,% 3,B)*0.#)1#j,2% )03% *#B, % .( .% #1B,1.#)1 % 3,% :))2% .)% ,12)3 ,%
12%;,% ()0*2% / B)3%.(,%1,;%)B,3%.(,%)*2D%<%()*2%.(,%)55) #.,%B#,;D%+(,%
)55)3.01#.C% ') .%)/%$# #1:% % g1,;% 1,;%.(#1:g% *#@,%.(,% #35* 1,% 12%.(,%
0.)$)-#*,% # %$#10 '0*,%')$5 3,2%.)%.(,%.)^#'#.C%) /% **%.(,%: 3- :,% )1,%
( % .)% :)% .(3)0:(%.)% :,.%.)% .(, ,% i,;,* % O 0$#1:% .(, ,% ( B,% -3)0:(.%
)$,% #$53)B,$,1.% .)% )03% *#B, 8%;(#'(% <% /3,`0,1.*C% 2)0-.RD%
&);% .(,% ,^ '.% $,% 3:0$,1.% 55*#, % .)% #1/)3$ .#)1D% +(,% 53)-*,$%
;#.(%#1/)3$ .#)1% # %1).%.( .% #.%# %2#B,3.#1:% 12%:,1,3 **C%0 ,*, 8%-0.%.( .%
#. % # % .)^#'D% L,% ;#** % ,^ $#1,% .(,% 20-#)0 % B *0,% )/% .(,% (#:(*C% /3,`0,1.%
1,; %;#.(% %$)3,%.,'(1#' *%2# '0 #)1%)/% #:1 *%/#*.,3#1:% 12% )- ,3B .#)1%
/3,`0,1'C% /03.(,3% 2);1D% < %;#** % C% (,3,% .( .% 0'(% 3, 5,'.% /)3% .(,% .#$,%
()1)3,2 % 53)B#2, % 3:0$,1. % .)% 30*,% )0.% 1C% ')$$,3',% ; #.(% .(,%
- --*#1:% $)2,31 % i)031 *# .% 12% #$5*#, % % $#1#$ *% ,^5) 03, % .)% .(,%
$,2# % % % :0#2#1:% 53#1'#5*,% /)3% )$,)1,% #1B)*B,2% #1% 2,'# #)19$ @#1:%
012,3% 01',3. #1.CD% </%.(,3,% # % 1C.(#1:% -,..,3% .( 1% 1)# ,% #1%.(,%$ % )/%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 69/219
K% = K + E 4= K + < 6 K 7% = 4 N < + K + < T &% T&% E < > + T S ?% \ [%
g03:,1.g% 1,; % 5)012#1:% 0 8% #.% ;)0*2% -,% *#@,% % 1,,2*, % #1 % % ( C . '@D%
M,)5*,% 2)%1) .%3, *#j,%.( .% .(,%$,2# % # %5 #2%.)% :,.%C)03% ..,1.#)1D% F)3% %
i)031 *# .8% #*,1',% 3 3,*C% 035 , % 1C% ;)32D%
T1% .(,%3 3,% )'' #)1 % ;(,1% < %-) 32,2%.(,% XdWG% .3 #1% .)%&,;% ?)3@% < %
)- ,3B,2%; #.(% $ j,$,1.% .(,%()32, % )/% 2,53, ,2% -0 #1, % ')$$0.,3 %
O;()% ,,$,2%.)% ( B,%53,/,33,2%.)% -,%,* ,;(,3,R% .02#)0 *C% -03#,2%#1%.(,%
T'55 *($##( G8B$-'58% 553# ,2% )/% .(,%$#10.# ,% )/%')$5 1#, % .( . 8% . % .(,%
.#$,% )/% ;3#. #1:8% 3,% 53)- -*C% )0.% )/% -0 #1, D% <12,,2% #. % # % 2#//#'0*. % .)%
',3. #1% ;(,.(,3 % .(,C% ,,$% 2,53, ,2% -,' 0 ,% .(,C% 3,% 3, 2#1:% .(,%
1,; 5 5,38% )3% #/% 2,53, #B,% 5,)5*,% .,12% .)% 3, 2% .(,% 1,; 5 5,38% )3% #/%
5,)5*,% ;() % 3,% *#B#1: % )0. #2,% .(,#3% :,1,.#'% ( - #. .% -).( % 3, 2 % .(,%
1,; 5 5,3% 12% *))@% *,,5C% 12% 2,53, ,2D% J0.% ;(#*, % , 3*C% )1% #1 % $C%
' 3,,3% 0'(% /)'0 % )1% 1)# ,%;)0*2% ( B,% )//,12,2% $,% #1.,**,'.0 **C8% % < %
;)0*2% ( B,% 2,,$,2% 0'(% #1/)3$ .#)1% % .))% . .# .#' **C% #1 #:1#/#' 1.%
/)3% .(,% 2,3#B .#)1% )/% 1C% $, 1#1:/0*% ')1'*0 #)18% < %'033,1.*C% *))@% .% #. %
;#.(%2,*#:(.D% <% $%( 55C%.)% ,,% 0'(%$ 9 ' *,%#2#).#'% 2,'# #)19$ @#1:8%
53)1,%.)% )B,33, '.#)1% #1%.(,#3%5) .95,30 *% #1B, .$,1.%)32,3 %9% #1% ).(,3%
;)32 % <% '033,1 .*C % ,,% #1 % .(,% / ' .% .( . % 5,)5*,% 3, 2% 0'( % $ .,3# *% 1 %
#1 03 1',% /)3% $C% ')1.#10#1:% #1 % .(,% ,1.,3. #1 #1:% -0 #1, % )/% )5.#)1%
.3 2#1:% : #1 .% .(,%/))* % )/% 3 12)$1, D%
L > < . . '$ ' , 0 V $
=0'(%)/%.(,%.(#1@#1:% -)0.%.(,%1,: .#B,%B *0,%)/%#1/)3$ .#)1%)1% )'#,.C%
#1%:,1,3 *%; % 5 3@,2% -C%S)-,3.% >(#**,3D%&).% i0 .%#1%/#1 1'# *% $ 3@,. h%
-0.% )B,3 **% (# % IP ZI% 5 5,3%$ C% -,%.(,% /#3 .%$ .(,$ .#' **C% /)3$0* .,2%
#1.3) 5,'.#)1% )1% .(,% $ 11,3% )'#,.C% #1 % :,1,3 *% ( 12*, % #1/)3$ .#)1D%
>(#**,3%$ 2,%(# %$ 3@%;#.(% (# % IP ZI% 5 5,3%)1% .(,%B)* .#*#.C%) /%$ 3@,. 8%
;(,3, % (,% 2,.,3$#1,2% .( .8% #/% % .)'@% 53#', % # % .(,% , .#$ .,2% B *0,% )/%
g )$,.(#1:g% O C% .(,% 2# ')01.,2% ' (% /*); % /3)$% % ')35)3 .#)1R8% .(,1%
$ 3@,.% 53#', % 3,%; C%.) )%B)* .#*,%#1%3,* .#)1% .)%. 1:#-*,% $ 1#/, . .#)1 %
)/% .( . % g )$,.(#1:g% O(,% 0 ,2% 2#B#2,12 % % 53)^CRD% M3#', % ;#1:% $)3,%
.( 1 % .(,% /012 $,1. * % .(,C% 3,% 055) ,2% .)% 3,/*,'.8% .(,C% B# #-*C%
)B,33, '.% -C% -,#1:%.))% (#:(% . % .#$, % O;(,1% .(,#3% 53#',% )B,3 ()). % .(,%
:))2%1,; %)3%;(,1%.(,C%:)%05%;#.()0.% 1C%$ 3@,2%3, )1R% )3%.))% *);%
. % ).(,3 D% +(,% B)* .#*#.C% 2#//,3,1.# *% -,.;,,1% 53#', % 12% #1/)3$ .#)1%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 70/219
\ W%
> T 7 T& U>% L K S& <& V%
$, 1.% .( .% )$,.(#1:% -)0.% g3 .#)1 *% ,^5,'. .#)1g% 2#2 % 1).% ;)3@ D%
OM3#', % 2#2% 1).% 3 .#)1 **C% 3,/*,'. % .(,% *)1:9.,3$% B *0,% )/% ,'03#.#, % -C%
)B,3 ()).#1:% #1%,#.(,3%2#3,'.#)1DR%= 3@,. % ( 2%.)% -,%;3)1:D%>(#**,3%.(,1%
53)1)01',2% $ 3@,. % .)% -,% 1).% % ,//#' #,1.% % , . -*# (,2% -C% / #1 1'# *%
.(,)3C% O,//#'#,1.%$ 3@,. % $, 1.8% #1% % 10. (,**8% .( .% 53#', % ()0*2% 2 5.%
.)% **% B #* -*,%#1/)3$ .#)1% #1% 0'(% %; C% %.)%-,%.). **C% 0153,2#'. -*,%
.)%0 %(0$ 1 % 12%53,B,1.%5,)5*,%/3)$%2,3#B#1:%53)/#. RD%+(# % ')1'*0 #)1%
,.%)//% ' ** % -C%.(,%3,*#:#)0 %)32,3 % )/%(#:(%/#1 1',% /)3%.(,% 2, .30'.#)1% )/%
.(,% #1/#2,*% ;()% ')$$#..,2% 0'(% 5) . CD% <1.,3, .#1:*C8% 12% -C% )$,%
.3 1:,% ')#1'#2,1',8% #.% # % .( . % B,3C% $,% >(#**,3% .( .% ; % .3)01',2% -C%
V,)3:,%L#**% )1*C% )1,%'( 5.,3% :)D%
+(,% 53#1'#5 *% '3#.#'# $% : #1 .% >(#**,3% ' $,% /3)$% S)-,3.% 6D% =, 3.)1D%
+(,% .. '@ % ;,3,% 503,*C% )1%$,.()2)*):#' *% :3)012 % O>(#**,3U % 1 *C # %
; % ,^.3,$,*C % 3)0:(h% /)3% #1 . 1',8% (# % 0 #1: % 2#B#2,12 % #1 % 5* ',% ) /%
, 31#1: % ; % 3 .(,3% ;, @RD% =,3.)1% ; % * ) % 2,/,12#1: % .(,% ) //#' # *%
/#1 1'# *% .(,)3C%5) #.#)1% .( .% $ 3@,. % 1,,2,2%.)% -,% ,//#'#,1.% 12%')0*2%
1).%5) #-*C%2,*#B,3%)55)3.01#.#, % )1% % #*B,3%5* .,D% ?,.% .(,% $,% S)-,3.%
6D%= ,3.)1% * .,3%#1.3)20',2%(#$ ,*/% %.(,%g/)012#1:%5 3.1,3g% )/% %(,2:,%
/012% .( .% #$,2% .% . @#1:% 2B 1. :,% )/% $ 3@,. % #1,//#'#,1'#, D% >,..#1:%
#2,% .(,% / '.% .( .% =,3.)1U % (,2:,% /012% -*,;% 05% 3 .(,3% 5,'. '0* 3*C%
/3)$%.(, Y5'/> )?'- :$8Y5#.% O;#.(%'( 3 '.,3# .#'%2,1# *R8%(# %g/)012#1:g%
0'(% % (,2:,% /012% 3,`0#3, 8% -C%#$5*#' .#)18% .( .% (,% :3,, % ;#.(% >(#**,3%
-)0.% .(,% #1,//#' #,1'C% )/% .(,% $ 3@,.D% +(,% 2,/,12,3% )/ % .(,% 2):$ % )/%
$)2,31% /#1 1',% 12%,//#'#,1.%$ 3@,. % . 3.,2% %/012%.( .%.))@% 2B 1. :,%
)/%$ 3@,.%#1,//#'#,1'#, b% <.% # % %#/%.(,%M)5,%')1B,3.,2% .)% < * $D%
+(#1: % 3,% 1).% :,..#1:% 1C% -,..,3% .(, ,% 2 C D% K.%.(,% .#$,% )/%;3#.#1:8%
1,; %53)B#2,3 % 3,U)//,3#1:% **%$ 11,3%) /%052 ., 8%g-3, @#1:% 1,; g% .( .%
' 1 % -,% 2,*#B,3,2 % ,*,'.3)1#' **C % #1 % % ; #3,*, % $ 11,3D% +(,% 3 .#) % ) /%
012# .#**,2% #1/)3$ .#)1% .)% 2# .#**,2% # % 3# #1:8% .03 .#1:% $ 3@,. D% +(,%
,*2,3U % $, :, % 1,,2%1).% -,%2,*#B,3,2% .)%C)0% % #$$#1,1.% 1,; D%
+(# % 2), % 1).% $, 1% .( .% **% i)031 *# . % 3, % /))*,2% -C% 3 12)$1, %
1)# ,%53)B#2,3 d%.(,3,% 3,%()32, %)/%.()0:(./0*gi)031 *# . % #1%.(,%-0 #1, %
O<%;)0*2% 0::, .%7)12)1U %K1 .)*,%_ *,. @C% 12%&,;%? )3@ U %f#$% V3 1.%
12% K* 1 % K-,* )1% % .(,% 012,33 .,2% 3,53, ,1. .#B, % )/% 0'( % % '* %
$)1:% /#1 1'# *% i)031 *# . h% V 3C%>.#^% $)1:% '#,1.#/#'% i)031 *# . Rh% #.%# %
i0 .% .( .% 53)$ #1,1.% $,2# % i)031 *# $ % # % % .()0:(.*, % 53)', % )/%
53)B#2#1:%.(,% 1)# ,%.( .%' 1% ' 5.03,%5,)5*,U % ..,1.#)1% 12%.(,3,% ,^# . %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 71/219
K% = K + E 4 =K + < 6 K 7% = 4 N < + K + <T &% T&% E <> + T S ?%
\ \%
1)% $,'( 1# $ % /)3% ,5 3 .#1:% .(,% .;)D% K % % $ ..,3% )/% / '.% $ 3.%
i)031 *# . % 3,%)/.,1% 5,1 *#j,2D% 7#@,%.(,%* ;C,3%#1%6( 5.,3% II%;()%2), %
1).% ' 3, % -)0.% .(,% .30.( 8% -0.% -)0.% 3:0$,1. % .( .% ' 1% ; C% % i03C %
;() ,%#1.,**,'.0 *% 2,/,'. %(,%@1); % #1.#$ .,*C8%i)031 *# $%:), %.)%;( .%
' 1% ' 5.03,% )03% ..,1.#)18% ; #.(% 2,`0 .,% )0129-#., D% K: #1% $C%
'()* 3*C% /3#,12 % ;)0*2% ;)12,3% ;(C% <% $% :,..#1:% ,$).#)1 * % . .#1:%
.(,%)-B#)0 %.(#1: % -)0.%.(,%i)031 *# . h%.(,%53)-*,$%;#.(%$C%53)/, #)1%
# %.( .%;,% 2,5,12%)1% .(,$% /)3% ;( .% #1/)3$ .#)1% ;,%1,,2%.)% )-. #1D%
/ ' & + A & = ' C = ?$
K% 53,/,3,1',% /)3% 2# .#**,2% .(#1@#1:% #$5*#, % / B)3#1:% )*2% #1B, .)3 % 12%
.3 2,3 8%.( .%# %#1B, .)3 %;()%( B,%-,,1%,^5) ,2%.)% $ 3@,. %.(,% *)1:, .8%
%$ ..,3%.( .% # %')01.,3%.)% .(,%')$$)1%L **%>.3,,.%53 '.#',%) /%53,/,33#1:%
.() ,% .( .% ( B,% -,,1% .(,% $) .% 53)/#. -*,8% 12% 53,/,33#1:% .(,% C)01:,3%
;(,1,B,3% 5) #-*,D% <% .)C,2% ; #.(% =)1 .,% 6 3*)% #$0* .#)1 % )/%
(,.,3):,1,)0 %5)50* .#)1 %) /%.3 2,3 %012,3% %B 3#,.C% )/%3,:#$, % O'*) ,*C%
3, ,$-*#1:% (# .) 3#' *% )1, R8% 12 % /)012 % % #:1#/#' 1.% 2B 1. :,% #1%
,*,'.#1:% :,2% .3 2,3 8% 0 #1:8% % % ,*,'.#)1% '3#.,3#)1% .(,#3% '0$0* .#B,%
C, 3 % )/% ,^5,3#,1',% 3 .(,3% .( 1% .(,#3% - )*0.,% 0'', % O')12#.#)1 *% )1%
.(,#3% ( B#1:% 03B#B,2% ;#.()0.% -*);#1:% 05RD % g>03B#B *% )/% .(,% /#.., .g8% %
.,3$ % )% ( '@1,C,2 % #1% .(,% #1B, .$,1.% $,2 # 8% 2), % 1) .% ,,$% .) % -,%
53)5,3*C%012,3 .))2d%012,3%3,:#$,% ;#.'(#1:8% %;,%;#**% ,,%#1% 6( 5.,3%
\ 8% #.% ;#**% -, % 01'*, 3% ;()% # % ' .0 **C % .(,% /#.., .8% 12% .() , % ;()% ;#**%
03B#B,% 3,%1) .%1,', 3#*C% .() ,%;()% 55, 3%.)% -,%.(,%/#.., .D%603#)0 *C8%
#.% ;#** % -,% .(,% )*2, .8% #$5*C% -,' 0 ,% )*2,3% 5,)5*,% ( B,% -,,1% ,^5) ,2%
*)1:,3%.)% .(,% 3 3,%,B,1.% 12%' 1% -,8%')1B#1'#1:*C8%$)3,% 3, # . 1.%.)% #.D% <%
; % $0 ,2 % .)% 2# ')B,3% % #$ #* 3% ,B)*0.#)1 3C% 3:0$,1.% #1% $ .,%
,*,'.#)1% .( .% ')1 #2,3 % .( .% ;)$,1% 53,/,3% O)1% - * 1',R% .)% $ .,% ;#.(%
(, *.(C% )*2,3 % $,1% )B,3 % (, *.(C% C)01:,3% )1, 8% ,B,3C.(#1:% ,* ,% -,#1:%
,`0 *8% % .(,% /)3$,3% 53)B#2,% )$,% ,B#2,1',% )/% -,..,3% :,1, D% V3 C% ( #3%
#:1 * % 1% ,1( 1',2% -#*#.C% .)% 03B#B,%9% ')12#.#)1 *% )1% ( B#1:% 3, '(,2%
.(,%:3 C%( #3% . :,8%(,%# %*#@,*C%.)%-,%$)3,%3, # . 1.%.) %.(,%B : 3#, %)/%*#/,D%
603#)0 *C8%*#/,%#1 03,3 %#1%3,1 # 1',% <. *C%3, '(,2%.(,% $,% ')1'*0 #)18%
-C% '( 3:#1:% .(,% $,% #1 03 1',% /)3% % $ 1% #1% (# % GH % % .(,C% 2#2% /)3% %
$ 1% #1% (# % \H 8% % #:1% .( . % .(,C% ( 2% .(,% $,% *#/,% ,^5,'. .#)1h% )1',% %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 72/219
\ X% > T 7 T & U >% L K S& <& V%
$ 1% '3) ,2% .(,% WH9C, 3% $ 3@8% (,% ( 2% ();1% .( .% B,3C% /,;% #*$,1. %
')0*2%( 3$%(#$D%L,%1);%53)',,2%.)% %$ .(,$ .#' *% 3,5(3 #1:%)/%.(, ,%
3:0$,1. D%
E'.1#,%*)%$,& ./ &+#/%(& 0)*1# H& I/& %'(& >.LL(*(/@(&
M(%N((/& 3#.,(& )/2& ?/L#*=)%.#/&
+(,% ;# ,% $ 1 % *# .,1 % .)% $, 1 #1: 8% .(,% /))*% )1*C % :,. % .(,% 1)# ,D% +(,%
$)2,31% V3,,@% 5),.% 6 D% MD% 6 B /C% ;3).,% % 5#,',% #1% IPI\% /.,3%
M(#*) .3 .0 U% 2 :,d V8$ (A# +81) :#$/#%&# (A%-+) %- (A# <B(B$#N 8$1%-'$,
:#8:5# (A%-+) %- (A# :$#)#-(N YB( (A# ?%)# :#$/#%&# (A%-+) 'Y8B( (8
A'::#-e
% 6 B /C% ;3) .,d%
%- (A#%$ %-(#-)# .#1%('(%8- (A# A%11#- )8B- 1 8< (A%-+) '::$8'/A%-+
$#'/A#) (A#. '-1 (A#, 5%)(#- $#&#$#-(5, ?A%5# %- (A# )($##( 8B()%1# (A#
:#8:5# A#'$ -8(A%-+ '( '55e
<%.()0:(.%( 32% 12%*)1:%)1%();%.)% ,^5* #1%;#.(% %*#..*,%$ .(,$ .#' % %
5) #-*,% .(,% 2#//,3,1',% -,.;,,1% 1)# ,% 12%$, 1#1:8% 12% ();% .)% ();%
;(C% .(,% .#$,% ' *, % # % #$5)3. 1.% #1 % i02:#1:% 1 % ( # .)3#' *% ,B,1.D% +(, %
=)1.,% 6 3*)% #$0* .)3% ' 1% 53)B#2,% 0 %;#.(% 0'(% 1% #1.0#.#)1D% L,%;#**%
. 3.%;#.(% 1% ,^ $5*,% -)33);,2% /3)$% .(,% #1B, .$,1.%;)3*2% O.( .% # %$C%
53)/, #)1R8% % #.% ' 1% -,%,^5* #1,2% 3 .(,3% , #*C8%-0.% .(,%')1',5.% ' 1% -,%
0 ,2%#1% 1C% 55*#' .#)1D%
7,.% 0 % $ 10/ '.03,% % ( 55#*C% 3,.#3,2% 2,1.# .8% *#B#1:% #1 % % 5*, 1.%
011C%.);1D%L,% @1); ' :$%8$%% .( .%(,%# % 1%,^',**,1.% #1B, .)38% 12%.( .%
(,%;#**% -,%,^5,'.,2%.)% , 31% %3,.031% )/% I\l% #1%,^', % )/%+3, 03C% -#** 8%
;#.(% % I Hl% ,33)3%3 .,%5,3% 110$% O;( .%;,%' **%B)* .#*#.CRD%<.%$, 1 %.( .%
)0.% )/% IH H% $5*,%5 .( 8%;,%,^5,'.%'*) ,%.)&OP% )/ % .(,$% .)%/ **%;#.(#1% %
- 12% ) /% 5*0 % 12% $#10 % I Hl% 3)012% .(,% I \l% ,^', % 3,.0318% #D,D%
-,.;,,1%\l% 12%G \l% O.)%-,%.,'(1#' *h %.(,%-,**9 ( 5,2%1)3$ *%2# .3#-09
.#)1% ( % XZ l% )/% **% )- ,3B .#)1 % / **#1:% -,.;,,1% qI% 12% I % . 12 32%
2,B# .#)1 RD%<.% * )%$, 1 %.( .%P \% $5*,%5 .( %;)0*2%/ **% -,.;,,1%q\l%
12% [ \l D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 73/219
K% = K+ E4 =K + <6 K7% = 4 N <+ K + <T &% T&% E <> + TS ?%
\ Q%
6*, 3*C8%;,% 3,% 2, *#1:% ;#.(% % B,3C% )5.#$# .#'% #.0 .#)1D% +(,% 2,1.# .%
-0#*2 % /)3%(#$ ,*/% % 1#',%.3 2#1:%2, @%#1%(# % ..#'8% #$#1:%.)% 5,12%,B,3C%
-0 #1, % 2 C% .(,3,% ; .'(#1:% .(,% $ 3@,.8% ;(#*,% #55#1:% 2,' //,#1 .,2%
' 550''#1)D% E,% ( % 1 % 2B,1.03)0 % .,$5,3 $,1.8% ) % (,% /#12 % .(# %
'.#B#.C%$)3,% ..3 '.#B,%.( 1 %23#**#1:%.(,%.,,.(%) /%3,*0'. 1.%)*2%*#..*,%M 3@%
KB,10,% * 2#, D%
E,% 0- '3#-, % .)% % ; ,-9- ,2% ,3B#',% .( .% 055*#, % (#$ % ;#.(%
')1.#10)0 % 53#', 8% 1);% .)% -,% )-. #1,2% /)3 % % /3 '.#)1% )/% ;( . % (,% 5 C %
/)3%(# %')//,,D%E,% 50. % (# %#1B,1.)3C% )/% ,'03#.#, % #1% (# % 53, 2 (,,.% 12%
' 1% .(0 % #1 . 1. 1,)0 *C%$)1 #.)3% .(,%B *0,% )/% (# % 5,'0* .#B,% 5)3./)*#)D%
L,% 3,% *#B#1:% #1%.(,%,3 % ' **,2% .( .% )/% ')11,'.#B#.CD%
K % I\l% 3,.031 % ;#.( % % IHl% B)* .#*#.C % O)3% 01',3. #1 .C R% 5,3% 110$%
.3 1 * ., % #1.)% % P[ l% 53)- -#*#.C% )/%$ @#1:%$)1,C% #1% 1C% :#B,1% C, 3D%
J0.% ,,1% .% % 1 33);% .#$,% ' *, 8% .( # % .3 1 * ., % #1 .) % % $,3,% \H D HGl%
53)- -#*#.C% )/%$ @#1:%$)1,C% )B,3% 1C% :#B,1% ,')12% % ();1%#1%+ -*,%
[DID % TB,3% .(,% B,3C% 1 33);% .#$,% #1'3,$,1.8% .(,% )- ,3B .#)1% ;#**% 3,B, *%
' *) ,% .)% 1).(#1:D% ?,.% .(,% 2,1.# .U % (, 3.% ;#**% 1).% ., **% (#$% .( . D% J,#1:%
,$).#)1 * 8% (,% /,,* % % 5 1:% ;#.(% ,B,3C% *) 8% % #.% (); % #1 % 3,2% )1% (# %
'3,,1D%E,%/,,* % )$,%5*, 03,%;(,1%.(,%5,3/)3$ 1',% # %5) #.#B,8% -0.%1).%
#1%,`0#B *,1.% $)01.% %.(,% 5 #1%,^5,3#,1',2%;(,1%.(,% 5,3/)3$ 1',% # %
1,: .#B,D%
K.% .(,% ,12% )/% ,B,3C% 2 C% .(,% 2,1.# . % ;#** % -,% ,$).#)1 **C% 23 #1,2D% K%
$#10.,9-C9$#10.,% ,^ $#1 .#)1% )/%(# %5,3/)3$ 1',%$, 1 % .( .%, '(%2 C%
O 0$#1:% ,#:(.% ()03 % 5,3% 2 CR% (,% ;#** % ( B,% GW I% 5*, 03 -*,% $#10., %
: #1 .% G[ P% 015*, 03 -*, % )1, D% +(, ,% $)01.% .)% XH8XZ Z% 12% XH8G QI8 %
3, 5,'.#B,*C8% 5,3% C, 3D% &);% 3, *#j,% .( .% #/% .(,% 015*, 03 -*,% $#10.,% # %
+ -*,% [DI % M3)- -#*#.C%)/%$ @#1:%$)1,C% .%2#//,3,1.% ' *, D%
4=C . $
- ' & TCT < . < A ? $
1$ ? C '$
W h i $
1$ _ 0 C ' A '$
Y Y i $
1$ B & + A >$
J Y i $
1$ , C ?$
Z M i $
1$ > & 0 '$
Z 1 ^ h i $
1$ B < + 0 A $ Z N ^ 1 Y i$
1$ L = &+ ,$
Z N ^ N I i $
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 74/219
\ Z%
> T 7 T & U >% L K S& <& V%
;)3 ,% #1 % 3,B,3 ,% 5*, 03,% .( 1% .(,% 5*, 03 -*, % $#10.,% # % #1 % 5*, 03,%
.,3$ 8% .(,1% .(,% 2,1.# .% #1'03 % % * 3:,% 2,/#'#.% ;(,1% ,^ $#1#1:% (# %
5,3/)3$ 1',% .% % (#:(% /3,`0,1'CD%
6)1 #2,3% .(,% #.0 .#)1%;(,3,% .(,%2,1.# .%,^ $#1, % (# % 5)3./)*#)% )1*C%
05)1%3,',#B#1:% .(,%$)1.(*C% '')01.%/3)$% .(,%-3)@,3 :,%()0 ,D%K % X Ql%
)/% (# % $)1.( % ;#**% -,% 5) #.#B,8% (,% #1'03 % )1*C% /)03% 5 1: % )/% 5 #1% 5,3 %
110$ % 12% ,#:(.% 05*#/.#1:% ,^5,3#,1', D% +(# % # % .(,% $,% 2,1.# .%
/)**);#1:% .(,% $,% .3 .,:CD% &);% ')1 #2,3 % .(,% 2,1.# .% *))@#1:% .% (# %
5,3/)3$ 1',% )1*C%,B,3C%C, 3D% TB,3%.(,%1,^.%G H% C, 3 %.( .%(,%# %,^5,'.,2%
.)% *#B,8% (,% ;#** % ,^5,3#,1',% IP% 5*, 1.% 0353# , % /)3% ,B,3C% 015*, 1.%
)1,b%
+( # % ' *#1:%53)5,3.C%)/%3 12)$1, %# %:,1,3 **C%$# 012,3 .))28%,B,1%
-C%53)/, #)1 * D% <%( B,% ,,1%M(DND % 3:0,%)B,3% %5,3/)3$ 1',% )- ,3B,2%
#1% %1 33);% .#$,% ' *,% O$, 1#1:*, % -C% 1C% . 12 32RD% J,/)3,% 22#.#)1 *%
20$5#1:%)1% .(,% i)031 *# .8% $)3,%)- ,3B .#)1 % ,,$% #1% )32,3D %
Y#,;#1:% #. % /3)$% 1).(,3% 1:*,8% #/%;,% . @,% .(,% 3 .#)% )/% 1)# ,% .)%;( .%
;,% ' **% 1)11)# ,% O#D,D8% *,/. % ')*0$1r3#:(.% ')*0$1R8% ;(#'(% ;,% ( B,% .(,%
53#B#*,:,% (,3,% )/% ,^ $#1#1:% `0 1.#. .#B,*C8% .(,1%;,%( B,%.(,% /)**);#1:D%
TB,3% )1,% C, 3 %;,% )- ,3B,% 3)0:(*C% H DQ% 5 3. % 1)# ,% /)3% ,B,3C% )1,% 5 3.%
5,3/)3$ 1',D% TB,3%)1,%$)1.(8% ;,%)- ,3B,%3)0:(*C%G D[ G% 5 3. %1)# ,% /)3%
,B,3C%)1,%5 3.%5,3/)3$ 1',D% TB,3%)1,%()038%[ H%5 3. %1)# ,%/)3%,B,3C%)1,%
5 3.% 5,3/)3$ 1',8% 12%)B,3%)1,% ,')128% IQ PX% 5 3. % 1)# ,% /)3% ,B,3C%)1,%
5 3.% 5,3/)3$ 1',D%
K% /,;% ')1'*0 #)1 d%
I D% TB,3% % ()3.% .#$,% #1'3,$,1.8% )1, % )- ,3B, % .(,% B 3# -#*#.C % )/% .(,%
5)3 ./)*#)8% 1).%.(,%3,.031 D%<1%).(,3%;)32 8%)1,% ,, %.(,%B 3# 1',8%*#..*,%
,* ,D% <% *; C % 3,$#12% $C ,*/% .( . % ;( .% )1,% )- ,3B, % # % .% -, .% %
')$-#1 .#)1% )/%B 3# 1',% 12%3,.031 8% 1).% i0 .% 3,.031 D%
GD % T03% ,$).#)1 % 3,% 1).%2, #:1,2%.)%012,3 . 12%.(,% 5)#1.D% +(,% 2,1.# .%
2#2 % -,..,3% ;(,1% (,% 2, *.% ; #.(% $)1.(*C % . .,$,1. % 3 .(,3% .( 1 %
#1/3,`0,1.%)1, D%M,3( 5 % #.%;)0*2%-,%,B,1%-,..,3%/)3%(#$%#/%(,%*#$#.,2%
(#$ ,*/% .)% C, 3*C% . .,$,1. D%
[D % L(,1% < % ,,% 1% #1B, .)3% $)1#.)3#1:% (# % 5)3./)*#)% ;#.(% *#B,% 53#', % )1%
(# % ',**0* 3% .,*,5()1,% )3% (# % M *$M#*).8% <% $#*,% 12% $ #*,D%
F#1 **C%<%3,'@)1%.( .%<% $%1).%#$$01,%.)% 0'(% 1%,$).#)1 *%2,/,'.D%J0.%<%
2, *% ; #.(% #.% -C% ( B#1:% 1)% '', % .)% #1/)3$ .#)18% ,^',5.% #1% 3 3,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 75/219
K% = K + E 4 = K + < 6 K 7% = 4 N < + K + < T &% T&% E < > + T S ?% \ P%
'#3'0$ . 1', D% K: #18% < % 53,/,3% .)% 3, 2% 5),.3CD% </% 1% ,B,1.% # % #$5)3. 1.%
,1)0:(8%#.%;#**%/#12%#. %; C%.)%$C%, 3 D%<%;#**%3,.031%.)%.(# %5)#1.%#1%.#$,D%
+(,% $,%$,.()2)*):C% ' 1% ,^5* #1%;(C%.(,%1,; % O.(,%(#:(% ' *,R% # %
/0**% )/ % 1)# ,% 12% ;(C% (# .)3C% O.(,% *);% ' *,R% # % * 3:,*C% .3#55,2% )/% #.%
O.()0:(% /3 0:(.% ;#.(% #1.,353,. .#)1% 53)-*,$ RD% +(# % ,^5* #1 % ;(C% <%
53,/,3% 1).% .)% 3, 2%.(,%1,; 5 5,3% O)0. #2,%) /%.(,% )-#.0 3CR8% ;(C%<% 1,B,3%
'(#.'( .% -)0.% $ 3@,. 8% 128% ;(,1% #1 % % .3 2#1:% 3))$8 % <% /3,`0,1.% .(,%
$ .(,$ .#'# 1 % 12%.(,% ,'3,. 3#, 8% 1).% .(,%.3 2,3 D% <.%,^5* #1 %;(C%#.%# %
-,..,3%.)%3, 2 FA# 6/8-8.%)(% )1%> .032 C % .( 1% .(, T'55 *($##( G8B$-'5
,B,3C % $)31#1: % O/3)$% .(,% . 125)#1 .% ) /% /3,`0,1'C 8% #2,% /3)$% .(,%
$ #B,% : 5% #1% #1.,**,'.0 *% '* % -,.;,,1% .(,%.;)% 50-*#' .#)1 RD%
F#1 **C8%.(# %,^5* #1 %;(C%5,)5*,%;()% *))@% .))% '*) ,*C% .% 3 12)$1, %
-031%)0.8% .(,#3%,$).#)1 % 23 #1,2%-C% .(,% ,3#, %)/%5 1: % .(,C%,^5,3#,1',D%
S,: 32*, % )/% ;( .% 5,)5*, % ' * #$8% % 1,: .#B, % 5 1:% # % 1).% )// ,.% -C % %
5) #.#B,%)1,% O )$,% -,( B#)3 *% ,')1)$# . % , .#$ .,%.(,% 1,: .#B,%,//,'.% .)%
-,% 05% .)% G D\% .(,% $ :1#.02,% ) /% % 5) #.#B,% )1,Rh% #.% ; #**% *, 2% .)% 1%
,$).#)1 *% 2,/#'#.D%
>)$,% )9' **,2% ;# ,% 12% 3 .#)1 *% 5,3 )1 % )/.,1% -* $,% $,% /)3%
g #:1)3#1:g% 5) #-*, % B *0 -*, % #1/)3$ .#)1% #1 % .(,% 2 #*C% 1,; 5 5,3% 12%
3,/0 #1:%.)%2# ')01.%.(,%2,. #* %) /%.(,%1)# ,% %g ()3.9.,3$% ,B,1. gD% >)$,%
)/%$C%,$5*)C,3 % ( B,% -* $,2%$,% /)3% *#B#1:%)1% % 2#//,3,1.% 5* 1,.D%
=C% 53)-*,$% # % .( .% <% $% 1).% 3 . #)1 * % 12% <% $% ,^.3,$,*C% 53)1,% .)%
23);1%#1%3 12)$1, % 12%.)%#1'03%,$).#)1 *%.)3.03,D% <% $% ; 3,%)/%$C%
1,,2%.)%30$#1 .,% )1%5 3@% -,1'(, % 12%#1%' /, % ; C%/3)$% #1/)3$ .#)18%
-0.%<%' 1%)1*C%2)% )%#/%<% $% )$,;( .%2,53#B,2%)/%#.D%=C% )*,% 2B 1. :,%
#1%*#/,%# %.( .%<%@1);% )$,%)/%$C%;, @1, , 8%$) .*C%.( .%<% $% #1' 5 -*,%
)/% . $#1:% $C% ,$).#)1 % / '#1:% 1,; % 12% #1' 5 -*,% )/% ,,#1:% %
5,3/)3$ 1',% ;#.(% % ' *, 3 % (, 2D% >#*,1',% # % / 3% -,..,3D% =)3,% )1% .( .% #1 %
M 3.% <<<D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 76/219
FTAS%
SK&NT=&4>>8 %&T&>4&>48 %K&N%+E4%
>6 <4&+<F <6% <&+47746 +AK 7%
9- #7(#-1%-+ (A# 38-(# @'$58 +#-#$'(8$ (8 :$81B/# '$(%<%/%'5
(A%->%-+ '-1 /8.:'$# %( ?%(A $%+8$8B) -8-H$'-18. /8-)($B/()e
FA# )/%#-/# ?'$) #-(#$ (A# YB)%-#)) ?8$51e T A, (A# '#)(A#(# %-
.# 58&#) (8 Y# <885#1 Y, $'-18. -#))e
;)/2#=/(,,& )/2& %'(& B(* &
O
03% =)1 .,% 6 3*)% ,1:#1,% ' 1% . @,% 0 % #1.)% $)3,% *#.,3 3C% .,33#.)3CD%
<1'3, #1:*C8% % 2# .#1'.#)1% # % -,#1:% $ 2,% -,.;,,1% .(,% '#,1.#/#' %
#1.,**,'.0 *% 12%.(,%*#.,3 3C%#1.,**,'.0 *%9% '0*$#1 .#1:%;#.(%;( .%# %' **,2%
.(,% g '#,1',%; 3 g8%5*)..#1:%/ '.#)1 % )/%*#.,3 .,%1)19 '#,1.# . % : #1 .% 1)%
*, % *#.,3 ., % '#,1.# . D% +(,% 2# .#1'.#)1% -,.;,,1% .(,% .;)% 553) '(, %
)3#:#1 .,2% #1% Y#,11 % #1% .(,% IP[H 8% ;#.(% % ')**,'.#)1% )/% 5(C #'# . % ;()%
2,'#2,2%.( .%.(,%* 3:,%: #1 %#1% '#,1',%;,3,%-,')$#1:% #:1#/#' 1 .%,1)0:(%
.)%$ @,% '* #$ %)1% .(,% /#,*2%@1);1% .)% -,*)1:%.)% .(,%(0$ 1#.#, D%<1%.(,#3%
B#,;8% *#.,3 3C% .(#1@#1:% ')0*2% ')1', *% 5*,1.C% )/%;,**9 )012#1:% 1)1 ,1 ,D%
+(,C% ; 1.,2% .)% .3#5% .(#1@#1:% /3)$% 3(,.)3#' % O,^',5.% #1% * #.,3 .03,% 12%
5),.3C%;(,3,% #.% 53)5,3*C% -,*)1:,2RD%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 77/219
S K& NT =& 4> > 8% & T& >4& >4 8% K&N% + E 4% > 6 < 4 & + <F <6% < & + 47 74 6 + A K7% X I%
+(,% ; C% .(,C% #1.3)20',2% 3#:)3% #1.)% #1.,**,'.0 *% *#/,% # % -C% 2,'* 3#1:%
.( .% % . .,$,1.%')0*2%/ **%)1*C%#1.)%.;)% ' .,:)3#, d 1#1B/(%% *#@,% g G% s%
G% t%W g8% #D,D8% #1')1.3)B,3.#-*C% /*);#1:%/3)$% %53,'# ,*C% 2,/#1,2% ^#)$ .#'%
/3 $,;)3@% O(,3,% .(,% 30*, % )/% 3#.($,.#'R8% )3 %-1B/(%&#N% # D,D 8% B,3#/# -*,% #1%
)$,% $ 11,3% O,^5,3#,1',8% . . # .#' 8% , .' DR 8% *#@,% g #.% 3 #1 % #1 % >5 #1g% )3%
g& ,;% ?)3@,3 % 3,% :,1,3 **C% 302 ,g D% K1C.(#1:% ,* ,% ; % 5* #1%
01 20*.,3 .,2% ():; (% O$0 #'% ')0*2% -, % % / 3% -,..,3% 3,5 * ',$,1.% .)%
$,. 5(C #' RD% &,,2*, %.)% C%.( .%#120'.#B,% . .,$,1. %$ C%.031% )0.%.)%
-,% 2#//#'0*. 8% ,B,1% #$5) #-*,8% .)% B,3#/C8% % ;,% ;#** % ,,% ;#.(% .(,% -* '@%
; 1%53)-*,$% 9% 12% ,$5#3#' # $% ' 1% -,%;)3 ,% .( 1% 1C% ).(,3 % /)3$% )/%
():; ( % ;(,1 % #.% :#B, % )$,)1,% ')1/#2,1',% O#.% ; #**% . @,% $,% % /,; %
'( 5.,3 % .) % 23#**% .(,% 5)#1 .RD% E);,B,38% #.% ; % % :))2% . 3.% .) % $ @,%
#1.,**,'.0 * % 3, 5)1 #-*,% /)3% 53)B#2#1:% )$,% /)3$% )/% ,B#2,1',% /)3% .(,#3%
. .,$,1. D% +(# % Y#,11 % 6#3'*,% ; % .%.(,%)3#:#1% )/% .(,%2,B,*)5$,1.% )/%
.(,% #2, % ) /% L #..:,1 .,#18% M)55,38% 6 31 58% 12% /*)'@ % ) /% ).(,3 D%
L( .,B,3% $,3#.% .(,#3% )3#: #1 *% #2, % $ C % ( B,8% .(,% #$5 '.% )1% -).( %
5(#*) )5(C% 12% .(,% 53 '.#',% )/% ' #,1',% ( % -,,1% #:1#/ #' 1.D% >)$,% )/%
.(,#3%#$5 '.% )1%1)195(#*) )5(#' *% #1.,**,'.0 *% *#/,%# % . 3.#1:% .)% 2,B,*)58%
*-,#.% ')1 #2,3 -*C% $)3,% *);*CD%
T1,% ')1',#B -*,%; C% .)% 2# '3#$#1 .,% -,.;,,1% % '#,1.#/#'% #1.,**,'.0 *%
12% %*#.,3 3C %#1.,**,'.0 *% # %-C%')1 #2,3#1:%.( .% % '#,1.#/#'%#1.,**,'.0 *%' 1%
d% 0 0 **C%3,'):1#j,% .(,%;3#.#1:% )/% 1).(,3%-0.%.( .% .(,% *#.,3 3C% #1.,**,'.0 *%
;)0*2% 1).% -,% -*,% .)% .,**% .(,%2#//,3,1',% -,.;,,1% *#1, % i)..,2% 2);1% -C% %
'#,1.# .% 12% .() ,% -C% % :*#-% 1)19 '#,1.# .D% +(# % # % ,B,1% $)3,% 55 3,1.%
;(,1% .(,% *#.,3 3C% #1.,**,'.0 * % . 3. % 0 #1:% '#,1.#/#' % -0jj;)32 8% *#@,%
g01',3. #1 .C % 53#1'#5 *, g8% gV)2, *U % .(,)3,$g 8% g5 3 * *, *% 01#B,3 ,g8% ) 3%
g3,* .#B#.Cg% ,#.(,3% )0.% )/%')1.,^.% )38% % )/.,18% #1%,^ '.% )55) #.#)1% .)%.(,%
'#,1.#/#'%$, 1#1:D% <% 0::, .%3, 2#1:%.(,% (#* 3#)0 V')A%8-'Y5# E8-)#-)#
-C%K* 1%>)@ *%/)3% 1%#**0 .3 .#)1%)/% 0'(%53 '.#',% O<%; %* 0:(#1:% )%*)02*C%
12% )%/3,`0,1.*C%;(#*,% 3, 2#1:% #.% )1% %5* 1,%.( .%).(,3%5 ,1:,3 % @,5.%
;(# 5,3#1:% .(#1: % -)0.%$,RD% JC% 20$5#1:% .(,% @#.'(,1% #1@% )/% '#,1.#/#'%
3,/,3,1', % #1% % 5 5,38%)1,% ' 1% $ @,% 1).(,3% *#.,3 3C% #1.,**,'.0 *% -,*#,B,%
.( .%)1,U %$ .,3# *%( %.(,% . $5%)/% '#,1',D%6 *, 3*C8%.)% % '#,1.# .8% '#,1',%
*#, % #1 % .(,% 3#:)3% )/% .(,% #1 /,3,1',8% 1).% #1 % 3 12)$% 3,/,3,1', % .)% 0'( %
:3 12#) ,% ')1',5. % %:,1,3 *%3,* .#B#.C% )3%`0 1.0$% #12,.,3$#1 'CD% >0'(%
3#:)3%' 1% -,% 5,**,2% )0.%#1%5* #1%41:*# (D% >'#,1',% # %$,.()2% 12%3#:)3h% #.%
' 1% -,% #2,1.#/#,2% #1% .(,% #$5*, . % )/% 53) ,% ;3#.#1:D% F)3% #1 . 1',8% ;( .%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 78/219
X G%
> T 7 T& U>% L K S& <& V%
.30'@%$,%;(#*,%3, 2#1:%S#'( 32%N ;@#1 U *#5<%)A S#-#
[
% # %.( .8% *.()0:(%
.(,%.,^ .%2), %1).%,^(#-#.% % #1:*,%,`0 .#)18%#.% ,,$ % %#/%#.%;,3,%.3 1 * .,2%
/3)$% .(,%* 1:0 :,% )/%$ .(,$ .#' D%? ,.% #.%# % 3.# .#'% 53) ,D%
' Q ' L $ A 0 ' < + /$ A L A$
S 12)$1, % ' 1% -,% )/%')1 #2,3 -*,% (,*5%;#.(% .(,% $ ..,3D% F)3% .(,3,% # %
1) .(,38% / 3%$)3,%,1.,3. #1#1:%; C%.)%$ @,% .(,%2# .#1'.#)1% -,.;,,1%.(,%
- --*,3% 12%.(,%.(#1@,3D%?)0%' 1% )$,.#$, %3,5*#' .,% )$,.(#1:%.( .%' 1%
-,%$# . @,1% /)3% %*#.,3 3C%2# ')03 ,%;#.(% %=)1.,% 6 3*)%:,1,3 .)3% -0.%#.%
# % 1).% 5) #-*,% 3 12)$*C% .)% ')1 .30'.% % '#,1.#/#'% )1,D% S(,.)3#' % ' 1% -,%
')1 .30'.,2% 3 12)$*C8% -0.%1).%:,10#1,% '#,1.#/#'% @1);*,2:,D% +(# % # %.(,%
55*#' .#)1% )/ FB$%-+R) (#)(% )/% 3.#/#'# *% #1.,**#:,1',8% ,^',5.% #1% 3,B,3 ,D%
L( .% # % .(,%+03#1:%., .a% +(,% -3#**# 1.% J3#.# (% $ .(,$ .#'# 18% ,'',1.3#'8%
12% ')$50.,3% 5#)1,,3% K* 1% +03#1:% ' $,% 05%;#.(% .(,% /)**);#1:% ., .d% %
')$50.,3%' 1%-,% #2%.)%-,%#1.,**#:,1.%#/%#.%' 1% O)1% B,3 :,R%/)) *% %(0$ 1%
#1.)% $# . @#1:% #.% /)3 % 1).(,3 % (0$ 1D% +(,% ')1B,3 ,% ()0*2% -,% .30,D% K%
(0$ 1%' 1% -,% #2%.)% -,%01#1.,**#:,1.% #/%;,%' 1% 3,5*#' .,% (# % 5,,'(% -C% %
')$50.,38% ;(#'( % ;,% @1);% # % 01 #1.,**#:,1 .8% 12 % /))*% % (0$ 1 % #1 .) %
-,*#,B#1:% .( .% #.% ; % ;3#..,1% -C% % (0$ 1D% 6 1% )1,% 53)20',% % 5#,',% )/%
;)3@% .( .%' 1% -,%* 3:,*C%$# . @,1% /)3%N,33#2 %,1.#3,*C% 3 12)$*Ca%
+(,% 1 ;,3% ,,$ %.)%-,%C, D%K #2,%/3)$% .(,%() ^% -C%K* 1% >)@ *% O.(,%
$,% )/% .(,% (#* 3#)0 % -))@% % /,;% *#1, % :)R% ;()% $ 1 :,2% .)% 53)20',%
1)1 ,1 ,% 12% :,.% #. % 50-*# (,2% -C% )$,% 53)$#1,1.% i)031 *8
W
% .(,3, % 3, %
=)1 .,%6 3*)%:,1,3 .)3 %2, #:1,2%.)% .30'.03,% 0'(%.,^. % 12%;3#.,%,1.#3,%
5 5,3 D% F,2% ;#.(% g5) .$)2,31# .g % .,^. 8% .(,C% ' 1% 3 12)$#j,% 5(3 , %
012,3% % $,.()2% ' **,2% 3,'03 #B,% :3 $$ 38% 12% 53)20',% :3 $$ .#' **C%
)012 % -0.% ,1.#3,*C% $, 1#1:*, % ,1.,1', % .( .% )012 % *#@,% f '`0, %
N,33#2 8%6 $ #**,%M :*# 8% 12% 0'(% %'3);2D%T; #1:%.)%.(,%/0jj#1, %) /%(# %
.()0:(.8% .(,%*#.,3 3C% #1.,**,'.0 *% ' 1% -,%/))*,2% -C% 3 12)$1, D%
K.% .(,%=)1 (% A1#B,3 #.C% 53):3 $% #1% K0 .3 *# % /, .03#1:% .(,% N 2 %
41:#1,% -0#*.% -C% K123,; % 6 D% J0*( 8
\
% <% .)C,2% ; #.(% .(,% ,1:#1,% 12%
:,1,3 .,2% % /,;%5 5,3 % ')1. #1#1:% .(,% /)**);#1:% ,1.,1', d%
08? #&#$N (A# .'%- (A#.# 8< (A# ?8$>) 8< KB)A1%# %) -8( (A#8$,N ')
(A# 1%'5#/(%/ :'$'1%+. 8< $#'5%(, )B++#)()N YB( :$#(A#8$,e FA# :$#.%)#
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 79/219
S K& NT =& 4> >8% & T& >4 &> 4 8% K&N% + E 4% > 6 < 4 &+ <F <6% < & + 4 77 46 +A K 7% X [%
8< (A# -#8)#.'- (%/%)( :'$'1%+. 8< 1%)/8B$)# %.:5%#) (A'( )#7B'5
%1#-(%(,N %$8-%/'55,N A') )%+-%<%/'-/#e
3'-, -'$$'(%&#) /8-/#$-%-+ (A# $85# 8< (A# ?$%(#$ ') 8Y)#$&#$ .', Y#
$#&#'5#1e M( /8B51 Y# )'%1 (A'( %< /B5(B$'5 -'$$'(%&# A851)N ?# A'&# (8
/A88)# Y#(?##- (A# 1%'5#/(%/ :'$'1%+. 8< -'$$'(%&# '-1 -#8H
/8-/#:(B' 5 3'$7%).e *'$($#R) '-'5,)%) 8< /B5(B$'5 -'$$'(%&# A851)
(A'( )8/%#(,N :'$'187%/'55,N A') 8Yg#/(%&# &'5B#e
FAB)N (A# :$#.%)# 8< (A# -#81%'5#/(%/ :'$'1%+. 8< #7:$#))%8- %.:5%#)
(A'( /8-)/%8B)-#)) .', Y# B)#1 (8 $#%-<8$/# A%#$'$/A,N YB( 8-5, %<
$#'5%(, %) 1%)(%-/( <$8. /8-)/%8B)-#))j %< (A'( %) -8( (A# /')#N ?# /'-
'))B.# (A'( 5'-+B'+# A') %-($%-)%/ .#'- %-+e
>)$,% -0 #1, % 5,,'(, % -,*)1:% .) % .( # % ' .,:)3C% #1 % .(,#3% );1% 3#:(.8%
,^',5.% .( .% .(,C% 3,% *, % ,*,: 1.% 12 % 23 ; % )1% % 2#//,3,1.% .C5,% ) /%
B)' -0* 3C% .( 1%.(,% *#.,3 3C% )1, D%L ,% ' 1% 3 12)$*C%')1 .30'.% % 5,,'(%
#$#. .#1:% .( .% )/%C)03%'(#,/%,^,'0.#B,% )//#',3%.)% #1 03,%;(,.(,3%;( .%(,%
# % C#1:%( %B *0,8% )3%#/%#.%# %$,3,*C%23, ,2905%1)1 ,1 ,% /3)$% )$,)1,%
;()%; % *0'@C%.)% -,%50.%.(,3,D%E);a% ?)0% ,*,'.% 3 12)$*C% /#B,%5(3 , %
-,*);8%.(,1%')11,'.%.(,$% -C% 22#1:%.(,%$#1#$0$%3,`0#3,2%.)% ')1 .30'.%
% :3 $$ .#' **C% )012% 5,,'(D%
T# 588> '<(#$ 8B$ /B)(8.#$R) %-(#$#)()i(A# $8'1 'A#'1i8B$ '))#() '$#
8B$ :#8:5#i/$#'(%8- 8< )A'$#A851#$ &'5B#i8B$ &%)%8-i8B$ #7:#$(%)# 5%#)
%-i?# :$8&%1# %-(#$'/(%&# )85B(%8-)i?# :8)%(%8- 8B$)#5&#) %- (A%)
.'$>#(iA8? (8 )#$&# 8B$ /B)(8. #$) Y#((#$i)A8$( (#$. :'%- <8$ 58-+
(#$. +'%-i?# ?%55 Y# $#?'$1#1 %- (A# 58-+ $B-i?# :5', <$8. 8B$
)($#-+(A '-1 %.:$8&# 8B$ ?#'>-#))#)i/8B$'+# '-1 1#(#$.%-'(%8- ?%55
:$#&'%5i?# '$# /8..%((#1 (8 %--8&'(%8- '-1 (#/A-858+,i' A'::,
#.:58,## %) ' :$81B/(%&# #. :58,##k/8.. %(.#-( (8 #7/#55#-/#k
)($'(#+%/ :5'-i8B$ ?8$> #(A%/)e
</% .(# % -, 3 %.))% '*) ,% %3, ,$-* 1',% .)% .(,% 5,,'(%C)0%i0 .% (, 32% /3)$%
.(,% -) % )/%C)03%')$5 1C8% .(,1% <% 0::, .%*))@#1:% /)3% %1,;% i)-D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 80/219
X W%
> T 7 T& U>% L K S& <& V%
A > $ 9 C A > '$ & 9$ C . .$ \ L 0 , & A > < + ( ' L$
<.% # %( 32%.)% 3, # .%2# '0 #)1% )/% 3.#/#'# *%(# .)3C%; #.()0.% %')$$,1.% )1%
.(,% / .(,3% )/% **% 5 ,02).(#1@,3 8% E,:,*D% E,:,*% ;3#., % % i 3:)1% .( . % # %
$, 1#1:*, % )0. #2,% )/% % '(#'% 7,/.9J 1@% M 3# # 1% ' /,% )3%.(,% (0$ 1#.#, %
2,5 3.$,1.% )/% )$,% 01#B,3 #.C% ,^.3,$,*C% ;,**% #1 0* .,2% /3)$% .(,% 3, *%
;)3*2 D% <% 0::, .% .(# % 5 :,% /3)$% .(,% V,3$ 1 % g5(#*) )5(,3g% O.(# %
5 :,%; % 2,.,'.,28%.3 1 * .,2% 12% 3,B#*,2% -C%_ 3*% M)55,3Rd%
*8B- 1 %) (A# /A'-+# %- (A# ):#/%<%/ /8-1%(%8- 8< )#+$#+'(%8- 8< (A#
.'(#$%'5 :'$()N '-1 %- (A# -#+'(%8- 8< (A%) /8-1%(%8-j .#$#5, '-
'Y)($'/( 8$ '- %1#'5 %1#'5%(,N ') %( ?#$#N 8< (A'( ):#/%<%/'(%8-e XB( (A%)
/A'-+#N '//8$1 %-+5,N %) %()#5< %.. #1%'(#5, (A# -#+'(%8- 8< (A# .'(#$%'5
):#/%<%/ )BY)%)(#-/#j ?A%/A %)N (A#$#<8$#N $#'5 %1#'5%(, 8< ):#/%<%/
+$'&%(, '-1 /8A#)%8-N %e#e H A#'(e FA# A#'(%-+ B: 8< )8B-1%-+ Y81%#)N
gB)( ') 8< Y#'(#- '-1 8$ $BYY#1 8-#)N %) (A# '::#'$'-/# 8< A#'(N
8$%+%-'(%-+ /8-/#:(B'55, (8+#(A#$ ?%(A )8B-1e
4B,1% % =)1., % 6 3 *) % ,1:#1,% ')0*2% 1).% )012% % 3 12)$% % .(,% :3, .%
5(#*) )5(#' *%$ .,3%.(#1@,3% O#.%;)0*2%. @,%5*,1.C%) /% $5*,%301 %.)% :,.%
.(,% $#^.0 3,% ) / A#'(% 12 )8B-1de% M,)5*,% ' **% .( .% 5(#*) )5(C% 12%
/3,`0,1.*C % /#1 1',% #.% ; #.(% . ^5 C,3% 0- #2#, b% &);% ')1 #2,3% .( .%
E,:,*# 1% .(#1@#1:% # % :,1,3 **C % *#1@,2 % .) % % g ' #,1.#/#' g% 553) '( % .) %
( # .)3C h% #.% ( % 53)20',2% 0'( % 3, 0*. % % = 3^ # .% 3,:#$, % 12% ,B,1 % %
-3 1'( % ' **,2% g1,)9E,:,*# 1g% .( #1@#1:D% +(, , % g .( #1@,3 g% ()0*2% -, %
:#B,1% 1%012,3:3 20 .,9*,B,*% '* %)1% . .# .#' *% $5*#1:%.(,)3C%53#)3%.)%
.(,#3%3,*, ,%#1%.(,%)5,1%;)3*2D%
+#/%(& 0)*1# & E#(%*C &
+(,3,% 3,%#1 . 1', %;(,3,%<%*#@,%.)% -,%/))*,2%-C%3 12)$1, D%=C% **,3:C%
.)%1)1 ,1 ,% 12%B,3-# :,%2# #5 ., %;(,1%#.%')$, %.)% 3.% 12%5),.3CD%T1%
.(,% )1,% ( 128% <% .3C % .) % 2,/#1,% $C ,*/% 12 % -,( B,% ) //#'# **C % % % 1)9
1)1 ,1 ,% (C5,393, *# .% /,33,.#1:% )0.% .(,% 3)*,% )/% '( 1',h% )1% .(,% ).(,38% < %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 81/219
SK &N T= &4 >> 8% & T& >4& >4 8% K&N% + E 4% > 6 < 4 &+ <F <6% < & + 47 74 6 + A K7% X \%
( B,%1)%`0 *$ %#120*:#1:%#1% **%$ 11,3%) /%5,3 )1 *% 05,3 .#.#)1 D%L(,3,%
2) % <% 23 ;% .(,% *#1,a% +(,% 1 ;,3% # % , .(,.#' D% >)$,% , .(,.#'% /)3$ %
55, *% .)% )$,.(#1:% :,1,.#' % #1 % 0 8% ;(,.(,3 % )3% 1).% .(,C% )3#:#1 ., % #1 %
3 12)$% )'# .#)1 % )3% 5* #1% ( **0'#1 .#)1D% >)$,.(#1:% #1% )03% (0$ 1%
:,1, % # %2,,5*C%$)B,2%-C%.(,%/0jj#1, % 12% $-#:0#.C%)/% * 1:0 :,h% .(,1%
;(C% /#:(.% #.a%
+(,% 5),.3C% 12% * 1:0 :,9*)B,3% #1% $,% ; % #1#.# **C% 2,53, ,2% -C%.(,%
'')01.%)/%.(, 67CB%)%(# @'1'&#$)% 5),.#'% ,^,3'# ,%;(,3,%#1.,3, .#1:% 12%
5),.#'% ,1.,1', % 3,% 3 12)$*C% ')1 .30'.,2D% JC% .(3);#1:% ,1)0:(%;)32 %
.):,.(,3 8% )$,% 010 0 *% 12% $ :#' *9 )012#1:% $,. 5()3% # % -)012% .)%
,$,3:,% '')32#1:% .)% .(,% * ; % )/% ')$-#1 .)3#' D% ?,.% )1,% ' 11).% 2,1C%
.( .% )$,%)/%.(, ,%5),$ % 3,%)/%3 B# (#1:% -, 0.CD%L()%' 3, % -)0.%.(,#3%
)3#:#1% #/% .(,C%$ 1 :,% .)% 5*, ,% )03% , .(,.#'% ,1 , a%
+(,% .)3C%) /%.(, 67CB%)%(# @'1'&#$)% # % %/)**); D% <1%.(,% /.,3$ .(% )/%
.(,% F#3 .% L)3*2% L 38% % ')* *,'.#)1% )/% 033, * # .% 5),. 8% ;(#'(% #1'*02,2%
K123,% J3,.)18% .(,#3%5)5,8% M 0*%4 *0 328% 12%).(,3 % :).%.):,.(,3% #1% ' /, %
12% .3#,2% .(,% /)**);#1:% ,^,3'# ,% O$)2,31% *#.,3 3C% '3#.#' % ..3#-0.,% .(,%
,^,3'# ,% .)% .(,% 2,53, ,2% $))2% /.,3% .(,% ; 3% 12% .(,% 1,,2% .)% , ' 5,%
3, *#.CRD% T1% % /)*2,2% 5#,',% )/% 5 5,38% #1% .0318% , '(% )1,% )/% .(,$% ;)0*2%
;3#., % % 53,2,.,3$#1,2% 5 3.% )/% % ,1.,1',8% 1).% @1);#1:% .(, % ).(,3 U %
'()#',D%+(,% /#3 .%;)0*2%5#'@% 1% 2i,'.#B,8% .(,% ,')12% %1)018%.(,%.(#32% %
B,3-8% .(,% /)03.(% 1% 2i,'.#B,8% 12%.(,% /#/.(% % 1)01D% +(,% /#3 .% 50-*#'#j,2%
,^,3'# ,% )/% 0'(% 3 12)$% O 12% ')**,'.#B,R% 33 1:,$,1.% 53)20',2% .(,%
/)**);#1:% 5),.#'% ,1.,1',d%
FA# #7CB%)%(# /'1'&#$) )A'55 1$%-> (A# -#? ?%-#
ca#) /'1'&$#) #7CB%) Y8%$8-( 5# &%- -8B&#'B
RD% <$53, #B,a%<.% )012 %,B,1%
$)3,%5),.#'%#1%.(,%1 .#B,%F3,1'(D%u0#.,% #$53, #B,%5),.3C%; %53)20',2%
#1% 0'(% %$ 11,38% )$,.#$, %;#.(%.(,% #2%)/% %')$50.,3D% J0.%5),.3C%( %
1,B,3%-,,1%.30*C%. @,1% ,3#)0 *C%)0. #2,%)/%.(,%-, 0.C%)/%#. % )'# .#)1 8%
;(,.(,3%.(,C%( B,%-,,1%53)20',2%-C%.(,%3 12)$%3 1.#1:%)/%)1,%)3%$)3,%
2# )3: 1#j,2% -3 #1 8% )3% .(,% $)3,% ,* -) 3 .,% ')1 .30'.#)1 % ) /% )1,%
')1 '#)0 % '3, .)3D%
&);% 3,: 32*, % ) /% ;(,.(,3% .(,% 5),.3C % ; % )-. #1,2 % -C % % =)1.,%
6 3*)% ,1:#1,%)3% 01:%-C% %-*#12%$ 1% #1%K # %= #1)38% * 1:0 :,% # % 5).,1.%
#1 % -3#1:#1:% 5*, 03, % 12% )* ',D% +, .#1:% #. % #1 ., **,'.0 *% B *#2#.C % -C%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 82/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 83/219
S K& NT =& 4> > 8% & T& >4& >4 8% K&N% + E 4% > 6 < 4 &+ <F <6% < & + 47 74 6 + AK 7% X Q%
( B,% .)% C% .( .% <% /#12% J 02,* #3, % / 3 % $)3,% 5*, 1.% .)% /3,`0,1.% .( 1%
6&&% 1,; ' .,3 % )3% *# .,1#1:% .)% V,)3:,%L#**D %
+(,3,% # % % ?#22# (% C#1:d M< M '. +8%-+ (8 Y# <8$/#1 (8 #'( :8$>N %(
Y#((#$ Y# 8< (A# Y#)( >%-1e % < /% < % $%:)#1:%.)% -,% /))*,2%-C%3 12)$1, 8% #.%
-,..,3% -,%)/% .(,% -, 0.#/0*% O 12%( 3$*, R% @#12D% +(# % 5)#1.% ;#**% -,%$ 2,%
: #1%#1%M 3.%<<<D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 84/219
F<Y4%
W%
>ASY<YK7 %TF %+E4 %74K>+ %F <+ % 9
6K&%4YT7A+<T&%J4 %
FTT74N%
J?%
SK&NT=&4>>a%
= /')# )(B1, 8- (?8 $'$# #&#-()e 9- $'$# #&#-() '-1 #&85B(%8-e
08? h '$?%-%).h '-1 #&85B(%8- '$# /8-/#:() (A'( '$# .%)H
B-1#$)(881 %- (A# -8-HY %858+%/'5 ?8$51e a%<# %) -8( /8-(%-B8B )e
08? #&85B(%8- ?%55 Y# <885#1 Y, $'-18. -#))e = :$#:'$'(%8- (8
(A# :$8Y5#. 8< %-1B/(%8-e
0)*1#,& %'(& Q=(*8./8& +)*K(%,& G.R)*2 &
0 ,2%.)%$,,.%6 3*) % .% %B 3#,.C%)/%&,;%?)3@% 5 3.#, 8%;(,3,%(,%;)0*2%
();% 05%#$5,'' -*C% 23, ,28%.()0:(% % -#.% (C%;#.(% .(,%* 2#, D%<%0 ,2%
.)%3,:0* 3*C%5)01',%)1%(#$% 12%.3C%.)%5#'@%(# %-3 #1 % -)0.%;( .%(,%2#2%
/)3% % *#B#1:8% 1 $,*C% -0C#1:% )3% ,**#1:% ,$,3:#1:% $ 3@,.% -)12 D% K% 1#',%
:,1 .*,$ 1 8% (,% ')$5*#,2 % ;#.( % $C% 3,`0, . 8% -0.% .,1 ,2 % 05h% /)3% (#$%
5, @#1:% 41:*# (8% #1% 5#.,% ) /% (# % /*0,1'C8% ,,$,2 % .)% 3,`0#3,% )$,%
,^5,12#.03,% )/%5(C #' *%,//)3.% .( .%$ 2,%(#$%')1.3 '.% (# %(, 2% 12%1,'@%
$0 '*, % O )$,%5,)5*,% 3,% 1).%$ 2,% .)% 5, @% /)3,#:1% * 1:0 :, RD% L( .%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 85/219
> A S Y <Y K 7% T F% + E 4% 7 4 K >+% F < +%
X P%
3,% ,$,3:#1:% $ 3@,.% -)12 a% g4$,3: #1:% $ 3@,.g% # % .(,% 5)*#.#' **C %
')33,'.% ,05(,$# $% .)% 2,/#1,% %')01.3C% .( .% # %1).% B,3C%2,B,*)5,2% O % %
@,5.#'8% < %2)% 1).%#$5 3.% .)%.(,#3% g,$,3:,1',g% 0'(% *#1:0# .#'% ',3. #1.CRD%
+(,% -)12 % 3,% / #1 1'# *% #1 .30$,1. % # 0,2% -C% .(, ,% /)3,#:1% :)B,319
$,1. 8% $) .*C% S0 # 8% =,^#')8% J3 j#* 8% K3:,1.#1 8% 12% +03@,CD% +(, ,%
-)12 %.3 2,2% /)3%5,11#, %;(,1% .(, ,% :)B,31$,1. %;,3,%1) .%2)#1:%;,**D%
>022,1*C% #1B, .)3 % 30 (,2% #1.)% .(, ,% $ 3@,. % #1 % .(,% , 3*C% IPPH % 12%
50 (,2%.(,% ,1B,*)5,% /03.(,3% 12% /03.(,3% -C% '`0#3#1:% #1'3, #1:*C% $)3,%
,^).#'% ,'03#.#, D% K**% .(, ,% ')01.3#, %;,3,% -0#*2#1:% ().,* %;(,3,%A1#.,2%
>. ., % ' -*,% 1,; %'( 11,* % ;,3,% B #* -*,8% ;#.(% (, *.(% '*0- % ,`0#55,2%
;#.(% .3, 2$#** % 12%* 3:,9 '3,,1% .,*,B# #)1% ,. % .( .% $ 2,% .(,$% i)#1% .(,%
: *)- *% B #** :,D% +(,C % **% ( 2 % '', % .)% .(,% $,% :030 % 12 % /#1 1'# *%
,1 .,3. #1,3 D% J 1@,3 % ;)0*2 % ')$,% .)% #1B, .% #1 % .(,#3% -)12 % 12 % .(,%
')01.3#, %;)0*2%0 ,%.(,%53)',,2 %.)% -0#*2%1#',3%().,* % )%$)3,% #1B, .)3 %
;)0*2%B# #.D%K.% )$,%5)#1.%.(, ,%-)12 %-,' $,% .(,%B):0,% 12 %;,1.% /3)$%
5,11#, % .) % 2)** 3 h% .() ,% ;() % @1,;% .(,% *#:(., .% .(#1: % -)0.% .(,$%
''0$0* .,2% B .% /)3.01, D%
6 3 *) % 055) ,2*C % ')$, % /3)$% % 5 . 3#' # 1 % 7 . #19K$,3#' 1 % / $#*C %
.( .% ; % (, B#*C% #$5)B,3# (,2% -C%.(,% ,')1)$#'% .3)0-*, % )/% .(,% IPZH 8 %
-0.8% : #18%<%( B,%3 3,*C%301%#1.)% 1C)1,% /3)$% %3 B :,2%')01.3C%;() ,%
/ $#*C% 2#2%1).% .% )$,%i01'.03,% );1% 1% ,1.#3,%53)B#1',% )38 % C8% 055*C%
.(,% S0 # 1% 6j 3% ;#.(% ,. % )/% 2)$#1), D% K/.,3% -3#**# 1.% 012,3:3 20 .,%
.02#, 8% (,%;,1.% .)% E 3B 32% .)% 503 0,% % M(DND % #1% ,')1)$#' 8% % #. %; %
.(,% )3.% )/%.(#1:% 7 .#19K$,3#' 1% 5 .3#'# 1 % ( 2%:)..,1% #1.)%.(,%( -#.% )/%
2)#1:% .%.(,%.#$,% O;#.(% %B#,;%.)% B#1:%.(,#3%,')1)$#, %/3)$ %.(,%,B#* %)/%
1)19M(DND % ( 12 RD% E,%; % % :))2% .02,1.% -0.%')0*2% 1).% /#12% % 2,',1.%
.(, # %.)5#'%/) 3%(# %2 # ,3. .#)1D%& )3% 2#2%(,%: #1%.(,%3, 5,'.%) /%(# %.(, # %
2B# )38% ;()% /)012% (#$% 01#$ :#1 .#B,D% 6 3*) % ,..*,2% /)3 % % = .,3 U %
2,:3,,% 12% %L **% >.3,,.% ' 3,,3D%
+(,%1 ',1.%,$,3:#1:%$ 3@,.%2, @%)/% %&,;%?)3@% - 1@%(#3,2%6 3*) %
#1%I PP GD% E,% ( 2%.(,%3#:(.%#1:3,2#,1. % /)3% 0'', h%(,%@1,;%;(,3,%)1%.(,%
$ 5% .)% /#12% .(,% ')01.3#, % .( .% # 0,2% gJ3 2C% -)12 g8% 2)** 39
2,1)$#1 .,2% 2,-.% #1 .30$,1. % # 0,2% -C% 7, % N,B,*)5,2% 6)01.3#, D%
E,% @1,;% ;( .% V3) % N)$, .#'% M 3)20'.% $, 1.D% E,% *))@,2 % ,3#)0 8%
-3 #1C% 12%;,**% 5)@,18%#1% 5#.,%) /%(# %(, BC%>5 1# (% '',1.D%E,%; %.(,%
@#12% ) /% 5,3 )1% - 1@ % /,*.% ')$ /) 3. -*,% 50..#1:% #1% /3)1.% ) /% .(,#3%
'0 .)$,3 D%L ( .% %')1.3 .%;#.(% .(,% ).(,3%.3 2,3 %;()% * '@,2% 5)*# (b%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 86/219
Q H%
> T 7T & U>% L K S& <& V%
6 3*) %:).% .(,3,%3#:(.%#1%.#$,% .)% ,,%.(#1: %( 55,1#1:%#1%.( .%$ 3@,.D%
L(,1% (,% i)#1,2% .(,% - 1@8% .(,% $ 3@,.% /)3% ,$,3:#1:% $ 3@,.% 2,-.%
#1 .30$,1. % ; % $ **% 12%.3 2,3 % ;,3,%*)' .,2% #1% 012, #3 -*,% 5 3. % )/%
.3 2#1:%/*)) 3 D%J0 .%.(,% '.#B#.C%3 5#2*C%-,' $,% %* 3:,8% 12%:3);#1:8%5 3.%
)/% .(,% - 1@U % 3,B,10, D%
E,% ; % :,1,3#'% $)1:% .(# % ')$$01#.C% )/% ,$,3:#1:%$ 3@,.% .3 2,3 h%
.(,C% 3,% % ') **,'.#)1% )/% ') $)5)*#. 1% 5 .3#'# 1 % /3)$ % '3) % .(,%
,$,3:#1:%$ 3@,.%;)3*2%.( .%3,$#12%$,%) /%.(,%#1.,31 .#)1 *% ')//,,%()03%
.% .(,%L( 3.)1% >'())*D%<%/#12% #.% )22%.( .%3 3,*C%2), % %5,3 )1% 5,'# *#j,%
#1%.(,%$ 3@,.% )/%(# %)3% (,3%-#3.(5* ',D% =,^#' 1 % - ,2%#1%7)12)1% .3 2,%
S0 # 1% ,'03#.#, 8% <3 1# 1 % 12% V3,,@ % 5,'# *#j,% #1% J3 j#*# 1% -)12 8%
12%K3:,1.#1, % .3 2,%+03@# (% ,'03#.#, D%A1*#@,%$C%,^5,3#,1',%;#.(%3, *%
.3 2,3 8% .(,C% 3,% :,1,3 **C% 03- 1,8% 23, % ;,**8% ')**,'.% 3.8% -0.% 3,% 1)19
#1., **,'.0 *D% +(,C% ,,$% .))% ')1/)3$# .% .) % -, % .30,% .3 2,3 D% +(,C% 3, %
$) .*C%-,.;,,1%[H% 12%WH8%);#1:%.)%.(,%C)0.(%)/%.(,#3%$ 3@,.D%?)0%' 1%
,^5,'.%$ 1C%) /%.(,$%.)%()*2% , )1%.#'@,. % .)%.(,%=,.3)5)*#. 1% T5,3 D%
+30,% .3 2,3 8% < % -,*#,B,8% 23, % *)55#*C8% 3,% )/.,1% 0:*C% 12% ,^(#-#. % .(,%
#1.,**,'.0 *% '03#) #.C% )/% )$,)1,% ;()% ;)0*2% -,% $)3,% #1.,3, .,2% #1% .(,%
#1/)3$ .#)193,B, *#1:% ')1.,1. % )/% .(,% : 3- :,% ' 1% .( 1% .(,% 6,j 11,%
5 #1.#1:%)1%.(,%; **D%
6 3*) % .(3#B,2 % % % .3 2,39,')1)$# .D% E,% ( 2 % % * 3:,% 1,.;)3@ % ) /%
/3#,12 % #1%.(,%B 3#)0 % 7 .#19K$,3#' 1% ')01.3#, % 12%@1,;% ,^ '.*C%;( .%
.))@% 5 * ', % .(,3, D% E,% -)0:(.% -)12 % .( .% (, % /)012% ..3 ' .#B,8% ,#.(,3%
-,' 0 ,% .(,C% 5 #2% (#$% % :))2% 3 .,% )/% #1.,3, . 8% )3% -,' 0 ,% (,% -,*#,B,2%
.( .% .(,C% ;)0*2 % -,')$,% $)3,% #1% 2,$ 12 % #1% .(,% /0.03,8% .(,3,/) 3,%
553,'# .#1:%#1%53#',D%<.%;)0*2%-,%5,3( 5 %,33)1,)0 %.)% ' **%(#$% ($'1#$e
K% .3 2,3% -0C % 12%D ,** % O(,%$ C% ,**%;( .% (,% 2), % 1).% );1% 12% -0C% #. %
- '@% * .,38% ()5,/0**C% $ @#1:% % 53)/#.% #1% % 2,'*#1,h% .(# % # % ' **,2%
g () 3.#1:gRD% 6 3*) %i0 .% -)0:(.%9% 12%(,%-)0:(.%#1% #j,D%E,% -,*#,B,2%.( .%
(,%; %5 #2% %:))2%3# @%53,$#0$%.)% ()*2%.(, ,%-)12 % -,' 0 ,%.(,3,%; %
,')1)$#'% B *0,% #1% *,12#1:% .)% .(, ,%')01.3#, D% >()3.#1:8% #1% (# % )5#1#)18%
$ 2,%1)% ,')1)$#'% ,1 ,D%
L#.( #1 % .(,% - 1@% 6 3*) % ; % .(,% ,$,3:#1:% $ 3@,. % 3, /,3,1', D% E,%
')0*2%53)20',%.(,%* ., .% ,')1)$#'% /#:03, % .%.(,% 23)5% )/% %( .D% E,% ( 2%
/3,`0,1.% *01'(, % ; #.(% .(,% '( #3$ 1D% <1% (# % )5#1#)18% .3 2 #1:% ; %
,')1)$#' 8% *#..*,% ,* ,D%<.%( 2%;)3@,2% )%;,**%/)3% (#$D%E,%:).% 53)$).#)1%
/.,3%53)$).#)1 8%01.#*%(,%-,' $,%.(,%(, 2%.3 2,3%)/%.(,%,$,3:#1:%$ 3@,.%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 87/219
> A S Y <Y K 7% T F% + E 4% 7 4 K >+% F < +%
Q I%
2, @% .%.(,%#1 .#.0.#)1D% >. 3.#1:%#1% IPP\ 8%6 3*) %2#2%,^5)1,1.# **C%;,**%#1%
(# % 1,;% /01'.#)18% :,..#1:% 1% ,^5 1 #)1% )/% (# % ' 5#. *% )1% % ., 2C% - # %
O#D,D 8% .(,%- 1@% **)' .,2% %* 3:,3%5)3.#)1% )/%#. % /012 %.)% (# % )5,3 .#)1R% 9
)% / .%.( .% (,%; % #1' 5 -*,% )/%0 #1:%05%.(,% 1,;% 3# @% *#$#. D%
A > $ / & & , $ ? C ' L$
+(,% 3, )1% 6 3*) % ( 2 % :))2 % C, 3 % ; % 1).% i0 .% -,' 0 ,% (,% -)0:(.%
,$,3:#1:%$ 3@,.% -)12 % 12%.(,#3%B *0,%;,1.% 05%)B,3%.(,%5,3#)2D% <.%; %
$) .*C% -,' 0 ,% (,% * ) % -)0:(.% 2#5 D% E,% ''0$0* .,2 % ;(,1% 53#', %
,^5,3#,1',2% %$)$,1. 3C% 5 1#'D%+(,% C, 3% IP PQ% ;)0*2%( B,%-,,1% % - 2%
C, 3% ( 2% (, % 1).% 22,2% .) % ( # % 5) #.#)1% /.,3% .(,% 2#5 % #1 % T'.)-,3% .( .%
'')$5 1#,2% .(,% / * ,% .)'@% $ 3@,.% '3 (% .( .% .))@% 5* ',% .(,1D%
TB,3')$#1:% .(, ,% $ **% 3,B,3 * % )/% /)3.01,% $ 2,% (#$% /,,*% #1B#1'#-*,D%
E,% ')0*2% 2)%1)%;3)1:D%E,% -,*#,B,2%.( .%.(,%,')1)$ #'% #1.0#.#)1% (,%; %
,12);,2% ;#.(% **);,2% (#$% .)% $ @,% :))2% .3 2#1:% 2,'# #)1 D% K/.,3% %
$ 3@,.% 2#5% (,% ;)0*2% B,3#/C% .(,% /012 $,1. * 8% 128% # /% .(,C% 3,$ #1,2%
)0128% (,%;)0*2% -0C%$)3,%)/% .(,% ,'03#.C% 12%*#:(.,1% 05% %.(,%$ 3@,.%
3,')B,3,2D% 7))@#1:% - '@% .% .(,% ,$,3:#1:% $ 3@,.% -)12 % -,.;,,1% .(,%
.#$,% 6 3 *) % . 3.,2% (# % #1B)*B,$,1.% ;#.( % .(, , % $ 3@,. % 12% (# % * .%
-)10 % '(,'@% #1%N,',$-,3% IPP Q8 % )1,% ,, % 1%05; 32% *)5#1:%*#1,8%;#.(%
)'' #)1 *% -*#5 8% 0'(% %.(,%=,^#' 1% 2,B *0 .#)1% )/% IP P\ 8% /)**);,2%-C%
1%,^.,12,2%3 **CD%T1,%' 1% * )% ,,% )$,%)'' #)1 *% 2#5 %.( .%.031,2%)0.%
.)% -,%g,^',**,1.% -0C#1:% )55)3.01#.#, gD%
< .%; % .(,% 0$$,3%)/% IPPZ% .( . %012#2%6 3*) % 9 % .( . % * . %2#5%2#2%1).%
.3 1 * .,% #1 .) % % 3 **C D% E# % .3 '@ % 3,')32 % .)2 C% #1'*02, % i0 .% )1,% - 2%
`0 3.,3% 9% -0.% - 2% #.% ; D% E,% ( 2% , 31,2% '*) ,% .)% pZH% $#**#)1%
'0$0* .#B,*C % #1 % (# % 53,B#)0 % C, 3 D% E,% *) .% p[HH % $#**#)1% #1 % i0 .% )1, %
0$$,3D%L ( .%( 55,1,2a%L(,1% .(,%$ 3@,.% . 3.,2%2#55#1:%#1%f01, 8%(# %
/3#,12*C% )03', %#1/)3$,2% (#$%.( .%.(,% ,**9)//%; %$,3,*C%.(,%3, 0*.%)/% %
g *#`0#2 .#)1g % -C% % &,;%f,3 ,C% (,2:,% /012% 301% -C% % /)3$,3% L( 3.)1%
53)/, )3D% +( . % /012% 5,'# *#j,2% #1 % $)3.: :,% ,'03#.#, % 12% ( 2% i0 .%
3,',#B,2% #1 .30'.#)1 % .)%;#12%2);1%.(,%)B,3 **% #1B,1.)3CD%+(,% #1B,1.)3C%
#1'*02,2% )$,%S0 # 1%-)12 8%$) .*C% -,' 0 , ,%#51 A8+)N% % .(, ,%/012 %
3,%@1);18%,1: :,%#1%.(,% '.#B#.C%) /%-0#*2#1:% %g2#B,3 #/#,2g%5)3./)*#)% )/%
(#:(9C#,*2#1:% ,'03#.#, D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 88/219
Q G% > T 7 T & U >% L K S & <& V%
C Q ' C / < + /$ , & # +$
L(,1% .(,%$ 3@,.% . 3.,2% / **#1:8% (,% ''0$0* .,2% $)3,% S0 # 1% -)12 8%
.% 1% B,3 :,%)/% 3)012%p\ GD% +( .%; %6 3*) U %.3 #.8% B,3 :,%2);1D%+(,%
53)-*,$ 8% (,% 2,,$,28% ( 2% 1).(#1:% .)% 2)% ;#.(% S0 # 8% 12% #.% ; % 1).%
)$,% &,;% f,3 ,C% /012% 301% -C% )$,% $ 2% ' #,1.# .% .( .% ; % :)#1:% .) %
2,'#2,%.(,% / .,%) /%S0 # D% gS, 2% $C%*#5 d%<.U % % *#9`0#92 9.#)1bg% (,%C,**,2%
.% .() ,%;() % `0, .#)1,2% (# % -0C#1:D%
JC%.(,% ,12% )/%f01,8% (# %.3 2#1:% 3,B,10, %/)3% IPP Z% ( 2% 23)55,2% /3)$%
05% p X H% $ #**#)1% .)% 05% p G H% $ #**#)1D% +( .% $ 2,% (#$ % 1:3CD% J0.% (,%
' *'0* .,2% .( .% ()0*2%.(,%$ 3@,.% 3# ,% - '@% .)% .(,% 53,9&,;% f,3 ,C% ,**9
) //8% .(,1% (,% ;)0*2 % -,% 05% pIHH% $#**#)1D% +( .% ; % 01 B)#2 -*,8% (,%
,3.,2D% +(, ,% -)12 8%(,% #28%;)0*2% 1,B,38% ,B,3% .3 2,% -,*);% pW ZD% E,%
; % 3# @#1:% )% *#..*,8% .)% 5) #-*C% $ @,% )%$0'(D%
+(,1% ' $,% f0 *C D% +(, % $ 3@,.% 23)55,2% % -#.% $)3,D% +(, % -,1'($ 3@%
S0 # 1% -)12%; % 1);% .% pW[D % E# % 5) #.#)1 % ;,3,% 012,3%; .,38% -0.%(,%
#1'3, ,2% (# % . @, D%JC%1);%(,%; % 2);1% p[H% $#**#)1% /)3% .(,%C, 3D% E# %
-) , %;,3,% . 3.#1:%.)%-,')$,%1,3B)0 8%-0.%(,%@,5.%.,**#1:%.(,$%.( .8% /.,3%
**8% S0 # %;)0*2%1).%:)%012,3D%E,% 3,5, .,2% .(,%'*#'(,%.( .%#.%; %.))% -#:%
.)%/ #*D%E,%, .#$ .,2%.( .%- #*#1:%.(,$% )0.%;)0*2%') .% )%*#..*,% 12%;)0*2%
-,1,/#.%.(,%;)3*2%,')1)$C% )%$0'(%.( .% #.%2#2%1).%$ @,% ,1 ,%.)%*#`0#2 .,%
(# %#1B,1.)3C%1);D%g+( # %# %.(,%.#$,%.)%-0C8%1).%.)% ,**g8%(,% #2%3,5, .,2*CD%
g+(, ,% -)12 % 3,% .3 2#1:% B,3C% '*) ,% .)% .(,#3% 5) #-*,% 2,/ 0*.% B *0,gD% <1%
).(,3%;)32 8% ()0*2%S0 # %:)%#1.)% 2,/ 0*.8% 12%301%)0.% )/%2)** 3 %.)% 5 C%
.(,%#1.,3, .% )1%#. %2,-.8%.(, ,%-)12 %;)0*2%( 32*C% -02:,D%L(,3,%2#2%(,%:,.%
.(# % #2, a % F3)$% 2# '0 #)1 % ;#.(% ).(,3 % .3 2,3 % 12% ,$,3:#1:% $ 3@,.%
,')1)$# . % O)3% .3 2,39,')1)$# .% (C-3#2 RD% 6 3*) % 50.% -)0.% ( */% (# % 1,.%
;)3.(8% .(,1% p\ 8HHH 8HHH 8% #1% .(,% S0 # % M3#1'#5 *% J)12D% g< % ;#** % 3,.#3,% )1%
.(, ,%5 3)/#. gh% (,%.)*2% .(,% .)'@-3)@,3% ;()%,^,'0.,2%.(,% .3 2,D%
. < + L$ < +$ A > $ L C + ,$
+(,% $ 3@,.% @,5.% :)#1:% .(3)0:(% .(,% *#1, % #1%.(,% 12D% JC% , 3*C% K0:0 .8%
.(,C%;,3,%.3 2#1:% #1%.(,% [H D% JC%.(,%$#22*,% )/%K0:0 .8%.(,C%;,3,%#1%.(,%
GH D% K12% (,%; % . @#1:% 1)% '.#)1D% E,% /,*. % .( .% .(,% 53#',% )1% .(,% '3,,1%
; % `0#.,% #33,*,B 1.% #1% (# % -0 #1, % )/%-0C#1:% gB *0,gD%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 89/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 90/219
Q W% > T 7 T & U >% L K S & <& V%
+(,% 1,32C%.C5, % .%.(,%<1.,31 .#)1 *% =)1,. 3C% F012% ( 2% -,,1% . @,1%
/)3% %3#2,% -C%.(,%S0 # 1%:)B,31$,1.%;()%'(, .,2%)1% .(,#3% '')01.D%7,.%
0 % 3,$,$-,3% .( .% ,')1)$# . % 3, % ,B *0 .,2% )1% ();% #1.,**#:,1.% .(,C%
)0128% 1).% )1% % '#,1.#/#'% $, 03,% )/%.(,#3% @1);*,2:,% )/% 3, *#.CD% E);9
,B,38% .(,% 53#', % )/% .(,% -)12 % ; % 1).% /))*,2D% <.% @1,;% $)3, % .( 1 % .(, %
,')1)$ # . 8%$)3,%.( 1%.(,%6 3*) , %)/%.(,%,$,3:#1:%$ 3@,.%2,5 3.$,1. D%
7)0#,8% % B,.,3 1% .3 2,3% )1% .(,% 1,#:(-)3#1:% 2, @%;()% 0//,3,2% $0'(%
(0$ #*# .#)1% -C%.(, ,%3#'(%,$,3:#1:%$ 3@,.%.3 2,3 8%; %.(,3,8%B #12#' .,2D%
7)0#,%; %.(,1% %\G9C, 39)*2%J3))@*C19-)319 1293 # ,2% .3 2,3%;() %)B,3%
.(3,,%2,' 2, % 03B#B,2%,B,3C% #1:*,%')1',#B -*,% $ 3@,.%'C'*,D%E,% ' *$*C%
*))@,2% .% 6 3*) % -,#1:% , ')3.,2% -C% % ,'03#.C% :0 32% .)% .(,% 2))3% *#@,% %
' 5.03,2% )*2#,3%. @,1% .)%.(,% 3,1 D%E,%$0..,3,2%#1%(# %J3))@*C1% '',1.d%
h6/8-8. %/) */A.#/8-8. %/)e M( %) '55 .'$>#( 1,-'.%/)he
6 3*) % # % 1);% )0.% )/% .(,% $ 3@,.D% +(,% 5) #- #*#.C % .( .% ( # .)3C % $ C%
53)B,%(#$% 3#:(.%O .% )$,%5)#1.%#1%.(,%/0.03,R%( %1).(#1:% .)%2)%;#.(%.(,%
/ '.% .( .% (,% # % % - 2 % .3 2,3D% E,% ( % **% ) /% .(,% .3 #. % ) /% % .()0:(./0 *%
:,1.*,$ 18% 12%;)0*2% -,% 1% #2, *% )19#19* ;D% J0.% (,% ( % $) .% )/% .(,%
..3#-0., %)/%.(,%- 2%.3 2,3D%K128% .% 1C%5)#1.%#1%.#$,8%.(,%3#'(, .%.3 2,3 %
3,% )/.,1%.(,%;)3 .%.3 2,3 D% +(# 8% <%;#**%' **% .(, /$8))H)#/(%8-'5 :$8Y5#.2
.% %:#B,1%.#$,% #1%.(,%$ 3@,.8%.(,%$) .%53)/#. -*,%.3 2,3 % 3,%*#@,*C%.)% -,%
.() ,%.( .% 3,%-, .%/#.%.)%.(,%* ., .%'C'*,D%+( # %2), %1).% ( 55,1%.))% )/.,1%
;#.(% 2,1.# . % )3% 5# 1# . % 9% -,' 0 ,% )/%.(,%1 .03,% )/% 3 12)$1, D%
6#'/& %'(& 7.8'9:.(12& 4*)2(*&
L,% $,.% f)(18 % &,3)U % 1,#:(-)38% #1 % 6( 5.,3% I D% K.% .(,% :,% )/% [\% (,%( 2%
-,,1% )1%L **% >.3,,.% % % ')35)3 .,% g(#:(9C#,*2g% -)12 % .3 2,3%/)3% ,B,1%
C, 3 8% #1',%(# %:3 20 .#)1% /3)$%M ',%V3 20 .,%J0 #1, %> '()) *D%E,% 3) ,%
.) % (, 2 % 05 % % ., $% )/% .,1 % .3 2,3 % #1 % 3,')32 % .#$,% 9% .( 1@ % .) % % i0$5%
-,.;,,1% .;)% #$#* 3 % L **% >.3,,.% /#3$ % .( .% //)32,2% (#$% % :,1,3)0 %
53)/#.9 ( 3#1:% ')1.3 '.D%+(,%')1.3 '.% **);,2%(#$%.)% -,%5 #2%GHl% )/%(# %
53)/#. 8% % .(,C% .))2% .%.(,% ,12% )/% , '(% ' *,12 3% C, 3D% <1% 22#.#)18% (,%
; % **);,2% .)% #1B, .% (# % );1% 5,3 )1 *% $)1,C% #1 % (# % .3 2, % 9% % :3, .%
53#B#*,:,D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 91/219
> A S Y <Y K 7% T F% + E 4% 7 4 K >+% F < +%
Q \%
f)(1% # %1).% )$,)1,%;()%' 1% -,%.,3$,2% %53#1'#5 **C%#1.,**#:,1.8% -0.%
(,%; % -,*#,B,2% .)% -,%,12);,2%;#.(% % :))2%$, 03,% )/%-0 #1, % ,1 ,D%
E ,% ; % #2% .)% -,% g53 :$ .#'g% 12% g53)/, #)1 *gD% E,% : B,% .(,%
#$53, #)1% .( . % (,% ; % -)31% % -0 #1, 5,3 )18% 1,B,3% C#1:% 1C.(#1:%
3,$).,*C% 010 0 *% )3% )0.% )/% 5* ',D% E,% 3,$ #1,2% ' *$% #1% $) .%
'#3'0$ . 1', 8% 3 3,*C% -,.3 C#1:% 1C% /)3$ % ) /% ,$).#)1D% 4B,1% (# %
)'' #)1 *% '03 #1:% O.(# % # %L **% >.3,,.bR% ; % )%$0'(% #1%')1 .,^.% .( .% #. %
)012,28%; ,**8% 53)/, #)1 *D%
f)(1%23, ,2%#$5,'' -*CD% +(# %; %#1%5 3.%20,%.)%(# %$)1.(*C%.3#5 %.)%
7)12)1% ;(,3,% (# % 01#.% ( 2% % .,**#.,% 05,3B# #1:% 403)5, 1% (#:(9C#,*2%
'.#B#.#, D% E,% ;)3,% % > B#**, % S);% . #*)3,2% 2 3@% -0 #1, % 0#.8% ;#.(% %
F,33 : $)% .#,% 9% ,1)0:(% .)% ')1B,C% .(,% #$53, #)1% .( .% (,% ; % .(,%
,5#.)$,% )/% .(,% 0'', /0*% L **% >.3,,.%53)/, #)1 *D% 4 '(% .#$,%&,3)% 3 1%
#1.)% (#$% (,%' $,% ; C% /,,*#1:%5))3*C% 23, ,2D%
f)(1U % 2, @% ,1: :,2% 53#1'#5 **C% #1 % 1% '.#B#.C% ' **,2% g(#:(9C#,*2g%
.3 2#1:8% ;(#'(% ')1 # .,2% #1% '`0#3#1:% g'(, 5g% -)12 % .( .% C#,*2,28% C%
I Hl 8% ;(#*,%.(,%-)33);#1:% 3 .,% /)3%(# %#1 .#.0.#)1% ; % \ D\l D% <.% 1,..,2% %
W D\ l% 3,B,10,8% * )%' **,2 %-(#$#)( $'(# 1%<<#$#-(%'5% 9 % ;(#'(% ,,$,2% $ **%
,^',5.% .( .% (,% ')0*2% *,B,3 :,% (#$ ,*/% 12%$0*.#5*C% 0'(% 53)/#.% -C% .(,%
*,B,3 :,% / '.)3 D% E,% 2#2%.(# % #1%B 3#)0 % ')01.3#, 8% -)33);#1:% .%.(,% *)' *%
3 .,% 12%#1B, .#1:%#1%g3# @Cg% ,. D%<.%; %, C%/)3%(#$%.)% $ %)B,3%p[%
-#**#)1%2)** 3 %#1% / ',%B *0,%)/% 0'(%.3 2,% '3) % % B 3#,.C% )/% ')1.#1,1. D%
E,% (,2:,2%.(,% #1.,3, .% 3 .,% ,^5) 03,% -C% ,**#1:%A D>D8% AD_D8 % F3,1'(8% 12%
).(,3% :)B,31$,1.% -)12% /0.03, 8% .(0 % *#$#.#1:% (# % -,.% .)% .(,% 2#//,3,1.# *%
-,.;,,1%.(,% .;)% #1 .30$,1. D%E,% /,*.%53).,'.,2% -C%.(# %(,2:#1:% .3 .,:C%
9% ')'))1,2% O)3% )% (,% .()0:(.R% : #1 .% .() ,% 1 .C% / *0'.0 .#)1 % #1 % .(,%
;)3*2U % :*)- *% #1.,3, .% 3 ., D%
A > \l=EF $ # > &$ ( + #$ = & B \ 0 A ' L$ C + ,$ _ 0 C A < & + L$
f) (1% ; % # .,2% -C% E,13C8% % /)3,#:1
CB'-(
% ;() ,% 41:*# (% ; %
#1')$53,(,1 #-*,8% -0.% ;()% ; % -,*#,B,2% .)% -,% .% *, .% ,`0 **C%
')$5,.,1.% #1%3# @9$ 1 :,$,1.%$,.()2 D%f)(1% @1,;% 1)%$ .(8% (,%3,*#,2%
)1% E,13CD% gE# % -3 #1 % 12% $C% -0 #1, % ,1 ,g8% (, % ; % ;)1.% .) % C D%
E,13C % 055*#,2 % (#$ % ; #.(% 3# @ % , $,1. % ')1',31#1:% .(,% )B,3 **%
5)3./)*#)D%L(,1,B,3%f)(1% /,*.%;)33#,28%(,%;)0*2% @%E,13C%/)3% 1).(,3%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 92/219
Q X%
> T 7 T& U>% L K S& <& V%
/3, (*C% 052 .,2% 3,5)3.D% E,13C% ; % % :3 20 .,% .02,1.% #1 % T5,3 .#)1 %
S, , 3'(% ;(,1% f)(1% (#3,2% (#$ D% E # % 5,'# *.C% ; % % /#,*2% ' **,2%
6)$50. .#)1 *% F#1 1',8% ;(#'(8% % #. % 1 $,% #12#' ., 8% ,,$ % .)% /)'0 %
)*,*C% )1% 3011#1:% ')$50.,3% 53):3 $ % )B,31#:(.D %E,13CU % #1')$,% ;,1.%
/3)$% p\H 8HHH% .)% pX HH 8HH H% #1 % .(3,,% C, 3 D%
=) .% ) /% .(,% 53)/#.% f)(1% :,1,3 .,2% /)3% .(,% #1 .#.0.#)1% ; % 1).%
..3#-0. -*, % .)% .(,% #1.,3, .% 3 .,% 2#//,3,1.# * % -,.;,,1% .(,% #1 .30$,1. %
2, '3#-,2% -)B,D% <.% ' $,% /3)$% .(,%'( 1:, % #1%.(,% B *0,% )/%.(,% ,'03#.#, %
f)(1% (,*28% $) .*C% -,' 0 ,% $ 1C% ).(,3% .3 2,3 % ;,3,% '`0#3#1:% .(,$% .)%
#$#. .,%f)(1U % .3 2#1:% .3 .,:C% O.(0 %' 0 #1:%.(,%53#',% )/% .(, ,% ,. % .)%
3# ,RD% +(,% #1 .,3, .% 3 ., % 2#//,3,1.# *% ; % :,..#1:% '*) ,3% .)% ;( .% f)(1%
-,*#,B,2% ; % g/ #3 % B *0,gD% f)(1% -,*#,B,2% .( .% .(,% $,.()2 % (,% 0 ,2% .)%
' *'0* .,% g/ #3% B *0,g% ;,3,% )012D% E,% ; % - '@,2% -C% 1% ,1.#3,%
2,5 3.$,1.% .( .% (,*5,2% (#$% 1 *Cj,% 12% 2,.,3$#1,% ;(#'(% -)12 % ;,3,%
..3 '.#B,% 12%)//,3,2% ' 5#. *% 553,'# .#)1% 5).,1.# *D% <.% ; % 1)3$ *% /)3%
(#$% .)% -,% , 31#1:% .(, ,% * 3:,%53)/#. % )B,3% .#$,D%
f)(1% $ 2,% ., 2C%$)1,C%/)3%(# %,$5*)C,3 8%5,3( 5 %,B,1%-,..,3% .( 1%
., 2CD% 4B,3C% C, 3% .(,% 3,B,10, % (,% :,1,3 .,2% *$) .% 2)0-*,2% % ')$9
5 3,2%.)%.(,%53,B#)0 %C, 3D%N03#1:%(# %* .%C, 38%(# %#1')$,%,^5,3#,1',2% %
`0 1.0$% *, 5% %(,% ;% .(,%' 5#. *% **)' .,2%.)% (# %.3 2, % ;,**% -,C)12%
(# %;#*2, .% ,^5,'. .#)1 D% E# % -)10 % '(,'@%; % /)3% pI H% $#**#)1% O53,. ^8%
;(#'(%;)0*2%:,1,3 .,%'*) ,%.)% %p\%$ #**#)1%.). *%. ^%-#**RD%f)(1 U %5,3 )1 *%
1,. %;)3.(% 3, '(,2% pI% $#**#)1% .% .(,% :,%)/% [GD % JC% .(,% :,% )/% [\% #.% ( 2%
,^',,2,2%pIX%$#**#)1D%=) .%)/%#.%' $,%/3)$%.(,% ''0$0* .#)1%)/%-)10 , %
9% -0.% % #j, -*,% ( 3,%' $,%/3)$%53)/#. %)1%(# %5,3 )1 *%5)3./)*#)D%T /%.(,%
pIX% $#** #)18% -)0.% pIW% $#**#)1% (,% #1 # .,2% #1 % @,,5#1:% #1B, .,2% #1 % (# %
-0 #1, D%+(,C %K**);,2%(#$ 8%.( 1@ %.)%.(,%*,B,3 :,% O#D,D8%0 ,%)/% -)33);,2%
$)1,CR8% .)% @,,5% % 5)3./)*#)% )/% p\ H% $#**#)1% #1B)*B,2% #1% (# % .3 2, 8%; #.(%
p[ X%$#**#)1% -)33);,2%/3)$%.(,%- 1@D%+(,% ,//,'.%)/%.(,%*,B,3 :,%# %.( .% %
$ **% *) %;)0*2%-,%')$5)012,2% 12%;)0*2%;#5,%(#$% )0.D%
<.%.))@% )1*C% %/,;%2 C %/)3%.(,% pI W%$#**#)1%.)%.031%#1.)%.(#1% #3%9% 12%
/)3 % f)(1% .)% *) ,% (# % i)-% .% .(,% $,% .#$,D% <.% **% ( 55,1,2% 203#1:% .(,%
0$$,3%)/% IP PZ 8%;#.(%.(,%$,*.2);1% )/%(#:(9C#,*2%-)12%B *0, D%= 3@,. %
;,1.% #1.)% %B)* .#*,%5( ,%#1%;(#'(%1, 3*C%,B,3C.(#1:% (,%( 2%#1B, .,2%#1%
;,1.% : #1 .%(#$ '( (A# )'.# (%.#e% E# %(,2:, %1)%*)1:,3%;)3@,2%)0.D%E,%
; % $ 2% . % E,13C% /)3% 1).% ( B#1:% /#:03,2% )0.% .( . % .(, ,% ,B,1. % ')0*2%
( 55,1D% M,3( 5 % .(,3,%; % % -0:% #1% .(,% 53):3 $D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 93/219
> A S Y <Y K 7% T F% + E 4% 7 4 K >+% F < +%
Q Q%
E# % 3, '.#)1% .)% .(,% /#3 . % *) , % ; 8% '( 3 '.,3# .#' **C8% .)% #:1)3,% .(,%
$ 3@,.D% gT1,%;)0*2% :)%'3 jC%#/%)1,%;,3,%.)% *# .,1% .)% .(,%$))2% ;#1: % )/%
.(,%$ 3@, .g8%(,% #2D%L( .%(,%$, 1.%-C%.( .% . .,$,1.%; %.( .%.(,%g1)# ,g%
; %$, 1%3,B,3.#1:8% 12%;)0*2% *#@,*C% -,%)// ,.% -C%g1) # ,g% #1%.(,%)55) #.,%
2 #3,'.#)1D% +( .% ; % .(,% .3 1 * .#)1% #1 % 5* #1 % 41:*# ( % ) /% ;( .% E,13C %
,^5* #1,2% .)%(#$D%J0.%.(,% g1)# ,g% @,5.% 22#1:%05%#1%.(,% $,% 2#3,'.#)1D%
K %#1% %-#-*#' *% 'C'*,8%#.%.))@ % ,B,1%C, 3 %.)%$ @,%f)(1 % %(,3)% 12%i0 .%
,B,1%2 C %.)%$ @,%(#$% 1% #2#).D%f)(1% # %1);% %5 3# (h%(,%# %)0.%)/% % i)-%
12%(# %.,*,5()1,% ' ** % 3,%1).%3,.031,2D%= 1C% )/%(# %/3#,12 %;,3,%#1%.(,%
$,% #.0 .#)1D% E);a% L#.(% **% .( .% #1/)3$ .#)1% B #* -*, % .)% (#$8% (# %
5,3/,'.% .3 '@% 3,')32 % O 12 % .(,3,/) 3,8% #1% (# % ,C, 8% 1% -)B,% B,3 :,%
#1.,**#:,1',% 12% @#**9 ,.R% 12% .(,% -,1,/#.% )/% )5(# .#' .,2% $ .(,$ .#' 8%
();%')0*2% (,%( B,%/ #*,2a%< %#.%5,3( 5 %5) #-*,% .( .%(,%/)3:).% -)0.%.(,%
( 2);C% /#:03,% )/% 3 12)$1, a%
<.% .))@% % *)1:% .#$,% /) 3% f )(1% .)% /#:03,% )0 .% ;( .% ( 2 % ( 55,1,2 8%
);#1:% .)% .(,% 3 5#2#.C% ;#.(% ;(#'(% .(,% ,B,1. % 01/)*2,2% 12% (# % . .,% )/%
(,** ()'@ D% +(,% 2#5% #1% .(,% $ 3@,.% ; % 1).% B,3C% * 3:,D% <.% ; % i0 .%
.( .% (# % *,B,3 :,% ; % ,1)3$)0 D% L( .% ; % $)3,% ()'@#1: % /)3% (#$%
; % .( .% **% .(,#3% ' *'0 * .#)1 % : B,% .(,% ,B,1.% % 5 3)- - #*#.C % ) /% I% #1 %
I 8 HHH 8HHH 8 HHH 8HHH 8 HHH 8HHH 8 HHH 8HHH% C, 3 D% E,13C% ' **,2 % .( .% % g.,1%
#:$ g% ,B,1.D% +(,% / '.% .( . % E,13C% 2)0-*,2% .(,% )22 % 2#2% 1).% ,,$% .)%
$ ..,3D% < .%$ 2,%.(,%53)- -#*#.C%G% #1% I8HH H8H HH 8HHH 8HH H8HH H8H HH 8HHH 8HHH%
C, 3 D%
L(,1%;#**%f)(1% 3,')B,3%/3)$%.(,%)32, *a% M3)- -*C%1,B,3D%+(,% 3, )1%
# %1).%-,' 0 ,%f)(1% *) .%$)1,CD%7) #1:%$)1,C%# % )$,.(#1:%:))2% .3 2,3 %
3,% ''0 .)$,2% .) D% <.% # % -,' 0 ,% (,% - *,; % 05h% (,% *) .% $)3,% .( 1% (,%
5* 11,2% .)% *) ,D% E# % 5,3 )1 *% ')1/#2,1',% ; % ;#5,2% )0.D% J0.% .(,3,% # %
1).(,3 % 3, )1% ;(C%f)(1% $ C% 1,B,3% 3,')B,3D% +(,% 3, )1% # % .( .% f)(1%
; % 1,B,3% % .3 2,3% #1 % .(, % /#3 .% 5 * ',D% E,% # % )1, % )/% .() , % 5,)5*, % ;()%
( 55,1,2% .)% -,%.(,3,%;(,1% #.% **% ( 55,1,2D%
F)**);#1:% .(,% #1'#2,1.8% f)(1% 3,: 32,2% (#$ ,*/% g30#1,2gh% C,. % (# % 1,.%
;)3.(%# % .#**%'*) ,%.)%pI%$#**#)18%;(#'(%')0*2%-,%.(,%,1BC%)/%$)3,%.( 1%
P P DPl% )/%.(,%#1( -#. 1. %) /%)03%5* 1,.D%?,.%.(,3,%# % %2#//,3,1',%-,.;,,1%
% ;, *.(% *,B,*% 3, '(,2% /3)$ 'Y8&#% 12 % % ;, *.( % 3, '(,2 % /3)$ Y#58?e
+(,% 3) 2% /3)$% pIX% $#**#)1% .)% pI% $#**#)1% # %1). % %5*, 1.% % .(,% )1,%
/3)$% H% .)% pI% $#**#)1D% <1% 22#.#)18%f)(1% # %/0**% )/% ( $,h% (,% .#**%;)33#, %
-)0.% 3011#1:% #1.)%)*2% /3#,12 % )1% .(,% .3,,.D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 94/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 95/219
> A S Y <Y K 7% T F% + E 4% 7 4 K > +% F < +% Q P%
=- 8&#$#)(%.'(%8- 8< (A# '//B$'/, 8< (A#%$ Y#5%#<) %- )8.# .#')B$#N
#%(A#$ #/8-8. %/ c@'$58)d 8$ )('(%)(%/'5 cG8A- de% +(,C% 1,B,3% ')19
#2,3,2%.( .%.(,% / '.% .( .%.3 2#1:% )1% ,')1)$#'% B 3# -*, % ( %;)3@,2%
#1 % .(,% 5 .% $ C% ( B,% -,,1% $,3,*C% ')#1'#2,1. * 8% )3 8% 5,3( 5 % ,B,1%
;)3 , 8% .( .% ,')1)$#'% 1 *C # % ; % /#.% .)% 5 .% ,B,1. % .)% $ @% .(,%
3 12)$% ,*,$,1.% #1% #.D% 6 3*) % ,1.,3,2%.(,%$ 3@,.% . % % .#$,% ;(,1% #. %
;)3@,2 8% -0.% (,% 1,B,3% ., .,2 % /)3% 5,3#)2 % ;(,1 % $ 3@,. % 2#2 % .(,%
)55) #.,% ) /% )012% ,')1)$#'% 1 *C # D% +(,3,% ;,3,% 5,3#)2 % ;(,1 %
,')1)$#' % / #*,2% .3 2,3 8% 12%).(,3 %;(,1% #.% (,*5,2%.(,$D%
+(,% AD>D% 2)** 3% ; % )B,353#',2% O#D,D% .(,% /)3,#:1% '033,1'#, % ;,3,%
012,3B *0,2R% #1% .(,% , 3*C% IPZH D% +3 2,3 % ;()% 0 ,2%.(,#3% ,')1)$#'%
#1.0#.#)1 % 12% -)0:(.% /)3,#:1% '033,1'#, % ;,3,% ;#5,2% )0.D% J0.% * .,3%
.() ,%;()% 2#2% )% :).%3#'(% O$,$-,3 %)/% .(,%/#3 .%'3)5%;,3,%-0 .RD%<.%# %
3 12)$b% 7#@,;# ,8% .() ,%;()% g ()3.,2g%f 5 1, ,% .)'@ % #1% .(,% * .,%
IPZH % 0//,3,2% .(,% $,% / ., % 9% /,;% 03B#B,2% .)% 3,')05% .(,#3 % *) , %
203#1:% .(,% ')** 5 ,% )/% .(,% IPPH D % K.% .(,% .#$,% )/% ;3#.#1:8% .(,3,% # % %
:3)05% )/% )5,3 .)3 % ' **,2% g$ '3)g% .3 2,3 % ;()% 3,% 23)55#1:% *#@,%
/*#, 8% ;#.( % g *,:,12 3Cg% O3 .(,38% *0'@CR% #1B, .)3% f0*# 1 % S)-,3. )1%
'*) #1:% ()5% #1% G H H H% /.,3% ( B#1:% -,,1% % . 3% 01.#*% .(,1D% T03%
2# '0 #)1%) /% 03B#B)3 (#5%-# %; #**%,1*#:(.,1%0 %/03.(,38%-0 .8% '*, 3*C8%
.(,3,% # % 1).(#1:% *, % 3#:)3)0 % .( 1% .(,#3% ,,$#1:*C% 3#:)3)0 % 0 ,% )/%
,')1)$#'% 1 *C # % .)% .3 2,D%
= (#-1#-/, (8 +#( .'$$%#1 (8 :8)%(%8-)e
% +(,3,% # % % C#1:% .( .% - 2%
.3 2,3 % 2#B)3',% .(,#3 % 5)0 ,% ))1,3% .( 1% - 12)1% .(,#3 % 5) #.#)1 D%
7)C *.C% .) % #2, % # % 1).% % :))2 % .(#1:% /)3% .3 2,3 8% '#,1.# . % 9% ) 3%
1C)1,D%
FA# (#-1#-/, (8 /A'-+# (A#%$ )(8$,e
% +(,C%-,')$,% #1B, .)3 % g /)3% .(, %
*)1:% ( 0*g% ;(,1% .(,C% 3,% *) #1:% $)1,C8% ;#.'(#1:% - '@% 12% /)3.(%
-,.;,,1% .3 2,3 % 12% #1B, .)3 % .)% /#.% 3,',1.% 3,B,3 * % )/% /)3.01,D% +(,%
2#//,3,1',%-,.;,,1% %.3 2,3% 12% 1 %#1B, .)3%*#, %#1%.(,%203 .#)1%) /%.(,%
-,.8% 12%.(,% ')33, 5)12#1:% #j,D% +(,3,% # % - )*0.,*C% 1).(#1:% ;3)1:%
;#.(%#1B, .#1:%g/)3%.(,%*)1:%( 0*g8%53)B#2,2%)1,%2), %1).%$#^%#.%;#.(%
()3.9.,3$% .3 2#1:% 9 % #.% # % i0 .% .( .% $ 1C% 5,)5*,% -,')$,% *)1:9.,3$%
#1B, .)3 % /.,3% .(,C% *) .%$)1,C8% 5) .5)1#1:% .(,#3% 2,'# #)1%.)% ,**8% %
5 3.%)/%.(,#3%2,1# *D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 96/219
Z H%
> T7 T& U>% L K S& <& V%
E8 :$#/%)# +'.# :5'- 'A#'1 8< (%.# ') (8 ?A'( (8 18 %- (A# #&#-( 8<
58))#)e
% +(,C% #$5*C% ;,3,% 1).% ; 3,% )/% 0'(% % 5) #-#*#.CD% J).(%
-)0:(.% $)3,% -)12 % /.,3% .(,% $ 3@,.% 2,'*#1,2% ( 35*C88%-0.% 1).% #1%
3, 5)1 ,% .)% % 53,2,.,3$#1,2% 5* 1D%
=Y)#-/# 8< /$%(%/'5 (A%->%-+ #7:$#))#1 %- 'Y)#-/# 8< $#&%)%8- 8< (A#%$
)('-/# ?%(A h)(8: 58))#)he% =#22*,-3);% .3 2,3 % 2)% 1).% *#@,% ,**#1: %
;(,1% #. % # % g,B,1% -,..,3% B *0,gD% +(,C% 2#2% 1).% ')1 #2,3% .( . % 5,3( 5 %
.(,#3%$,.()2%)/%2,.,3$#1#1:%B *0,%# %;3)1:8%3 .(,3%.( 1%.(,%$ 3@,.%
/ #*#1:% .)% '')$$)2 .,% .(,#3% $, 03,% )/% B *0,D% +(,C% $ C% -,% 3#:(.8%
-0.8% 5,3( 5 8% )$,% **); 1',% /)3% .(,% 5) #-#*#.C% )/% .(,#3% $,.()2 %
-,#1:% /* ;,2%; %1).% $ 2,D%F)3% **% (# % /* ; 8%;,%; #**% ,,%.( .% >)3) %
,,$ %3 3,*C%.)% ,^ $#1,% 1% 01/ B)3 -*,% )0.')$,%;#.()0.% ., .#1:%(# %
);1% /3 $,;)3@% )/% 1 *C # D %
#-%'5e% L(,1% .(,% *) , %)''033,2% .(,3,%; %1)%'*, 3 % '',5. 1',% )/%
;( .%( 2%( 55,1,2D%+(,%53#',%)1%.(,% '3,,1%*) .%#. %3, *#.C%#1%/ B)3% )/%
)$,% - .3 '.% gB *0,gD% <1%'* #'% 2,1# *%$)2,8% .(,%0 0 *%g.(# % # %)1*C%
.(,% 3, 0*.% )/% *#`0#2 .#)18% 2# .3, % *, g% ; % 53)//,3,2 D% +(,C%
')1.#10)0 *C% #:1)3,2% .(,% $, :,% /3)$% 3, *#.CD%
E);% ')0*2%.3 2,3 %;()%$ 2,%,B,3C% #1:*,%$# . @,% #1%.(,%-))@% -,')$,%
)% 0'', /0*a % J,' 0 ,% )/% % #$5*,% 53#1'#5*, % ')1',31#1:% 3 12)$1, D%
+(# %# %)1,%$ 1#/, . .#)1% )/%.(,% 03B#B)3 (#5%-# D%L,% .,12%.)%.(#1@%.( .%
.3 2,3 %$ @,%$)1,C Y#/'B)#% .(,C% 3,%:))2D%M,3( 5 %;,%( B,%.031,2%.(,%
' 0 *#.C% )1% #. % (, 2h% ;,% ')1 #2,3% .(,$% :))2% i0 . % -,' 0 ,% .(,C% $ @,%
$)1,CD% T1,% ' 1% $ @,% $)1,C% #1 % .(,% / #1 1'# *% $ 3@,. % .). **C% )0.% )/%
3 12)$1, D%
J).(% 6 3*) % 12% f)(1% -,*)1:% .)% .(,% '* % )/% 5,)5*,% ;()% -,1,/#.,2%
/3)$% %$ 3@,.%'C'*,D%<.%; %1).%$,3,*C%-,' 0 ,%.(,C%;,3,%#1B)*B,2%#1%.(,%
3#:(.% $ 3@,. D% <.%; % -,' 0 ,% .(,C%( 2% %-,1.% #1% .(,#3% .C*,%.( .% '*) ,*C%
/#..,2%.(,%53)5,3.#, % )/%.(,% 3 **#, % ,^5,3#,1',2% #1%.(,#3%$ 3@,.% 203#1:%.(,%
,5# )2,D%+(,C% ;,3, 1%: YB,#$)e% +( .% ( 55,1,28% #1% (#12 #:(.8% .)% -,% .(,%
.3 #.%.( .%; %.(,%$) .%2, #3 -*,%-,.;,,1% IPP G% 12%.(,% 0$$,3%)/% IP PZ%
#1%.(,% 5,'#/#'%$ 3@,. % #1%;(#'(%.(,%.;)%$,1% 5,'# *#j,2D%=) .% )/%.() ,%
;() %( 55,1,2%.)%( B,%.( .% 5,'#/#'%.3 #.8%)B,3%.(,%')03 ,%) /%.( .% ,:$,1.%
)/% ( # .)3C 8% 2)$#1 .,2% .(,% $ 3@,.D% +(,#3% ')3, % ; % ( #:(,3% 12% .(,C%
3,5* ',2% 5,)5*,%;()8% 5,3( 5 8%;,3,% -,..,3% .3 2,3 D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 97/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 98/219
Z G% > T 7 T & U >% L K S& <& V%
F03.(,3$)3,8% .(#1: % ' 1% :,.% ,B,1%$)3,% 0353# #1:%;(,1% 3 12)$1, %
'( 1:, % #1% ( 5,8% %;#.(%3,:#$,% ;#.'(, D%K %3,:#$,% ;#.'(% ')33, 5)12 %
.)% #.0 .#)1 %;(,1% **%)/%.(,% ..3#-0., %) /% % C .,$%'( 1:, %.)D%.(,%5)#1.%)/%
#.%-,')$#1:% 013,'):1#j -*,%.)% .(,%)- ,3B,3D%N 3; #1# 1% /#.1, % 55*#, %.)%
5,'#, %2,B,*)5#1:%)B,3% %B,3C%*)1:%.#$,8%1).% )- ,3B,2%)B,3% % ()3.%.,3$%
9% .#$,% ::3,: .#)1%,*#$#1 ., %$0'(%)/%.(,%,//,'. % )/%3 12)$1, h% .(#1: %
O<%3, 2 -8%)#d% - * 1',% )0.%)B,3%.(,% *)1:% 3018% % 5,)5*,% CD%
T;#1:% .)% .(,% -305.% 3 3,% ,B,1. 8% ;,% 2)% 1).% *#B,% #1 % % ;)3*2% ;(,3,%
.(#1: % g')1B,3:,g% ')1.#10)0 *C% .); 32 % -,..,3$,1.D% &)3% 2)% .(#1: % #1%
*#/,%$)B, /8-(%-B8B)5,% .% ** D% +(,% -,*#,/% #1%')1.#10#.C% ; % #1:3 #1,2% #1%
)03% '#,1.#/#'% '0*.03,% 01.#*% .(,% , 3*C% .;,1.#,.(% ',1.03CD% <.% ; % #2% .( .%
-'(B$# 18#) -8( .'># gB.:)HN%5,)5*,% `0).,% .(# % #1%;,**9 )012#1:% 7 .#1d%
-'(B$' -8 <'/%( )'5(B)e% <.%# %:,1,3 **C% ..3#-0.,2% .)%.(,% ,#:(.,,1.(9',1.03C%
-). 1# . % 7#11 ,0 % ;()%)-B#)0 *C% :).% #. % **% ;3)1:D% < .% ; % * )% 0 ,2% -C%
7,#-1#j % % % i0 .#/#' .#)1% )/% ' *'0*0 8% % (, % -,*#,B,2% .( .% .(#1: % 3, %
')1.#10)0 % 1)% $ ..,3% .(,% 3, )*0.#)1% .% ;(#'(% ;,% *))@% .% .(,$D% 7#@,%
$ 1C% ;,**9 )012#1:% g$ @,% ,1 ,g% .C5, % )/% . .,$,1. % O 0'(% 2C1 $#' %
$ 2,% 5,3/,'.% #1.,**,'.0 *% ,1 ,R8% #.%.031,2%)0.%.)% -,%,1.#3,*C%;3)1:8% %#.%
; % 2,1#,2% -C% `0 1.0$% $,'( 1#' D% L,% 2# ')B,3,2% .( . 8% #1 % .(,% B,3C%
$ **8% 5 3.#'*, % i0$5% O2# '3,.,*CR% -,.;,,1% . ., h% .(,C% 2)% 1).% *#2, %
-,.;,,1% .(,$D%
= C +$ Q & . 0 A < & +$ T $ 9 & & . ,$ T ?$ ' C + , & B + L L D$
L,% ,12% .(# % '( 5.,3% ;#.(% .(,% /)**);#1:% .()0:(.D% S,' ** % .( . % )$,)1,%
;#.(% )1*C% ' 0 *% @1);*,2:,% -)0.% .(,% 53)-*,$ % )/% 3 12)$1, % ;)0*2%
-,*#,B,%.( .% 1% 1#$ *%# % .%.(,%$ ^#$0$%/#.1, %/)3%.(,%')12#.#)1 %) /%(# %
.#$,D% +(# % # %1).% ;( .%,B)*0.#)1% $, 1 h 8- '&#$'+#% 1#$ * % ;#**% -,% / #.8%
-0.% 1).%,B,3C% #1:*,%)1,% )/%.(,$8% 12%1).% .% **%.#$, D%f0 .% % 1% 1#$ *%
')0*2 % ( B,% 03B#B,2 % -,' 0 ,% #. % $5*,% 5 .( % ; % *0'@C8% .(,% g-, . g%
)5,3 .)3 % #1% %:#B,1% -0 #1, %' 1% ')$,%/3)$% % 0- ,.% )/% )5,3 .)3 % ;()%
03B#B,2% -,' 0 ,% )/%)B,39/#.1, % .)% % $5*,%5 .(%9 % % $5*,% 5 .(% .( . %
; % /3,,%) /%.(,%,B)*0.#)1 3C% 3 3,%,B,1.D%T1,%B#'#)0 % ..3#-0.,% # %.( .%.(,%
*)1:,3% .(, ,% 1#$ * % ' 1% :)% ;#.()0.% ,1')01.,3#1:% .(,% 3 3,% ,B,1.8% .(,%
$)3,% B0*1,3 -*,%.(,C%;#**% -,%.)% #.D%L ,% #2%.( .% ()0*2% )1,%,^.,12%.#$,%
.)% #1/#1#.C8% .(,18% -C #$+81%/%(,N% .( . % ,B,1.% ;#**% ( 55,1%;#.(%',3. #1.C% 9
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 99/219
> A S Y <Y K 7% T F% + E 4% 7 4 K >+% F < +%
Z [%
.(,% 5,'#, % ;#** % -,% ;#5,2% )0.b% F)3% ,B)*0.#)1% $, 1 % /#.1, % .)% )1,% 12%
)1*C% .#$,% ,3#, 8%1).% .(,% B,3 :,% )/% **% .(,% 5) #-*,% ,1B#3)1$,1. D%
JC% )$,% B#'#)0 1, % )/% .(,% .30'.03, % )/% 3 12)$1, 8% % 53)/#. -*, %
5,3 )1 % *#@,% f)(1 8% )$,)1,% ;()% # % % 503,% *) ,3% #1 % .(,% *)1: % 301 % 12 %
')33, 5)12#1:*C% 01/#.%/)3% 03B#B *8%53, ,1. % %(#:(%2,:3,,%) /%,*#:#-#*#.C%#1%
.(,% ()3.% 301% 12% ( % .(,% 53)5,1 #.C% .)% $0*.#5*C% (# % :,1, D% S,' **% .(,%
()3$)1 *% ,//,'.% )1% 5) .03,% 12% #. % #:1 *#1:% ,//,'.% .)% ).(,3% 5).,1.# *%
$ ., D%E# % 0'', % O)3%5 ,02)9 0'', % );#1:%.)% #. %/3 :#*#.CR%; #**% ();%#1%
(# %/, .03, % % % -, ')1D% K1%#11)',1.% 5).,1.# *%$ .,%; #**% -,%/))*,2% #1.)%
.(#1@#1:% O01')12#.#)1 **CR% .( .% (,%( % % 05,3#)3%:,1,.#'% $ @,058% 01.#*%
.(,%/)**);#1:%3 3,%,B,1.D% >)*)1% ,,$ %.)%( B,%:)..,1%.(,%5)#1.h% -0.%.3C%.)%
,^5* #1% .(,% 53)-*,$% .)% % 1 #B,% -0 #1, % N 3; #1# .% 9% ) 3% C)03% 3#'(%
1,#:(-)3% '3) % .(,% .3,,.D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 100/219
><c%
>_4L&4>> %K&N%K>?==4+S?%
T# %-($81B/# (A# /8-/#:( 8< )>#?-#))2 ?A, (A# (#$.) hYB55h '-1
hY#'$h A'&# 5%.%(#1 .#'-%-+ 8B ()%1# 8< Z8858+,e = &%/%8B) /A%51
?$#/>) (A# )($B/(B$# 8< $'-18. -#))e =- %-($81B/(%8- (8 (A#
:$8Y5#. 8< #:%)(#.858+%/'5 8:'/%(,e FA# :#-B5(%. '(# )(#:
Y#<8$# (A# :$8Y5#. 8< %-1B/(%8-e
(,%;3#.,3% 12% '#,1.# .%>.,B,1%f C% V)0*2%O;()8%/)3% %;(#*,8%; %$C%
3)*,% $)2,*R8% ; % )1',% 2# :1) ,2% ;#.(% % 2, 2*C% /)3$% )/%' 1',3% )/%
.(,% *#1#1:% )/% .(,% .)$ '(D% +(,% /#3 .% 5#,',% )/% #1/)3$ .#)1% (,% 3,',#B,2%
-)0.%(# %)22 %)/%$ @#1:%#.%; %.( .%.(, .#1%'-% 03B#B *%/)3%.(,% #*$,1.%
# % 553)^#$ ., *C % ,#:(.% $)1.( h% #1 /)3$ .#)1% (, % /, *.% @#1 % .)% < # ( U %
#1i01'.#)1%.)%_#1:%E,j,@# (%.)%50.%(# %()0 ,%#1%)32,3%#1%53,5 3 .#)1%/)3%
&);% % $,2#' *% 2 # :1) # 8% 5 3.#'0 * 3*C % )1,% ) /% 0'( % ,B,3#.C 8% ' 1%
$).#B .,% 5,)5*,% .)% 2)% #1.,1 #B,% 3, , 3'(8% 5 3.#'0* 3*C% .() ,% 53)*#/ #' %
;3#.,3 % *#@,% V)0*2% ;()% 1,,2,2% $)3,% .#$,% ;#.(% 0 % .)% ')$5*,., % % /,;%
-))@%53)i,'. D%+(,%/03.(,3%3, , 3'(%-C%V)0*2%01')B,3,2% %B,3C%2#//,3,1.%
4'(& +(2.)/& ?,& 3#%& %'(& +(,,)8(&
2, .(D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 101/219
> _ 4L & 4 > >% K&N% K > ? == 4 +S ?%
Z \%
.)3C% .)% .(,% #1/)3$ .#)1% (,% ( 2% #1#.# **C% -,,1% :#B,1h% $ #1*C% .( .% .(,%
#7:#/(#1 % O#D, D8% B,3 :,R% 03B#B *% ; % ')1 #2,3 -*C % (#:(,3% .( 1 % ,#:(.%
$)1.( D%<.%' $,% .)%(# %1).#',%.( . #7:#/(#1% 12 .#1%'-% 2)%1).%$, 1%.(,%
$,% .(#1:% .% * *D% =,2# 1% $, 1 % 3)0:(*C% .( .% \H l% )/% .(,% 5,)5*,% 2#, %
-,/)3,% ,#:(.% $)1.( % 12% \H l% 03B#B,% *)1:,3% .( 1% ,#:(.% $)1.( D% J0.%
.() ,%;()% 03B#B,%;)0*2%*#B,%')1 #2,3 -*C% *)1:,38%:,1,3 **C%:)#1:% -)0.%
*#/,%i0 .% *#@,% % 3,:0* 3% 5,3 )1% 12%/0*/#**#1:%.(,% B,3 :,% Q[ DW% )3% )% C, 3 %
53,2#'.,2% -C%#1 03 1',%$)3. *#.C% . -*, D%
+(,3,% # % C$$,.3CD% +() ,% ;()% 2#, % 2)% )% B,3C% , 3*C% #1 % .(,% : $,8%
;(#*,% .() ,% ;()% *#B,% :)% )1% *#B#1:% B,3C% *)1:D% L(,1,B,3% .(,3,% # %
C$$,.3C%#1%)0.')$, 8%.(, '&#$'+#% 03B#B *%( %1).(#1:%.)% 2)%;#.(%.(,%
.#1%'-% 03B#B *D% +(# % 53)$5.,2% V)0*2 8% ;()% .(0 % 2# ')B,3,2% .(,%
')1',5.% )/% @,;1, 8% .)% ;3#., % (# % (, 3./,* .% 5#,',% g+(,% =,2# 1% # % &). %
.(,%=, :,gD% E# % 5)#1.% # % .( .% .(,% ')1',5.% )/%$,2# 1% 0 ,2% #1% $,2#' *%
3, , 3'(% 2), % 1).% '( 3 '.,3#j,% % 53)- -#*#.C% 2# .3#-0.#)1D%
<%;#**% #$5*#/C%V)0*2U %5)#1.% -C%#1.3)20'#1:%.(,%')1',5.%)/ .#'-% O * )%
' **,2 #7:#/('(%8-d% % /) **); % -C%0 #1:% % *, % $)3-#2% ,^ $5*, 8% .( .% )/%
: $-*#1:D% <% ;#**% :#B,% 1% ,^ $5*,% ) /% -).(% C$$,.3#'% )22 % 12%
C$$,.3#'% )0.')$, % .)% ,^5* #1 % .(,% 5)#1.D% K C$$,.3#'% )22 % $, 1 %
.( . % 53)- -#*#. #, % 3,% 1).% \ Hl% /)3% , '(% ,B,1.8% -0.% .( . % .(,% 53)- -#*#.C%
)1% )1,% #2,% # % (#:(,3% .( 1% .(,% 53)- -#* #.C% )1% .(,% ).(,3 D% K C$$,.3#' %
)0.')$, % $, 1% .( .%.(,% 5 C)// % 3,% 1).% ,`0 *D%
K 0$,%<%,1: :,%#1% %: $-*#1:% .3 .,:C%.( .%( %P PP% '( 1', %#1% I8H HH%
)/%$ @#1:% pI% O,B,1.%KR% 12%I%'( 1',% #1% I8HH H% )/% *) #1:%p IH 8HH H% O,B,1.%
JR 8% % #1 %+ -*,% X DI D%
+ -*,% XDI%
6&#-(
;$8Y'Y%5%(,
9B(/8.#
67:#/('(%8-
K%
PPPrIHHH%
pI%
pDPPP%
J%
IrIHHH%
9pIH 8 HHH %
9pIH DHH %
+). *%
9pP 8HHI %
=C% ,^5,'. .#)1% # % % *) % )/% '*) , % .)% pP % O)-. #1,2% -C%$0*.#5*C#1:% .(,%
5 3)- -#*#.#, % -C% .(,% ') 33, 5)12 #1:% )0.')$, RD% +(, <$#CB#-/,% )3%
:$8Y'Y%5%(,% )/ % .(,% *) 8% #1% 12% -C%#. ,*/ 8% # % .). **C% #33,*,B 1.h% #. %1,,2 % .)%
-,%i02:,2%#1%')11,'.#)1%;#.(%.(, .'+-%(B1#% )/% .(,%)0.')$,D% E,3,%K% # %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 102/219
Z X%
> T7 T& U>% L K S& <& V%
/ 3%$)3,%*#@,*C%.( 1%JD%T22 % 3,%.( .%;,%;)0*2%$ @,%$)1,C%-C%-,..#1:%
/)3% ,B,1.%K8 % -0.% #.% # %1).% %:))2%#2, % .)% 2)% )D%
+(# %5)#1.% # %3 .(,3% ')$$)1% 12% #$5*,h% #.% # % 012,3 .))2% -C% 1C)1,%
$ @#1:% % #$5*,%-,.D%?,.%<%( 2%.)% .30::*,% **%$C%*#/,%; #.(% 5,)5*,% #1%.(,%
/#1 1'# *% $ 3@,. %;()%2)%1).% ,,$% .)%#1.,31 *#j,%#. D% < % $ %1).%. *@#1:% )/%
1)B#', h% < % $% . *@#1:% )/% 5,)5*,% ;#.(% 2B 1',2% 2,:3,, % O *-,#.% =JK R%
;()% ' 11).% ')$,%.)% :3#5 %;#.(% .(,% 2#//,3,1',D%
E );% ')0*2% 5,)5*,% $# % 0'(% % 5)#1.a% L(C% 2)% .(,C% ')1/0 ,%
53)- -#*#.C% 12% ,^5,'. .#)18% .( .% # 8% 53)- -#*#.C% 12% 53)- -#*#.C% .#$, %
.(,% 5 C)//a % = #1*C % -,' 0 , % $0'(% )/% 5,)5*,U % '())*#1:% ')$, % /3)$%
,^ $5*, % #1 % C$$,.3#' % ,1B#3)1$,1. 8% *#@,% % ')#19.) 8% ;(,3,% 0'(% %
2#//,3,1',% 2), %1).%$ ..,3D%<1%/ '.%.(,% )9' **,2% gJ,**%603B,g% .( .% ,,$ %
.)% ( B,% /)012% 01#B,3 *% 0 ,% #1% )'#,.C% # % ,1.#3,*C% C$$,.3#'D% =)3,% )1%
.( .% * .,3D%
M$11& )/2& M()*& S##1#8C&
+(,% :,1,3 *% 53, % /*))2 % 0 % ;#.(% ')1',5. % *#@, YB55%)A% 12 Y#'$%)A% %
.(, ,% $, 1% .)% 3,/,3% .)% .(,% ,//,'.% )/% (#:(,3% O-0**# (R% )3% *);,3% O-, 3# (R%
53#', % #1 % .(,% / #1 1'# *% $ 3@,. D% J0.% * )% ;,% (, 3 % 5,)5*,% C#1:% g<% $%
YB55%)A% )1%f)(11Cg%)3 % g <% $ Y#'$%)A% )1%.( .%:0C%& #$%#1%.(,% - '@%;()%
,,$ % #1')$53,(,1 #-*,% .)%$ ,g8% .)%2,1).,%.(,%-,*#,/%#1%.(,%*#@,*#())2% )/%
)$,)1,U % 3# ,%#1%*#/,D%<%( B,%.)% C%.( .%.(,%1).#)1 YB55%)A% )3 Y#'$%)A% 3,%
)/.,1% ()**);% ;)32 % ;#.( % 1)% 55*#' .#)1% #1 % % ;)3*2% )/% 3 12)$1, % 9
5 3.#'0* 3*C% #/% 0'(% %;)3*28% *#@,% )03 8% 53, ,1. % C$$,.3#'% )0.')$, D%
L(,1% <% ; % #1 % .(, % ,$5*)C$,1.% )/% .(, % &,;% ?)3@% )//#',% )/% % * 3:, %
#1B, .$,1.% ()0 ,8% < %; % 0-i,'.,2% )1% )'' #)1 % .)% .(,% ( 33C#1:% ;,,@*C%
g2# '0 #)1%$,,.#1:g8%;(#'(%: .(,3,2%$) .%53)/, #)1 * %) /%.(,%&,;%?)3@%
.3 2#1:%3))$ D%<%2)%1).%')1', *%.( .%<%; %1).%/)12%)/% 0'(%: .(,3#1: 8% 12%
1).%)1*C%-,' 0 ,%.(,C%'0.%#1.)%$C%:C$%.#$,D%L(#*,%.(,%$,,.#1: % #1'*02,2%
.3 2,3 8%.( .%# 8%5,)5*,%;()% 3,%i02:,2%)1%.(,#3%10$,3#' *%5,3/)3$ 1',8%#.%
; % $) .*C% % /)30$ % /)3% *, 5,)5*,% O5,)5*,% ' 5 -*,% ) /% '( 3$ #1:%
'0 .)$,3 R8% 12% .(,% ' .,:)3C% ) /% ,1.,3. #1,3 % ' **,2% L **% >.3,,.%
g,')1)$# . g% )3% g .3 .,:# . g% ;()%$ @,% 53)1)01',$,1. % )1% .(,% / .,% )/%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 103/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 104/219
ZZ%
> T7T& U>% LKS& <&V%
7,.% 0 % 0$,% .( .% .(,% 3, 2,3% ( 3,2% $C% )5#1#)18% .( .% .(,% $ 3@,.%
)B,3% .(,% 1,^.% ;,,@% ( 2% % Q Hl % 53)- -#*#.C% )/% :)#1:% 05% 12% [ Hl %
53)- -#*#.C% )/%:)#1:% 2);1D% E);,B,38% *,.%0 % C%.( .% #.%;)0*2e:)%05%-C%
Il% )1% B,3 :, 8% ;(#*, % # .% ')0*2%:)% 2);1% -C% 1 % B,3 :, %)/ % IHl D% L( .%
;)0*2% .(,% 3, 2,3% 2)a% < %.(,%3, 2,3
YB55%)A
% ) 3% # % (,
Y#'$%)Am
+ -*,% XDG%
6&#-( ;$8Y'Y%5%(, 9B(/8. #
67:#/('(%8-
H C '( A$ /& L$ 0\$ Y N i$
H C '( A$ /& L$ , &# +$ h N i$
f \$ 1 i$
X &# +$ 1 N i$
N ^ Y $
R h ^ N N $
E& A C . $
R I ^ h $
K'')32#1:*C8
YB55%)A
% )3
Y#'$%)A
% 3,% .,3$ % 0 ,2 % -C % 5,)5*,% ;() % 2) % 1).%
,1: :,% #1% 53 '.#'#1:% 01',3. #1.C8% *#@,% .(,% .,*,B# #)1% ')$$,1. .)3 8% )3%
.() , % ;()% ( B, % 1)% ,^5,3#,1', % #1 % ( 12*#1:% 3# @ D% K* 8% #1B, .)3 % 12%
-0 #1, , % 3,% 1).% 5 #2 % #1% 53)- -#*#.#, 8% .(,C% 3,% 5 #2 % #1% 2)** 3 D%
K'')32#1:*C8% #.% # %1).% ();% *#@,*C% 1% ,B,1.%# %.)% ( 55,1% .( .%$ ..,3 8% #.%# %
();%$0'(%# %$ 2,%;(,1%#.%( 55,1 %.( .% ()0*2%-,%.(,%')1 #2,3 .#)1D%E);%
/3,`0,1.% .(,% 53)/#.% # % #33,*,B 1.h% #.% # % .(,%$ :1#.02,% )/% .(,% )0.')$,% .( .%
')01. D% <.% # % % 503,% '')01.#1:% / '.% .( .8% #2,% /3)$% .(,% ')$$,1. .)3 8%
B,3C%/,;%5,)5*,%. @,%()$,% %'(,'@%*#1@,2%.)%();
8<(#-
% .(,C% 3,%3#:(.%)3%
;3)1:D% L( .% .(,C% :,.% # % % 53)/#. % )3% *) D% K % .)% .(,%')$$,1. .)3 8% .(,#3%
0'', % # % *#1@,2% .)% ();% )/.,1% .(,C% 3,% 3#:(.% )3% ;3)1:D% +(# % ' .,:)3C%
#1'*02, % .(,% g'(#,/% .3 .,:# . g% )/%$ i)3%#1B, .$,1.% - 1@ % .(,%50-*#'% ' 1%
,,% )1%+ DY D8%;()% 3,U1).(#1:% -,..,3% .( 1%,1.,3. #1,3 D% +(,C% 3,%/ $)0 8%
,,$%3, )1,2% #1%.(,#3% 5,,'(8%5*);%C)0%;#.(%10$-,3 8%-0.8% /01'.#)1 **C8%
.(,C% 3,%.(,3,%.)% ,1.,3. #1%9% /)3%.(,#3%53,2#'.#)1 %.) %( B,% 1C%B *#2#.C%.(,C%
;)0*2%1,,2% % . .# .#' *%., .#1:% /3 $,;)3@D%+(,#3% / $,%# %1).%.(,%3, 0*.%)/%
)$,%,* -)3 .,% ., .%-0.%3 .(,3%.(,%3, 0*.% )/%.(,#3%53, ,1. .#)1% @#** D%
C +$ C ' ' & / C + A$ I W R ? C ' R & . ,$ L & +$
T0. #2,% )/%.(,% 1,,2% /)3%,1.,3. #1$,1.% #1%.(, ,% ( **);%$,,.#1: % <%( B,%
3, # .,2%B)#'#1:% % g$ 3@,.%' **g% % %.3 2,38%;(#'(%' 0 ,2% )$,% 5,3 )1 *%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 105/219
> _ 4L & 4 >>% K&N% K > ? = = 4 +S ?%
Z P%
.3 #1% ;#.(% )$,% )/% $C% /3#,12 % 12% 3,* .#B, D% T1,% 2 C% % /3#,12% )/% $C%
/ .(,3% 9 % )/% .(,% 3#'(% 12%')1/#2,1.% B 3#,.C% 9 % ' **,2% $,% 203#1:% (# % &,;%
?) 3@% B# #.% O.)% ,.% .(,%,*,$,1. % )/%5,'@#1:% )32,3% .3 #:(.8%(,%(#1.,2% 3#:(.%
; C% 203#1:%.(,%' **%.( .% (,%' $,% -C%6)1')32,8%; #.(% )$,% 2,3): .)3C%
')$$,1.%)1%.(,%')$/)3.%)/% 0'(%$,.()2%)/%.3 1 5)3. .#)1RD%E,%; 1.,2%
.)%5#'@%$C% -3 #1%)1%.(,% . .,%) /% %')**,'.#)1%) /%/#1 1'# *%$ 3@,. D%<%.30*C%
( 2% 1)% )5#1#)18% 1)3% ( 2%$ 2,% .(,% ,//)3.% .)% /)3$0* ., % 1C8% 1)3% ; % <%
3,$).,*C% #1.,3, .,2% #1% $ 3@,. D% +(,% :,1.*,$ 1% @,5.% 5*);#1:% $,% ;#.(%
`0, .#)1 % )1% .(,% . ., % )/% ,')1)$#, 8% )1% .(,% 403)5, 1% ',1.3 * % - 1@ h%
.(, ,%;,3,%53,'# ,%`0, .#)1 % 1)%2)0-.% #$#1:%.)%')$5 3,%$C%)5#1#)1% .)%
.( .% )/% )$,% ).(,3 % g,^5,3.g % ( 12*#1:% (# % '')01.% .% )1,% )/% .(,% * 3:,%
&,;%?)3@%#1B, .$,1.%/#3$ D%<%1,#.(,3%')1', *,2%.( .%<%( 2%1)%'*0,8%1)3%
2#2%<% ,,$% )33C% -)0.% #.D % < %; % 1).% #1.,3, .,2% #1%$ 3@,. % OgC, 8%< % $ % %
.3 2,3gR% 12% 2#2%1).% $ @,% 53,2#'.#)1 8% 5,3#)2D% < %;,1.% )1% .)% ,^5* #1% .)%
(#$ % )$,% )/% $C% #2, % )1% .(,% .30'.03,% )/% 3 12)$1, % 12% .(,%
B,3#/#' -#*#.C% )/% $ 3@,.% ' ** % -0.% (,% ; 1.,2% % $)3,% 53,'# ,% . .,$,1.%
)/%;( .%.(,%403)5, 1% -)12%$ 3@,. %;)0*2%2)% -C%.(,%6(3# .$ % , )1D%
E,% ' $,% 012,3% .(,% #$53, #)1% .( . % < %; % 50**#1:% (# % *,:h% #.% *$) .%
2 $ :,2%.(,%3,* .#)1 (#5% -,.;,,1%$C% / .(,3% 12%(# %3#'(% 12%')1/#2,1.%
/3#,12D% F)3% .(,% :,1.*,$ 1% ' * *,2% ( #$% ;#.( % .(,% /) **);#1:% :3#,B 1',d%
gL(,1% <% @% %* ;C,3% %*,: *%`0, .#)18%(,% 1 ;,3 %$,%;#.(%')03., C% 12%
53,'# #)1D% L(,1% <% @ % % 2)'.)3% % $,2#' *% `0, .#)18% (, % :#B, % $,% (# %
)5#1 #)1D% &)% 5,'# *# .% ,B,3% :#B, % $,% 2# 3, 5,'.D% ?)03% #1 )*,1.% 12%
')1',#.,2%GP9C, 39)*2% )1% # %5* C#1: :$%.' 18--'% 12%3,/0 , %.)% 1 ;,3%
$,% -)0.% .(,% 2#3,'.#)1% )/%.(,% $ 3@,.bg%
' C ' $ Q + A L$
+(,% -, .% 2, '3#5.#)1% )/%$C%*#/,*)1:% -0 #1, % #1% .(,%$ 3@,.% # % g @,;,2%
-, . g8%.( .% # 8%<%.3C%.)%-,1,/#.%/3)$%3 3,%,B,1. 8%,B,1. %.( .% 2)%1).%.,12%.)%
3,5, .% .(,$ ,*B, % /3,`0,1.*C8% -0.8% '')32#1:*C8% 53, ,1.% % * 3:,% 5 C)//%
;(,1% .(,C% )''03D% < % .3C% .)%$ @,%$)1,C% #1/3,`0,1.*C8% % #1/3,`0,1.*C% %
5) #-*,8% #$5*C%-,' 0 ,% <%-,*#,B,%.( .% 3 3,% ,B,1. % 3,%1).% / #3*C% B *0,28%
12% .( .% .(,% 3 3,3%.(,% ,B,1.8%.(,%$)3,% 012,3B *0,2% #.%;#**% -,%#1% 53#',D%
L(Ca% J,' 0 ,% )/% %5 C'()*):#' *% -# h%5,)5*,%;()% 033)012,2%$,%#1%
$C%' 3,,3%;,3,%.))% /)'0 ,2%)1%$,$)3#j#1:% ,'.#)1% G% )/%.(, T'55 *($##(
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 106/219
P H%
> T 7 T& U>% L K S& <& V%
G8B$-'5
% 203#1:% .(,#3% .3 #1% 3#2,% .)% 3,/ *,'.% 53)5,3*C% )1% .(,% ..3 #-0., % )/%
3 12)$% ,B,1. D%T3% 5,3( 5 %.(,C%; .'(,2%.))%$ 1C%:030 %)1% .,*,B# #)1D%
T3% 5,3( 5 % .(,C% 5,1.% .))% $0'(% .#$,% 05:3 2#1:% .(,#3% M *$M#*).D% 4B,1%
)$,% ,^5,3#,1',2% .3 2#1:% B,.,3 1 % 2)% 1).% ,,$% .)% :,.% .(,% 5)#1.% .( .%
/3,`0,1'#, %2)%1).%$ ..,3D%f#$% S):,3 8% %g*,:,12 3Cg% #1B, .)38%$ 2,%.(,%
/)**);#1:% . .,$,1.d%
M 18-R( YB, 8:(%8-)e XB,%-+ 8:(%8-) %) '-8(A#$ ?', (8 +8 (8 (A# :88$H
A8B)#e *8. #8-# 1%1 ' )(B1, <8$ (A# *6@ '-1 1%)/8&#$#1 (A'( Q_ :#$/#-(
8< '55 8:(%8-) #7:%$# ') 58))#)e T #55N M <%+B$#1 8B( (A'( %< Q_ :#$/#-( 8< '55
58-+ 8:(%8- :8)%(%8-) 58)( .8- #,N (A'( .#'-( (A'( Q_ :#$/#-( 8< '55 )A8$(
8:(%8- :8)%(%8-) .'># .8- #,e M< M ?'-( (8 B)# 8:(%8-) (8 Y# Y#'$%)AN M
)#55 /'55)e
Y# #- *C 8% .(,% . .# .#'% .( .% PHl% )/% **% )5.#)1% 5) #.#)1 % *) .% $)1,C % # %
$, 1#1:*, 8% O#D,D 8% .(, <$#CB#-/,d% #/% ;,% 2)% 1).% . @,% #1 .)% '')01 . A8?
.B/A % $)1,C%# %$ 2,%)1% B,3 :,%203#1:%.(,%3,$ #1#1:% I Hl D%</%;,%$ @,%
\H% .#$, % )03%-,.%)1% B,3 :,%;(,1%.(,%)5.#)1% # %#1%.(,%$)1,C8%.(,1%<%' 1%
/,*C% $ @,% .(,% . .,$,1.% .( .% -0C#1:% )5.#)1 % # % 1).(,3% ; C% .)% :)% .)%
.(,% 5 * jj)% 3 .(,3% .( 1% .(,% 5))3()0 ,D% = 3% f #$% S):,3 % ,,$ % .)% ( B,%
:)1,% B,3C% / 3 % #1 % *#/, % /)3 % )$,)1,% ;()% 2), % 1).% 2# .#1:0# (% -,.;,,1%
53)- -#*#.C% 12% ,^5,'. .#)1% O .3 1:,*C8% (,% ; % .(,% 5 3.1,3% )/% V,)3:,%
>)3) 8% % ')$5 *,^%$ 1%;()%.(3#B,2%)1% 3 3,%,B,1. %9% $)3,% )1%(#$% * .,3RD%
T1,% 0'(% 3 3,% ,B,1.% # % .(,% .)'@% $ 3@,.%'3 (% )/% IP ZQ8 % ;(#'(% $ 2,%
$,% % % .3 2,3% 12% **);,2% $,%.(,% *0^03C% )/% -,')$#1:% #1B)*B,2% #1% **%
$ 11,3% )/% '()* 3 (#5D% &,3)% )/%.(,% $ **,3% ()0 ,%#1%6( 5.,3% I% #$ %.)%
:,. % )0.% )/% ( 3$U % ; C% -C% B)#2#1:% ,^5) 03,% .)% 3 3,% ,B,1. % 9 % % $) .*C%
2,/,1 #B,% 553) '(D% <% $% / 3%$)3,% ::3, #B,%.( 1%&,3)% 12 %:)%)1,% .,5%
/03.(,3h% <%( B,%)3: 1#j,2%$C%' 3,,3% 12% -0 #1, % #1% 0'(% %; C% %.)% -,%
-*,% .)% -,1,/#.% /3)$% .(,$D% <1% ).(,3%;)32 8% < % #$% . %53)/#.#1:% /3)$% .(,%
3 3,%,B,1.8 %;#.(% $C% C$$,.3#'% -,. D%
L ? B B A ' ?$ C + ,$ L = < + = $
<1%$) .% 2# '#5*#1, 8% 0'(% C$$,.3C%2), %1).%$ ..,3D%A1/)3.01 .,*C8%.(,%
.,'(1#`0, %0 ,2%#1%/#1 1',% 3,%)/.,1% #$5)3.,2%/3)$ %).(,3% 3, %9% /#1 1',%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 107/219
> _ 4L & 4 > >% K&N% K > ? = = 4 + S ?% P I%
# % .#**% % C)01:% 2# '#5*#1,% O#. % # % ',3. #1*C% 1).% C,.% % g '#,1',gRD% M,)5*,% #1%
$) .%/#,*2 %)0. #2,%) /%/#1 1',% 2)%1).%( B,%53)-*,$ %,*#$#1 .#1:% ,^.3,$,%
B *0, % /3)$% .(,#3% $5*,8% ;(,1% .(,% 2#//,3,1',% #1% 5 C)//% -,.;,,1%
2#//,3,1.% )0.')$, % # % 1).% #:1#/#' 1.8% ;(#'(% # % :,1,3 **C% .(,% ' ,% #1 %
,20' .#)1% 12%$,2#'#1,D% K% 53)/, )3%;()% ')$50., % .(,% B,3 :,% )/%(# %
.02,1. U% :3 2, %3,$)B, %.(,%(#:(, .% 12%*);, .% )- ,3B .#)1 8%;(#'(%(,%
;)0*2% ' ** 8B(5%#$)N% 12% . @, % .(,% B,3 :,% )/% .(,% 3,$ #1#1:% )1, 8%
;#.()0.% .(# % -,#1:% 1% 01 )012% 53 '.#', D% K% ' 0 *% ;, .(,3 % /)3,' .,3%
2), %.(,% $,%;#.(%,^.3,$,% .,$5,3 .03, %9% 1%010 0 *%)''033,1',%$ #:(.%
-,%2,,$,2% .)% @,;% .(,% )B,3 **% 3, 0*.% O.()0:(%;,%;#**% ,,%.( .% .(# %$ C%
.031% )0.% .)% -,% %$# . @,%;(,1% #.%')$, % .)% /)3,' .#1:% /0.03,% 53)5,3.#, %
)/% .(,% #',% ' 5RD% >)% 5,)5*,% #1% /#1 1',% -)33);% .(,% .,'(1#`0,% 12% #:1)3,%
#1/3,`0,1.% ,B,1. 8% 1).% 1).#'#1:% .( .% .(,% ,//,'.% ) /% % 3 3,% ,B,1.% ' 1%
- 1@305.% % ')$5 1CD%
= 1C% '#,1.# . % #1% .(,% 5(C #' *% ;)3*2% 3,% * )% 0-i,'.% .)% 0'(%
/))*# (1, 8%$ # 3, 2#1:% . .# .#' D% T1,% /* :3 1.% ,^ $5*,%# %#1%.(,%: *)- *9
; 3$#1:%2,- .,D%= 1C% '#,1.# . % / #*,2%.)% 1).#',% #.% #1%#. % , 3*C% . :, % %
.(,C% 3,$)B,2% /3)$% .(,#3% $5*,% .(,% 5#@, % #1% .,$5,3 .03,8% 012,3% .(,%
-,*#,/%.( .% .(, ,%;,3,% 1).% *#@,*C% .)% 3,'03D% <.%$ C% -,% %:))2% #2, % .)% . @,%
)0.%.(,%,^.3,$, %;(,1%')$50.#1:%.(,% B,3 :,%.,$5,3 .03, % /)3%B ' .#)1%
'(,20*#1:D% J0.%#.%2), %1).%;)3@%;(,1%;,% .02C%.(,%5(C #' *% 53)5,3.#, %
)/% .(, % ;, .(,3D% +(, ,% '#,1.# . % #1 #.# **C % #:1)3,2% .(,% / ' .% .( . % .(, , %
5#@, 8% *.()0:(% 3 3,8% ( 2% .(,%,//,'.% )/% 22#1:%2 # 53)5)3.#)1 .,*C% .)%.(,%
'0$0* .#B,%$,*.#1:%)/% .(,% #',%' 5D%f0 .% %#1%/#1 1',8% 1% ,B,1.8% *.()0:(%
3 3,8% .( .% -3#1: % * 3:,% ')1 ,`0,1', % ' 11) .% i0 .% -,% #:1)3,2D%
F#:03,% XDI% (); % % ,3#, % )/% 5)#1. % . 3.#1:% ;#.(% 1% #1#. # *% *,B,*%L)%
12% ,12#1:% .% .(,% 5,3#)2% ')1',31,2% L
.
D% <.% ' 1% * )% -,% ,,1% % .(,%
5,3/)3$ 1',8%(C5).(,.#' *% )3%3, *#j,28%)/% C)03%/ B)3#.,%.3 2#1:% .3 .,:C8%
.(,%.3 '@%3,')32 %) /% 1%#1B, .$,1.%$ 1 :,38%.(,%53#',%)/% %/)).%) /% B,3 :,%
M * jj) % 3, *% , . .,% #1 % S,1 # 1',% F *)3,1', 8% .(,% 53#',% ,3#, % ) /% .(,%
=)1:)*# 1% .)'@% $ 3@,.8% ) 3% .(,% 2 #//,3,1',% -,.;,,1% .(,% A D> D% 12 %
=)1:)*# 1% .)'@% $ 3@,. D% <.% # % ')$5) ,2% )/% % :#B,1% 10$-,3% )/%
,`0,1.# *%)- ,3B .#)1 %L #8%L
G
8%,. 'D8%)32,3,2%#1% 0'(% %; C%.( .%.(,%)1,%
.)%.(,%3#:(.%')$, '<(#$% .(,% )1,%.)% .(,% *,/.D%
</% ;,% ;,3,% 2, *#1: % ;#.( % % 2,.,3$#1 # .#'% ;)3*2 % 9% .( . % # 8% % ;)3*2 %
.3#55,2%)/%3 12)$1, % O.(,%3#:(.9')*0$1%;)3*2%#1%+ -*,%M D*% )1%5 :,%[ R8%
12%;,%@1,;%;#.(%',3. #1.C%.( .%#.%; %.(,%' ,8%.(#1: %;)0*2%-,% 3 .(,3%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 108/219
P G%
> T 7 T& U>% L K S& <& V%
F#:03,%X DI% K%M3#$,3%)1%+#$,%>,3#, D%
, CD%+(,% 5 ..,31% )/%.(,% ,3#, %;)0*2% 3,B, *%')1 #2,3 -*,% 12%53,2#'.#B,%
#1/)3$ .#)1D% ?)0 % ')0*2% .,**%; #.(%53,'# #)1%;( .%;)0*2%( 55,1% )1,%2 C%
(, 2 8%)1,%C, 3% (, 28% 12 %5,3( 5 %,B,1% %2,' 2,% (, 2 D%L,%;)0*2%1).%
,B,1% 1,,2% % . .# .#'# 1h% % ,')1293 .,% ,1:#1,,3% ;)0*2% 2)D% E,% 2), % 1).%
,B,1%1,,2%.)%-,% 3$,2%;#.(% %$)2,31%2,:3,,h% )$,)1,%;#.(%1#1,.,,1.(9
',1.03C% .3 #1#1:% 012,3% 7 5* ',% ;)0*2% -,% -*,% .)% )*B,% .(,% ,`0 .#)1 8%
' **,2 1%<<#$#-(%'5 #CB'(%8-)8% ) 38% ,`0 #B *,1 .*C8 #CB'(%8-) 8< .8(%8- H
#1',%;,% 3,% .02C#1:%.(,%2C1 $#' %)/% 1%,1.#.C%;() ,%5) #.#)1%2,5,12 %
)1%.#$,D%
</%;,%;,3,%2, *#1:%; #.(% %;)3*2%;(,3,%3 12)$1, % # %'( 3.,28% .(#1: %
;)0*2% -,%, C% %;,**8%:#B,1%.( .%.(,3,%# % 1%,1.#3,% /#,*2%'3, .,2% /)3%.( .%
' **,2 6/8-8.#($%/)% )3 F%.# *#$%#) =-'5,)%)e% ?)0%;)0*2%' **% % /3#,12*C%
,')1)$,.3 #' # 1 % O$C% ,^5,3#,1', % )/% ,')1)$,.3#'# 1 % # % .( .% .(,C% 3, %
0 0 **C% 5)*#.,% 12% /3#,12*C% .)% 53 '.#.#)1,3 RD% E,% ;)0*2% 301% .(,% 2 . % #1%
(# % )/.; 3,8% 12%532B#2,%C)0%;#.(%2 # :1) .#' %.( .%;)0*2%.,**%C)0%#/%#.%# %
;)3.(% #1B, .#1:% #1% .(,%.3 2,3% :,1,3 .#1:% 0'(% % .3 '@% 3,')328% )3% #/% #.% # %
;)3.(%503 0#1:%.(,%:#B,1%.3 2 #1:% .3 .,:CD%?)0 %' 1%,B,1%-0C%.(,% .02,1.%
B,3 #)1% )/% (# % )/.; 3,% /)3% 012,3% pP PP% 12%301% #. % C)03 ,*/ % 203#1:% .(,%
1,^.%3 #1C%;,,@,12D%
J0.%;,% 3,%1).% 03,%.( .% .(,%;)3*2%;,% *#B,% 1g%# %;,**%'( 3.,2D%L,%;#**%
,,%.( .% .(,%i02:$,1.% 2,3#B,2% /3)$% .(,% 1 *C # % )/% .(, ,% 5 .% ..3#-0., %
$ C% )1% )'' #)1% -,%3,*,B 1.D% J0.% #.% $ C% -,%$, 1#1:*, h% #.% ')0*2% )1%
)'' #)1%$# *, 2%C)0% 12%. @,%C)0%#1%.(,%)55) #.,%2#3,'.#)1D% >)$,.#$, %
$ 3@,.% 2 . % -,')$, % % #$5*, % .3 5 h% #.% (); % C)0% .(,% )55) #., % )/% #. %
1 .03,8% #$5*C% .)% :,. %C)0% .)% #1B, . % #1% .(,% ,'03#.C% )3% $# $ 1 :,% C)03%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 109/219
> _ 4L & 4 >>% K&N% K > ? = = 4+ S ?%
P [%
3# @ D%6033,1'#, %.( .%,^(#-#.%.(,%* 3:, .%(# .)3#' *% . -#*#.C8%/)3% ,^ $5 *,8%
3,% .(,% $) .% 5 3)1,% .) % '3 (, D% +(# % ; % -#..,3*C % 2 # ')B,3,2 % #1 % .(,%
0$$,3% ) /% I PPQ% -C% #1B, .)3 % ;()% '() ,% .(,% /,.C% ) /% .(,% 5,::,2 %
'033,1'#, % )/%= * C # 8 % <12)1, # 8% 12% +( #* 12% O.(,C%;,3,% 5,::,2% .)%
.(,% AD>D% 2)** 3% #1% % $ 11,3% .)% ,^(#-#.% 1)% B)* .#* #.C8% 01.#*% .(,#3% ( 358%
022,18% 12% -30. *% 2,B *0 .#)1 RD%
L,% ')0*2% -,% ,#.(,3% .))% * ^% )3% .))% .3#1:,1.% #1% '',5.#1:% 5 . % #1/)39
$ .#)1% % % 53,2#'.#)1% )/% .(,% /0.03,D% K % % @,5.#'8% < % 3,i,'.% % )*,% .#$,%
,3#, % )/% .(,% 5 . % % 1% #12#' .#)1% )/% /0.03,% 5,3/)3$ 1',h% < % 1,,2% % *).%
$)3,%.( 1% 2 . D%=C% $ i)3%3, )1% # %.(,
$'$# #&#-(N
% -0.%<%( B,%5*,1.C% )/%
).(,3 D%
T1% .(,% 03/ ',8% $C% . .,$,1.% (,3,% $ C% ,,$% .)% ')1.3 2#'.% , 3*#,3%
2# '0 #)1 8%;(,3,%<%-* $,%5,)5*,%/) 3%1).% *, 31#1:%,1)0:(%/3)$ % (# .)3CD%
+(,% 53)-*,$% # %.( .%;,%3, 2%.))%$0'(% #1.)% ( **);% 3,',1.%(# .)3C8%;#.(%
. .,$,1. % *#@,% g.(# % ( % 1,B,3%( 55,1,2% -,/)3,g8 % -0.% 1).% /3)$% (# .)3C%
#1%:,1,3 *%O.(#1: %.( .%1,B,3%( 55,1,2%-,/)3,%#1%)1,% 3, %.,12%,B,1.0 **C%
.)% ( 55,1RD% <1 % ).(,3 % ;)32 % (# .)3C% ., '(, % 0 % .( .% .(#1: % .( .% 1,B,3 %
( 55,1,2%-,/)3,%2)%( 55,1D%<.%' 1% ., '(%0 % %*).%)0. #2,%)/%.(,%1 33); *C%
2,/#1,2% .#$,% ,3#, h% .(,% -3) 2,3%.(,% *))@ 8% .(,% -,..,3% .(,%*, )1D% <1% ).(,3%
;)32 8% (# .)3C% ., '(, % 0 % .)% B)#2% .(,% -3 12% )/% 1 #B,% ,$5#3#'# $% .( . %
')1 # . % )/% *, 31#1:% /3)$% ' 0 *% (# .)3#' *% / '. D%
4'(& ;)*(& QD(/%& J)11)@C &
A > $ B & A > '$ & 9$ C . .$ , = \ A < & + L$
+(,% 3 3,% ,B,1.8 % );#1:% .)% #. % 2# #$0* .#B,% 1 .03,8% ' 1% . @,% % B 3#,.C% )/%
( 5, D% <.% # % #1%=,^#')% .( .% #. %; % 5)..,2% /#3 .8% ;(,3,% #.% ; % ' **,2% -C%
' 2,$#' % .(, :#)8 :$8Y5#.e% 4 ')1)$,.3#'# 1 % ;,3,% 50jj*,2 % -C% .(,%
-,( B#)3%)/%.(,%=,^#' 1%,')1)$#'%B 3# -*, %203#1:%.(,%IPZ H D%+(,%$)1,C%
055*C8% #1.,3, .% 3 ., 8%) 3% )$,% #$#* 3%$, 03,% )/% $ **%3,*,B 1',% .)% .(,%
.)3C% ,^(#-#.,2% )$,%$))2C%-,( B#)38% .(; 3.#1:%$ 1C% )/%.(,#3%,//)3. % .%
$)2,*#1:% .(,$D%+(, ,% #12#' .)3 % ,33 .#' **C% ;#.'(,2%-,.;,,1%5,3#)2 % )/%
. -#*#.C%.) % -3#,/%-03 . %)/% .03-0*,1',%;#.()0.%; 31#1:D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 110/219
P W%
> T 7 T& U>% L K S & <& V%
JC%:,1,3 *#j .#)18%<% . 3.,2%.)% * -,*% %3 3,%,B,1.% % 1C%-,( B#)3%;(,3,%
.(,% 2 :, % g-,; 3,% )/% ' *$% ; .,3 g% ' 1% ()*2D% M)50* 3% ;# 2)$% )/.,1%
; 31 %) /%.(,%)*2% 1,#:(-)3%;()% 55, 3 % .)%3,$ #1% ')03.*C% 12% 3, ,3B,28%
.(,%$)2,*% )/% 1%,^',**,1.%'#.#j,18%01.#*%C)0% ,,%(# %5#'.03,%#1%.(,%1 .#)1 *%
5 5,3% % %2,3 1:,2%@#**,3%;()%;,1.%)1% %3 $5 :,D%A1.#*%.(,1 8%(,%; %1).%
@1);1% .) % ( B,% ')$$#..,2 % 1C % .3 1 :3, #)1D% +(,3,% ; % 1)% ; C % .) %
53,2#'.% .( .% 0'(%5 .()*):#' *% -,( B#)3% ')0*2%,$ 1 .,%/3)$% 0'(% %1#',%
5,3 )1D% < % )'# .,% 3 3,% ,B,1. % ;#.(% 1C%$# 012,3 . 12#1:% )/% .(,% 3# @ %
2,3#B,2% /3)$% % 1 33);%#1.,353,. .#)1% )/%5 .%.#$,% ,3#, D%
S 3,% ,B,1. % 3,% *; C %01,^5,'.,28% ).(,3;# ,% .(,C%;)0*2% 1).% )''03D%
+(,% .C5#' *% ' ,% # % % /)**); D% ?)0% #1B, .% #1% % (,2:,% /012% .( .% ,1i)C %
. -*, % 3, .031 % 12% 1)% B)* .#*#.C 8% 01.#*% )1,% 2 C8% C)0 % 3,',#B,% % *, ..,3 %
. 3.#1:% ;#.( % gK1% 01/)3, ,,1 % 12 B-#7:#/(#1% ,B,1.8% 2,,$,2% % 3 3,%
)''033,1',% D D D g% O,$5( # %$#1,RD% J0.%3 3,%,B,1. %,^# .% 53,'# ,*C% -,' 0 ,%
.(,C% 3,% 01,^5,'.,2D% +(,C% 3,% :,1,3 **C% ' 0 ,2% -C% 5 1#' 8% .(,$ ,*B, %
.(,% 3, 0*. % )/% *#`0#2 . #)1 % O.(,% #1B, .)3 % 30 (#1:% .)% .(,% 2))3%
#$0*. 1,)0 *C% -C% 20$5#1:% 1C.(#1:% .(,C% ' 1% 50.% .(,#3 % ( 12 % )1% %
/ .% % 5) #-*,RD% </% .(,% /012%$ 1 :,3% )3% .3 2,3% ,^5,'.,2% #.8% (,% 12% (# %
*#@,9$#12,2% 5,,3 % ;)0*2% 1).% ( B,% #1B, .,2% #1 % # .8% 12% .(,% 3 3, % ,B,1.%
;)0*2% 1).% ( B,% . @,1% 5* ',D%
+(,% 3 3,%,B,1.% # %1).% *#$#.,2% .)% )1,% ,'03#.CD% <.% ' 1% 3, 2#*C% //,'.% .(,%
5,3/)3$ 1',% )/% % 5)3./)*#)D% F)3% ,^ $5*,8% $ 1C% .3 2,3 % ,1: :,% #1% .(,%
503'( , % )/% $)3.: :, % ,'03#.#, % 12% (,2:, % .(,$% #1 % )$,% $ 11,3% .)%
8<<)#(% .(,%3# @ % 12 #5%.%-'(#% .(, &85'(%5%(,N A8:%-+ (8%2,3#B, )8.# :$8<%()
#1%,^', % )/%.(,%+3, 03C% -)12%3,.031 % O;(#'(%# %0 ,2% % .(,% -,1'($ 3@%
)/%.(,%$ #1#$0$%,^5,'.,2%3,.031 %)1% 1%#1B, .$,1.RD%+(,C% 0 ,%')$50.,3%
53):3 $ % 12 % 23 ; % $, 1#1:/0*% # . 1',% /3)$% M(DN D % #1% 55*#,2 %
$ .(,$ .#' 8% .3)5(C #' 8% 5 3.#'*,% 5(C #' 8% ,*,'.3#' *% ,1:#1,,3#1:8% /*0#2%
2C1 $ #' 8%)3% )$,.#$, % O.()0:(% 3 3,*CR% 5* #1%M(DND % #1%F #1 1',D% >0'(% %
5)3./)*#)% (); % . -*,%3,.031 % /)3%*)1:%5,3#)2 D%+(,18% 022,1*C8% %#/%-C%
''#2,1.% O<%')1 #2,3% .( .
-8
% ''#2,1.R8 %.(,%5)3./)*#)%23)5 %-C%W Hl% )/%#. %
B *0,%;(,1%C)0%,^5,'.8% .%.(,%;)3 .8 % %W l% 23)5D% ?)0% ' **% .(,%$ 1 :,3%
.) % ,^53, % C)03% 1:,3% 12% (,% .,** % C)0% .( .% #.% ; % 1).% ( # % / 0*.8% -0.%
)$,();% .(,% 3,* .#)1 (#5% 23 $ .#' **C% '( 1:,2% O*#.,3 **CRD% E,% ;#**% * )%
5)#1.%)0.%.)%C)0%.( .% #$#* 3%/012 % * )%,^5,3#,1',2%.(,% $,% 53)-*,$ D%
S,' **% .( .% )$,% ,')1)$# . % ' **% .(,% 3 3, % ,B,1.% % g5, )% 53)-*,$gD%
+(,% 2, #:1 .#)1 % 5, ) % 53)-*,$% 2), % 1).% 55, 3% .) % -,% 012, ,3B,2*C %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 111/219
> _ 4L & 4 > >% K&N% K > ? = = 4 + S ?% P \%
.,3,).C5#' *D% +(#1: % ( B,% 1).%:)..,1% -,..,3% #1',% .(,% , 3*C% IPZH % ;#.(%
.(,% '033,1'C% )/% .(,% AD>D U % )0.(,31% 1,#:(-)3D% 7)1:%5,3#)2 % )/% . -#*#.C%
23 ;%()32, % )/% - 1@% '033,1'C%.3 2,3 % 12%(,2:,%/012%)5,3 .)3 % .)%.(,%
' *$% ; .,3 % ) /% .(,% =,^#' 1 % 5, ) h% .(,C % ,1i)C% );1#1: % .(,% '033,1'C %
-,' 0 ,%) /%.(,%(#:(%#1.,3, .%3 .,%#.%')$$ 12 D%+(,1% .(,C% g01,^5,'.,2*Cg%
-*);% 058% *) ,% $)1,C% /)3% #1B, .)3 8% *) ,% .(,#3% i)- % 12% ;#.'(% ' 3,,3 D%
+(,1% % 1,;% 5,3#)2% )/% . -#*#.C% ,. % #1D% &,;% '033,1'C% .3 2,3 % ')$,% #1%
;#.(% 1)%$,$)3C%) /%.(,%- 2%,B,1.D%+(,C% 3,%23 ;1%.)% .(,%=,^#' 1% 5, )8%
12% .(,% .)3C% 3,5, . % #. ,*/D%
<.% # % 1% )22#.C% .( .% $) .% /#^,2% #1')$,% /#1 1'# *% #1 .30$,1. % 53, ,1.%
3 3, % ,B,1. D% <1 % .(,% 53#1:% )/% IPPZ 8% <% 5,1.% .;)% ()03 % ,^5* #1#1:% .)% %
.(,19#$5)3. 1.% (,2:,% /012% )5,3 .)3% .(,% 1).#)1% )/% .(, :#)8 :$8Y5#.e% <%
;,1.%.)%:3, .% *,1:.( %.)% ,^5* #1%.)% (#$%.( .%.(,%')1',5.%; %:,1,3 *#j,2%
.)% ,B,3C% /)3$% )/%#1B, .$,1.%.( .%; %- ,2%)1% %1 #B,% #1.,353,. .#)1% )/%
.(,%B)* .#*#.C%)/% 5 .%.#$,% ,3#, D%+(,% 3,5*C%; d%g?)0 % 3,%5,3/,'.*C%3#:(.D%
L, % 2) % 1).% .)0'( % .(,% =,^#' 1 % 5, ) D% L,% )1*C % #1B, .% #1 % .(,% S0 # 1 %
30-*,gD% E,% -*,;% 05% % /,;%$)1.( % * .,3D% A1.#* % .(,18% .(,% S0 # 1% 30-*,%
6 33#,2% ..3 '.#B,% #1.,3, .% 3 ., 8%;(#'(% #1B#.,2% C#,*2% (): % )/% **% .C5, % .)%
:,.%#1B)*B,2D%E,% 12%).(,3%()*2,3 %)/%#1B, .$,1. %2,1)$#1 .,2%#1%30-*, %
*) .% '*) ,% .)%P Ql% )/% .(,#3% #1B, .$,1.% 203#1:% .(,% 0$$,3% )/% IPP ZD %
L,% ;% #1 % 6( 5.,3% [ % .( .% .(,% 2,1.# .% 2), % 1).% *#@, % B)* .#*#.C % % #.%
' 0 , % % (#:(% #1'#2,1',% )/% 1,: .#B,% 5 1: D% +(,% '*) ,3% (,% )- ,3B, % (# %
5,3/)3$ 1',8% .(,% $)3,% 5 #1% (,% ;#**% ,^5,3#,1',% );#1:% .)% .(,% :3, .,3%
B 3# -#*#.C% .% % (#:(,3% 3, )*0.#)1D% K'')32#1:*C% #1B, .)3 8% $,3,*C% /)3%
,$).#)1 *%3, )1 8%;#**%-,%23 ;1% #1.)% .3 .,:#, %.( .%,^5,3#,1', $'$# YB(
5'$+#% B 3# .#)1 D% <.% # % ' **,2% 50 (#1:%3 12)$1, % 012,3%.(,%30:D%
L,% ' 1% *))@% .% ).(,3% 5,'. % ) /% .(,% 53)-*,$h% .(#1@% ) /% )$,)1,%
#1B)*B,2%#1% '#,1.#/#'%3, , 3'(D%N C% /.,3%2 C8%(,%;#**%,1: :,%#1%2# ,'.#1:%
$#',% #1% (# % * -)3 .)3C8% ; C% /3)$% .(,% 3, .% )/% .(,%;)3*2D% E,% ')0*2% .3C%
12% .3C% /)3% C, 3 % 12% C, 3 % ; #.()0.% 1C.(#1:% .)% (); % /)3% #.D% E # %
#:1#/#' 1.% ).(,3% $#:(.% *) ,% 5 .#,1',% ;#.(% .(, 58)#$% ;()% ')$, % ()$,%
,B,3C% 1#:(.% $,**#1:% )/% $#',% 03#1,D% A1.#*% -#1:)8% )1,% 2 C% (,% ')$, % 05%
;#.(% %3, 0*.D%>)$,)1,%)- ,3B#1:%.(,%.#$,% ,3#, %)/%(# %)''05 .#)1%;)0*2%
,, % - )*0., *C % 1)% : #1 8% ;(#*, % ,B,3C % 2 C% ;)0*2% -3#1:% ( #$% '*) ,3 %-
:$8Y'Y%5%(,% . )% .(,% ,12 % 3, 0 *.D%
+(,% $,% ;#.(% 50-*# (,3 h% .(,C% ' 1% 50-*# (% 2):% /.,3% 2):% ;#.()0.%
.(,#3% -0 #1, % $)2,*% -,#1:% .(,% *, .% `0, .#)1 -*,8% #/% )1',% ,B,3C% 2,' 2,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 112/219
P X%
> T 7 T& U>% L K S& <& V%
.(,C% ( #.% )1 % % E 33C % M)..,3% .3#1:% )/% 05,39-, .9 ,**,3 % 9% 53)B#2,2% )/%
')03 ,% .( .% .(,C% 50-*# (% `0 *#.C% ;)3@% .( .% ( % % $ **% 53)- -#*# .C% )/%
-,#1:% )/% B,3C%(#:(% 55, *D%
<1% .(,%$ 3@,. 8% .(,3,% # % % ' .,:)3C% )/% .3 2,3 % ;()% ( B, %-&#$)#% 3 3,%
,B,1. 8%/)3%;()$ %B)* .#*#.C%# %)/.,1% %-, 3,3%)/%:))2%1,; D%+(, ,%.3 2,3 %
*) ,%$)1,C% /3,`0,1.*C8% -0.% #1% $ **% $)01. 8% 12%$ @,% $)1,C% 3 3,*C8%
-0.%#1%* 3:,% $)01. D% <%' **%.(,$% '3# # %(01.,3 D%<% $ %( 55C%.)% -,%)1,%) /%
.(,$D%
# > ?$ , & + : A$ L A C A < L A < = < C + L$ , A = A$ ' C ' $ Q + A L D$
>. .# .#' % .) % .(,% * C$ 1% ' 1 % 55, 3% 3 .(,3% ')$5*,^8% -0.% .(,% ')1',5.%
-,(#12% ;( .% # % 0 ,2%.)2 C% # % )% #$5*,% .( . %$C%F3,1'(% $ .(,$ .#'# 1%
/3#,12 % ' **% #.% 2,53,' .)3#*C % g'0 # #1,gD% <.% # % **% - ,2% )1% )1, % #$5*, %
1).#)1h% .(,% $)3,% #1/)3$ .#)1% C)0% ( B,8% .(,% $)3,% C)0% 3,% ')1/#2,1.%
-)0.% .(,% )0.')$,D% &); % .(,% 53)-*,$ h% -C% (); % $0'(a% 6)$$)1%
. .# .#' *%$,.()2% # %- ,2%)1%.(,% ., 2C% 0:$,1. .#)1% )/%.(,%')1/#2,1',%
*,B,*8%#1%1)1*#1, 3%53)5)3.#)1% .)%.(,%10$-,3%)/%)- ,3B .#)1 D%+( .%# 8%/)3%
1 -%.#$, %#1'3, ,%#1%.(,% $5*,% #j,8%;,%#1'3, ,%)03%@1);*,2:,% -C%.(,%
`0 3,%3)).%) / -e% >055) ,%<% $% 23 ;#1:%/3)$% 1%031%')1. #1#1:%3,2% 12%
-* '@% - ** D%=C%')1/#2,1',% *,B,*% -)0.%.(,%3,* .#B,%53)5)3.#)1% )/%3,2% 12%
- * '@% - ** 8% /.,3% G H% 23 ;#1: % # % 1) .% .; #',% .(,% )1,% <% ( B,% /.,3% I H%
23 ;#1: h% #.% # %$,3,*C%$0*.#5*#,2% -C%.(,% `0 3,%3)) .%)/% G% O.( .%# 8 % IDWIRD %
L(,3,% . .# .#' % -,')$, % ')$5*#' .,28% 12%/ #* %0 8% # %;(,1%;,% ( B,%
2# .3#-0.#)1 %.( .% 3,%1).% C$$,.3#'8%*#@,%.(,%031% -)B,D%</%.(,3,%# % %B,3C%
$ **%53)- -#*#.C%)/%/#12#1:% %3,2%- **%#1% 1%031%2)$#1 .,2%-C%-* '@%)1, 8%
.(,1% )03% @1);*,2:,% -)0.% .(,
'Y)#-/#
% ) /% 3,2% - ** % ;#**% #1'3, ,% B,3C %
*);*C%9% $)3,% *);*C%.( 1% .%.(,%,^5,'.,2% `0 3,%3)).%)/ -%3 .,D% T1% .(,%
).(,3%( 12%)03%@1);*,2:,%)/% .(, :$#)#-/#% )/ %3,2%- ** %;#** %23 $ .#' **C%
#$53)B,%)1',% )1,%) /%.(,$% # %/)012D%+(# % C$$,.3C%#1%@1);*,2:,%# %1).%
.3#B# *h%#.%# %',1.3 *%#1%.(# %-))@%9% #.%# % %',1.3 *%5(#*) )5(#' *%53)-*,$% /)3%
0'(%5,)5*,% %E0$,% 12%_ 3*%M)55,3% O)1%.( .8% * .,3RD%
+ )% , % 1%#1B, .)3U % 5,3/)3$ 1',8%;,%,#.(,3%1,,2%$)3,% .0.,8% 12%
*, % #1.0#. #B,8% .,'(1#`0, 8% )3% ;,%$ C% ( B,% .)% * #$#.% )03% , $,1. % .)%
#.0 .#)1 %;(,3,% )03%i02:$,1.% # %#12,5,12,1.% )/%.(,% /3,`0,1'C%) /%.(, ,%
,B,1. D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 113/219
> _ 4L & 4 > >% K&N% K > ? = =4 +S ?%
P Q%
C$ B < L = > < Q & 0 L$ = > < . ,$ ' \ . C = L$ A > $ T . C = ($ T C . . L$
J0.%.(,3,%# %,B,1%;)3 ,%1,; D%<1% )$,%' , 8%#/%.(,%#1'#2,1',%)/%3,2% - ** %
# %#. ,*/%3 12)$*C%2# .3#-0.,28%;,%;#**%1,B,3%:,.%.)%@1); %.(,%')$5) #.#)1%
)/% .(,% 031D% +(# % # % ' **,2
(A# :$8Y5#. 8< )('(%8-'$%(,e
% +(#1@% ) /% 1% 0 31%
.( .% # %()**);% .%.(,%-)..)$D%K %<% $% $5*#1:%/3)$% #.8% 12%;#.()0.%$C %
-,#1:% ; 3,%) /%#.8% )$,%$ # '(#,B)0 %'(#*2%# % 22#1:%- ** %) /%)1,%') *)3% )3%
1).(,3D% =C% #1/,3,1',% .(0 % -,')$, % #1 #:1#/#' 1.D % < %$ C% #1/,3% .( .% .(,%
3,2% - ** % 3,53, ,1.% \ Hl% )/% .(,%031%;(#*,%.(,%$# '(#,B)0 % '(#*28% (, 3#1:%
$,8%;)0*2% ;#/.*C% 3,5* ',% **%.(,%3,2% - ** %;#.(% -* '@% )1, D%+(# % $ @, %
$0'(% )/% )03% @1);*,2:,% 2,3#B,2% .(3)0:(% . .# .#' % `0#.,% ( @CD%
+(,% B,3C% $,% ,//,'.% . @, % 5* ',%#1%.(,%$ 3@,.D%L,%. @,% 5 .% (# .)3C%
% % #1:*,% ()$):,1,)0 % $5*,% 12% -,*#,B,% .( .%;,%( B,% ')1 #2,3 -*C%
#1'3, ,2% )03% @1);*,2:, % )/% .(,% /0.03, % /3)$% .(,% )- ,3B .#)1% )/% .(,%
$5*,% ) /% .(,% 5 .D% L( .% #/% B#'#)0 % '(#*23,1% ;,3,% '( 1:#1:% .(,%
')$5) #.#)1% )/% .(,% 031a% <1% ).(,3% ;)32 8% ;( .% #/%.(#1: %( B,% '( 1:,2a%
<%( B,% .02#,2% 12% 53 '.#',2%,')1)$,.3#' % /)3%$)3,%.( 1% ( */%$C%*#/,%
O #1',% <% ; % IPR8% -).(% #1% .(,% '* 3))$ % 12% #1% .(,% '.#B#.C% )/% %
`0 1.#. .#B,% 2,3#B .#B, % .3 2,3D % +(,% g '#,1',g% )/% ,')1)$,.3#' % ')1 # . %
)/% .(,% 55*#' .#)1% )/% . .# .#' % .)% $5*, % . @,1% .% 2#//,3,1.% 5,3#)2 % )/%
.#$,8%;(#'(%;,%' **,2 (%.# )#$%#)e% <.%# %- ,2%)1% .02C#1:%.(,%.#$,% ,3#, %
)/%,')1)$#'%B 3# -*, 8%2 . 8% 12%).(,3%$ ..,3 D%<1%.(,%-,:#11#1:8%;(,1%<%
@1,;%'*) ,%.)%1).(#1:% O.( .%# %,B,1%*, %.( 1%.)2 CR8%<%;)12,3,2%;(,.(,3%
.(,% .#$,% ,3#, % 3,/*,'.#1:% .(,% '.#B#.C% )/% 5,)5*,% 1);% 2, 2% )3% 3,.#3,2%
()0*2% $ ..,3% /)3% 53,2#'.#1:% .(,% /0.03,D% 4')1)$,.3#'# 1 % ;()% @1,;% %
*).% $)3,% .( 1% <% 2#2% -)0.% .(, ,% $ ..,3 % @,2% 1)% 0'(% `0, .#)1h% .(# %
(#1.,2% .( .% #.% ; % #1 % **% *#@,*#())2% % .05#2% #1`0#3CD% T1,% 53)$#1,1.%
,')1)$,.3#'# 1 8% E (,$% M, 3 18% 1 ;,3,2 % % #$ #* 3% `0, .#)1% -C%
3,')$$,12#1:% .)% 2)% g$)3,% 12% -,..,3% ,')1)$,.3#' gD% <% $ % 1); %
')1B#1',2%.( .8%5,3( 5 8%$) .%)/%,')1)$,.3#' % ')0*2% -,%0 ,*, %9% $0'(%
)/%;( .%/#1 1'# *% . .# .#'# 1 %@1);%;)0*2%1).% -,%;)3.(%@1);#1:D%F)3% %
0$% )/% j,3) 8% ,B,1% 3,5, .,2% % -#**#)1% . #$, 8% 3,$ #1 % j,3)h% *#@,;# ,% 1%
''0$0* .#)1% )/%3, , 3'(% 12%: #1 % #1%')$5*,^#.C%;#**%*, 2%.)% 1 0:(.% #/%
.(,3,%# %1)%/#3$%:3)012%-,1, .(%#.D%>.02C#1:%.(,%403)5, 1%$ 3@,. %)/%.(,%
IPPH % ;#**% ',3. #1*C% -,% )/% :3, .% (,*5% .)% % (# .)3# 1h% -0.% ;( . % @#12% )/%
#1/,3,1',%' 1%;,%$ @,%1);%.( .%.(,% .30'.03,% )/%.(,%#1 .#.0.#)1 % 12%.(,%
$ 3@,. % ( % '( 1:,2% )%$0'(a%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 114/219
P Z%
> T 7 T& U>% L K S & <& V%
&).,% .( .% .(,% ,')1)$# .% S)-,3.% 70' % 2, *.% % -*);%.)% ,')1)$,.3#' %
-C% 3:0#1:% .( .% #/ % 5,)5*,% ;,3,% 3 .#)1 *% .(,1% .(,#3% 3 .#)1 *#.C% ;)0*2%
' 0 ,%.(,$%.)%/#:03,%)0.%53,2#'. -*,%5 ..,31 %/3)$% .(,%5 .% 12% 2 5.8% )%
.( . % 5 . % #1/)3$ .#)1% ;)0*2% -,% ')$5*,.,*C% 0 ,*, % /)3% 53,2#'.#1:% .(,%
/0.03,% O.(,% 3:0$,1.8% 5(3 ,2%#1% %B,3C%$ .(,$ .#' *% /)3$ 8%, 31,2%(#$%
% &)-,*% = ,$)3# *% M3#j,% #1% 4')1)$ #' RD% L,% 3,% (0$ 1% 12% '.%
'')32#1:% .)% )03%@1);*,2:,8% ;(#'(%#1.,:3 ., % 5 .%2 . D% <%' 1% .3 1 * .,%
(# %5)#1.%;#.(%.(,%/)**);#1:% 1 *):CD% </%3 .#)1 *% .3 2,3 %2,.,'.% %5 ..,31%
)/% .)'@ % 3# #1:%)1%=)12 C 8% .(,18% #$$,2# .,*C% 0'(% %5 ..,31% -,')$, %
2,.,'. - *, 8% #.% ;)0*2 % -,% #3)1,2 % )0 .% -C % 5,)5*,% -0C#1: % )1 % F3#2 C % #1 %
1.#'#5 .#)1% )/% 0'(% 1% ,//,'.D % +(,3,% # % 1)% 5)#1.% , 3'(#1:% /)3% 5 ..,31 %
.( .% 3,% B #* -*,% .)%,B,3C)1,%;#.(% % -3)@,3 :,% '')01.h% )1',% 2,.,'.,28%
.(,C% ;)0*2% -,%#3)1,2% )0.D %
>)$,();8% ;( .% ' $,% .)% -,% @1);1% % .(, aB/') /$%(%CB#% ; % 1).%
' 33#,2% .(3)0:(% -C%.(,% g '#,1.# . gD% <.% ; % ')1/#2,1.*C% -,*#,B,2%.( .% .(,%
'#,1.#/#'% 0'', , % )/%.(,% #120 .3# *%3,B)*0.#)1%')0*2% -,% ' 33#,2% .(3)0:(%
#1.)% .(,% )'# *% '#,1', 8%5 3.#'0* 3*C%;#.(% 0'(%$)B,$,1. % %= 3^# $D%
M ,02) '#,1',% ' $,% ;#.(% % ')**,'.#)1% )/% #2, *# .#' % 1,32 % ;()% .3#,2% .)%
'3, .,% %. #*)39$ 2,% )'#,.C8%.(,%,5#.)$,% )/%;(#'(%# %.(,%',1.3 *%5* 11,3D%
4')1)$#' % ; % .(,% $) .% *#@,*C% ' 12#2 .,% /)3% 0'(% 0 ,% )/% '#,1',h% C)0%
' 1% 2# :0# ,% '( 3* . 1# $% 012,3% .(,% ;,#:(.% )/% ,`0 .#)1 8% 12% 1)-)2C%
' 1% ' .'(% C)0% #1',% .(,3,% # % 1)% 0'(% .(#1:% % % ')1.3)**,2% ,^5,3#$,1.D%
&);% .(,% 5#3#. % )/% 0'(%$,.()2 8% ' **,2 )/%#-(%).% -C% #. % 2,.3 '.)3 % O*#@,%
$C ,*/R8%')1.#10,2%5 .%= 3^# $8% #1.)%.(,%2# '#5*#1,% )/%/#1 1',% % %/,;%
.,'(1#'# 1 % .()0:(.%.( .%.(,#3%$ .(,$ .#' *%@1);*,2:,%')0*2%*, 2%.(,$%
.)% 012,3 . 12% $ 3@,. D% +(,% 53 '.#', % )/% g /#1 1'# * % ,1:#1,,3#1:g% ' $,%
*)1:% ; #.(% $ #B,% 2) , % ) /% 5 ,02) '#,1',D% M 3 '.#.#)1,3 % ) /% .(, ,%
$,.()2 %$, 03,%3# @ 8%0 #1:%.(,%.))*%) /%5 .%(# .)3C% % 1%#12#' .#)1% )/%
.(,%/0.03,D%L,%;#**% i0 .% C% .% .(# %5)#1.%.( .%.(,%$,3,%5) #-#*#.C%) /%.(,%
2# .3#-0.#)1 % 1).% -,#1:% . .#)1 3C% $ @, %.(,% ,1.#3,% ')1',5.% ,,$% *#@,% %
') .*C% O5,3( 5 &#$, /8)(5,d% $ # . @,D% +(# % *, 2 % 0 % .)% % $)3,%
/012 $,1. *% `0, .#)1d%.(,%53)-*,$% )/% #120'.#)18% .)%;(#'(%;,%;#**%.031%
#1%.(,% 1,^.% '( 5.,3D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 115/219
>4Y4&%
s%
+E4 %MSTJ74=%TF % <&NA6+<T&%
9- (A# /A$8.81,-'.%/) 8< )?'-)e F'>%-+ *858-R) ?'$-%-+ %-(8
)8.# :A%58)8:A%/'5 (#$$%(8$,e 08? 4%/(8$ E%#1#$A8<<#$ ('B+A(
.# #.:%$%/%).j M '11#1 1#1B/(%8-e TA, %( %) -8( )/%#-(%<%/ (8
('># )/%#-/# )#$%8B)5,e *8$8) :$8.8(#) ;8::#$e FA'( Y88>)(8$#
8- LD)( '-1 V%<(A =&#-B#e ; ')/'5R) ?'+#$e
);%;,%2# '0 %.(# % 53)-*,$% B#,;,2%/3)$% .(,% -3) 2,3% . 125)#1.%
)/% .(,%5(#*) )5(C% )/% '#,1.#/#'% @1);*,2:,D% +(,3,% # % % 53)-*,$% #1%
#1/,3,1',%;,**% @1);1% %.(,%53)-*,$% )/%#120'.#)1D% <.% # % % 53)-*,$% .( .%
( % -,,1% ( 01.#1:% '#,1',% /)3% % *)1:% . #$,8% -0.% '#,1',% ( % 1).% -,,1% %
( 3$,2% -C%#.% % .(,% /#1 1'# *% $ 3@,. D% L(Ca% J,' 0 ,% .(,% 3 12)$1, %
')1.,1.% ')$5)012 % #. % ,//,'. D% &);(,3,% # % .(,% 53)-*,$% )/% #120'.#)1%
$)3,%3,*,B 1.%.( 1%#1%$C%;)3*2%) /%/#1 1',%9% 12%1);(,3,%( %#.%-,,1% %
O'&B & M)@#/& %#& 7$=(&
#:1)3,2b%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 116/219
I H H %
> T7 T& U>% L K S& <& V%
= ? / + 0 L$ C A ' C A 0 L$
<1% (#
F$#'(%)# 8- 0B.'- E'(B$#N
% .(,% >'). % 5(#*) )5(,3% N B#2% E0$,%
5) ,2%.(,% # 0,% #1% .(,% /)**);#1:% ; C% O % 3,5(3 ,2% #1% .(,%1);% / $)0 %
Y5'/> )?'- :$8Y5#. % -C%f)(1%>.0 3.%=#* *R d E8 '.8B-( 8< 8Y)#$&'(%8-) 8<
?A%(# )? '-) /'- '558? (A# %-<#$#-/# (A'( '55 )?'-) '$# ?A%(#N YB( (A#
8Y)#$&'(%8- 8< ' )%-+5# Y5'/> )?'- %) )B<<%/%#-( (8 $#<B(# (A'( /8-/5B)%8-e
E0$,% ( 2% -,,1% #3@,2% -C% .(,% / '.% .( .% '#,1',% #1% (# % 2 C% O.(,%
,#:(.,,1.(%',1.03CR%( 2%,^5,3#,1',2% % ;#1:%/3)$% '()* .#'# $8% ,1.#3,*C%
- ,2% )1% 2,20'.#B,% 3, )1#1:% O1)% ,$5( # % )1% .(,% )- ,3B .#)1% )/% .(,%
3, *% ;)3*2R% .)8 % );#1:%.)% F3 1'# % J ')18% 1% )B,33, '.#)1% #1.)% 1 #B,% 12%
01 .30'.03,2 % ,$5#3#'# $D% J ')1 % ( 2% 3:0,2 % : #1 .% g 5 #11 #1:% .(,%
')-;,-% )/% *, 31#1:g% ;#.(% * #..*, % 53 '.#' *% 3, 0*.D% >'#,1',% ( 2% (#/.,28%
.( 1@ % .)% J ')18% #1 .)% 1% ,$5( # % )1% ,$5#3#' *% )- ,3B .#)1D% +(,%
53)-*,$% # % .( .8 % ;#.()0.% % 53)5,3% $,.()28% ,$5#3#' *% )- ,3B .#)1 % ' 1%
*, 2%C)0% .3 CD%E0$,%' $,% .)%; 31%0 % : #1 .% 0'(%@1);*,2:,8% 12%.)%
.3, % .(,% 1,,2% /)3 % )$,% 3 #:)3 % #1 % .(,% : .(,3#1:% 12% #1.,353,. .#)1% )/%
@1);*,2:,% 9 % ;( .% # % ' **,2% ,5# .,$)*):C% O/3)$ #:%)(#.#N% V3,,@% /)3%
*, 31#1:RD% E0$,% # %.(,%/#3 .%$)2,31 #:%)(#.858+%)(N% O,5# .,$)*):# . % 3, %
)/.,1% ' **,2% $,.()2)*):# . % )3% 5(#*) )5(,3 % )/% '#,1',RD% L( .% <% $%
;3#.#1:% (,3,% # % 1).% .3#'.*C% .30,8% /)3% E0$,% #2% .(#1: % / 3% ;)3 ,% .( 1%
.( .h% (,%; % 1%)- , #B,% @,5.#'% 12%1,B,3%-,*#,B,2%.( .% %*#1@% -,.;,,1%
.;)% #.,$ % ')0*2% -,% .30*C% , . -*# (,2% % -,#1:% ' 0 *D% J0.% ;,%;#**% .)1,%
(#$% 2);1% % -#. % /)3% .(# % -))@D%
+ . 9 = , ' > & 9 9 ' P$ Q < = A & ' < C + $ / + A . B C +$
< .% # % ;)3.(% 1).#1:% .( .% /#1 1',% ( % #. % F3 1'# % J ')1% #1 % .(,% 5,3 )1% )/%
Y#'.)3% &#,2,3()//,3D% E,%; % .(,%B,3C%/#3 .% .)% . 12% : #1 .%.(,
/8Y?#Y
8< 5#'$-%-+ % )/%.(,%A1#B,3 #.C%) /%6(#' :)% 12%.(,%,//#'#,1.%$ 3@,.% 3,*#:#)1%
)/%.(,%I PX H 8%;(,1%#.%; % .%#. %;)3 .D%<1%')1.3 .%;#.(%.(,% '()* .#'# $%
)/ % / #1 1'# *% .(,)3# . 8% (,% *))@,2% .% 2 . % #1 % , 3'(% )/% 1)$ *#, % 9% 12%
/)012% ,1)0:( % ) /% .(,$% .) % -,% -*,% .) % ')120'.% % 0'', /0*% ' 3,,3% #1 %
3 12)$1, % 12 % 2,*#B,3% 1% #1 #:(./0*% -))@8 FA# 61B/'(%8- 8< '
*:#/B5'(8$e% >#1',% .(,18% 1% ,1.#3,% #120 .3C% ) /% 0'(% )5,3 .) 3 8% ' **,2 %
g . .# .#' *% 3-#.3 :,03 g8%/*)03# (,28%.(,%$ i)3% 12%$) .% 0'', /0*%)1, %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 117/219
+ E 4% M S T J 7 4=% T F% < & NA 6+ < T &%
IHI %
;,3,% #1#.# **C% (# % .3 #1,, D%L(#*,%&#,2,3()//,3% ( 2% % 50-*#'#j,2% (#''058%
)$,% )/% (# % .3 #1,, % / 3,2% ;,** % -,' 0 ,% .(,C% 22,2% 3#:)3% 12 .#(A81H
858+,% .)% .(,#3% . .# .#' *% #1/,3,1',D% <1% ).(,3% ;)32 8% & #,2,3() //,3U %
,$5#3#'# $% $# ,2%i0 .% % $)2#'0$% )/% $,.()2)*):CD%
< %( B,%.)% 2$#.% .( .% /)3% **% $C%#1.,**,'.0 *% 2# :3,,$,1. % ;#.(% (#$% <%
( B,%-,,1%#1 5#3,2% -C%(# % ,$5#3#'# $% 12%);,% (#$% % * 3:,% ( 3,% )/%$C%
#1.,**,'.0 *% :3);.(D% < %,^5,3#,1',2% % i0$5% #1%$C% .3 2#1:% .C*,% #1% IP PX 8%
;(,1% Y#' .)3% - *03.,2% .)% $,% .( .% 1C% g ., . -*,g% . .,$,1.% ()0*2% -, %
(#)(#1 % O#.% ; % )% )-B#)0 % -0.% <% ( 2% 1).% 2)1,% #.% 01.#*% .(,1RD% E# % 2B#',%
;,1.% .3 #:(.% ()$,D% K% ., . -*, % . .,$,1.% # % )1, % .( .% ' 1% -, % -3)@,1 %
2);1% #1.)% `0 1 .#. .#B,% ')$5)1,1. % 12% 0-i,'.,2% .)% . .# .#' *%
,^ $#1 .#)1D% F)3% #1 . 1',8% %')1B,1.#)1 *9;# 2)$% .C*,% . .,$,1.% *#@,%
'//%1#-() A'::#- /58)#$ (8 A8.#
' 1% -,%., .,2% -C%. @#1:% .(,% B,3 :,% 2# . 1',% -,.;,,1% .(,% ''#2,1.% 12%
.(,%2)$#'#*,%)/%.(,%23#B,3%O#/8% C8% -)0.%G Hl% )/% ''#2,1. %( 55,1%;#.(#1%
% IG9$#*,% 3 2#0 RD% E);,B,38% )1,% 1,,2 % .)% -,% ' 3,/0*% #1% .(,% #1.,39
53,. .#)1h% % 1 #B,% #1.,353,.,3% )/% .(,% 3, 0*.% ;)0*2% .,**% C)0% .( .% C)0% 3,%
$)3,% *#@,*C%.)% ( B,% 1% ''#2,1.% #/%C)0% 23#B,% #1%C)03% 1,#:(-)3())2% .( 1%
#/%C)0%2#2% )%#1%3,$).,%5* ', 8%;(#'(% # % 1% ,^ $5*,%)/%1 #B,% ,$5#3#'# $D%
L(Ca% J,' 0 ,% ''#2,1. % $ C% ( 55,1% ' *) ,3% .)% ()$,% #$5*C% -,' 0 ,%
5,)5*,% 5,12%.(,#3%.#$,% 23#B#1:%'*) ,%.)% ()$,% O#/%5,)5*,% 5,12%G Hl% )/%
.(,#3% .#$,% 23#B#1:% #1% % IG9$#*,% 3 2#0 RD%
>#1',%.( .%B,3C% $,%2 C%<%( B,%1).%$ 2,% % #1:*,%., . -*,%53)5) #.#)1%
;#.()0.% ., .#1:% #.8% .( 1@ % .)% .(,% ')$50.,3% ;(#'(% < % 3 3,*C% 0 ,% /)3% 1)19
')$50 . .#) 1 *% . @ D% E);,B,38% .(,% 2 #//,3,1', % -,.;,,1% Y #'.) 3%
&#,2,3()//,3% 12%$C ,*/%3,$ #1% #$$,1 ,h% < %' 1% 0 ,% 2 . % .)% 2# 53)B,% %
53)5) #.#)18% 1,B,3%.)%53)B,%)1,D%<%' 1%0 ,%(# .)3C%.)%3,/0.,% %')1i,'.03,8%
1,B,3%.)% //#3$% #.D %F)3% #1 . 1',8% .(,% . .,$,1.%
FA# .'$>#( -#&#$ +8#) 18?- L_n %- ' +%&#- UH.8-(A :#$%81
' 1% -,% ., .,28% -0.% # % ')$5*,.,*C% $, 1#1:*, % #/% B,3#/#,2D% < %' 1% `0 1.#. 9
.#B,*C % 3, i,'.% .(,% 5 3)5) #.#)1% -C % /#12#1: % ')01.,3,^ $5*, 8% -0.% #.% # %
#$5) #-*,% /)3% $,%.)% '',5.% #.% #$5*C% -,' 0 ,% #1% 5 . % 2 . % .(,% $ 3@,.%
1,B,3%;,1.% 2);1%G Hl% #1% 1C% [9$)1.(% 5,3#)2D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 118/219
IHG %
> T7 T& U>% L K S& <& V%
S,.031#1:% .)% .(,% -* '@% ; 1% 53)-*,$ 8% ')1 #2,3% .(,% /)**); #1:%
. .,$,1.d%
*('(#.#-( =2 E8 )?'- %) Y5'/> Y#/'B)# M 588>#1 '( O___ )?'-) '-1
<8B-1 -8-#e
*('(#.#- ( X2 E8( '55 )?'-) '$# ?A%(#e
< % ' 11).% *):#' **C% $ @,% . .,$,1.% K8% 1)% $ ..,3% ();% $ 1C% 0'', #B,%
;(#., % ; 1 % <% $ C% ( B,% )- ,3B,2% #1 % $C% *#/, % 12% $ C% )- ,3B,% #1 % .(,%
/0.03,% O,^',5.% )/% ')03 ,% #/% < % $% :#B,1% .(,% 53#B#*,:,% )/% )- ,3B#1:% ;#.(%
',3. #1.C% **% B #* -*,% ; 1 RD% <.%# %();,B,3%5) #-*,% .)%$ @,% >. .,$,1.%
J % $,3,*C % -C % /#12#1: % )1,% #1:*,% - * '@ % ; 1 % #1 % $C% $5*,D% <12,,2 8%
. .,$,1.% K%; %2# 53)B,2%-C%.(,%2# ')B,3C%) /%K0 .3 *# 8% %#.% *,2%.)%.(,%
#:(.#1:% )/% .(, /,+-B) '($'(B)N% % ; 1 %B 3#,.C % .( .% ; % i, .% - * '@b% +(,%
3, 2,3%;#**% ,,% %(#1.%)/%M)55,3% O /.,3%;,% 3,%2)1,%;#.(%$C% ,$#9$,1.)3%
Y#'.)3Rh% .(,3,% # % % .3)1:% C$$,.3C% -,.;,,1% .(,%.;)% . .,$,1. D% >0'(%
C$$,.3C% *#, %#1%.(,%/)012 .#)1 % )/%@1);*,2:,D% <.%# % * )% .%.(,%')3,% )/%
$C%2, *#1:% ;#.(% 3 12)$1, % % % .3 2,3D%
+(,% /) **);#1:% #120'.#B,% . .,$,1.% #**0 .3 ., % .(,% 53)-*,$ % )/%
#1.,353,.#1:% 5 .% 2 . %;#.()0.% *):#' * .#(A812
M A'&# gB)( /8.:5#(#1 ' (A8$8B+A )('(%)(%/'5 #7'.%-'(%8- 8< (A# 5%<# 8<
;$#)%1#-( XB)A e V8$ WW ,#'$)N /58)# (8 DPN___ 8Y)#$&'(%8-)N A# 1%1 -8(
1%# 8-/#e M /'- A#-/# :$8-8B-/# A%. ') %..8$('5N ?%(A ' A%+A 1#+$##
8< )('(%)(%/'5 )%+-%<%/'-/#e
K*.()0:(%Y#'.)3% 12%<%.3 2,%#1% 0'(% 1% )55) #.,%$ 11,3%.( .%$ 1C% )/%
(# %.3 2, % ,12%05% #1%$C% #1B,1.)3C8% <%( B,% % * 3:,%$, 03,% )/% 3, 5,'.% /)3%
(#$D%E,% ,** %)0.9)/9.(,9$)1,C%)5.#)1 %/)3% %*#B#1:h%<%-0C%.(,$%/)3% %*#B#1:%
O-C% ,**#1:% 1% )0.9)/9.(,9$)1,C% )5.#)1% )1,%# % -,..#1:% .( .% 1% ,B,1.
?%55
-8(
% ( 55,1h% -C%-0C#1:%)1,%<% $ %$,3,*C%-,..#1:%.( .% #.
.',
% ( 55,1RD% E,%
.3#, %.) %$ @,% ., 2C%#1')$,8% <%53,/,3% %*0$5C% 12%3 3,%5 C)//D% K*.()0:(%
;,% ,,$% .)%-,% 2# $,.3#' **C% )55) #.,% .3 2,3 8%;,% ( 3,%$ 1C% 05,3/#'# *%
5,3 )1 *% .3 #. D% +(, ,% $ C% -,% ;)3.(% -3#1:#1:% #1% (,3,% -,' 0 ,% ;,% -).(%
$ @,% )03% 53#B .,% .3 #. % 5 3.% )/% )03%.3 2#1:% 12%$ @,% % .(#1% 2# .#1'.#)1%
-,.;,,1% '.#B#. #, % $#22*,-3);% 5,)5*,% ' **% g;)3@ g% 12% .() ,% .(,C% ' **%
g *, # 03,gD% J).( % )/% 0 % 3, % .3 2,3 % .3C#1:% .) % *#B, % 012,3% .(,% #**0 #)1% )/%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 119/219
+ E 4% M S T J 7 4=% T F% < & NA 6+ < T &%
IH[ %
)5,3 .#1:% % '#,1.#/#'% * -)3 .)3CD% J).(% )/% 0 % 033)012% )03 ,*B, % ;#.(%
'()* 3 % 12 % '#,1.# . 8%1).% -0 #1, $,1% O. *@#1:%.)% 0'', /0*% '#,1.# . %# %
%:))2%2# '#5*#1,%.)% B)#2%5,2, .3# 1# $%#1%)03%);1%.(#1@#1:RD% J).(%) /%0 %
.3C % .) % *, 2% .(,% *#B, % )/% .(, % Y#' .)3# 1% :,1.*,$ 1% '()* 3% ;#.( % -))@ %
' ..,3,2% 3)012% 0 8% -C%, ' 5#1:%$ 1C% )/%.(,% 5)50* 3% ''3,.#)1 % )/%.(,%
.;,1.#,.(%',1.03CD% J).(% )/%0 %:*)3#/C%)03%5,3 )1 *% #2#) C1'3 #, %.)% B)#2%
-, 3#1:% 1C%#1.,**,'.0 *% 3, ,$-* 1',%.) %.(,%'3);2D%J).(%) /%0 %)- , #B,*C%
503 0,% .(*,.#' % '.#B#.#, % )1% % 2 #*C% - # % O-0.% (,% # % ')$5,.#.#B,% 12%
')$5,.#.#)1% #1% 5)3. %3,5,* %$,RD%Y #'.) 3U %$)2,*% ,,$ %.)%-,%.(,%Y#'.)3# 1%
:,1.*,$ 1% O*#@,% (# %(,3)% F3 1'# % V *.)18% .(,%.#1@,3#1:% ')0 #1%) /% 6( 3*, %
N 3;#18%;()%# %.(,%.30,%#1 5#3 .#)1%)/% **% 55*#,2% . .# .#'# 1 R%;(#*,8%*#@,%
% .30,%Y#'.) 3# 18% <% $% /#3 .% 12%* .% %'* #'# .% 12%3,$ #1% .,,5,2% #1%.(,%
V3,')9S)$ 1% '0*.03,% #1%;(#'(% <%:3,;% 05%O$C%(,3), % 3,%3 .(,3% *#.,3 3C%
/#:03, RD% J).(% )/% 0 % B)#2% .(,% $,2# 8% .,*,B# #)18% 1,; 5 5,3 8% *.()0:(%
Y#'.)3% # % / 3% $)3,% B#:)3)0 % .( 1% < % #1% 0'(% .3#'.03, D% J).(% )/% 0 % B)#2%
'(#.'( .% 12% $ **% . *@% *#@,%.(,%5* :0,% O.))%$0'(% *,/.9')*0$1% 1)# ,RD%
<.*& T)*1U,& E*#=#%./8& 8(/%&
&,^.% < % ;#** % 2# '0 % ();% < % 2# ')B,3,2% _ 3*% M)55,3% B# % 1).(,3% .3 2,38%
5,3( 5 % .(,% )1*C% )1,% < % ( B,% ,B,3% .30*C% 3, 5,'.,2D% < % 2)% 1).% @1);% #/% #.%
55*#, % .)% ).(,3% 5,)5*,8% -0.8 % #1% 5#.,% )/%$C% -,#1:% % B)3 '#)0 % 3, 2,38% < %
( B,%3 3,*C% -,,1%.30*C% //,'.,2% #1%$C% -,( B#)3% O#1% 1C% 203 -*,% $ 11,3R%
-C% 1C.(#1:%<%( B,%3, 2D%K%-))@ %' 1%$ @,% % .3)1:%#$53, #)18%-0.% 0'(%
1%#$53, #)1%.,12 %.)%; 1,% /.,3% )$,% 1,;,3% #$53, #)1%3,5* ', % #.%#1%
$C%-3 #1% O %1,;% -))@RD % < %( B,% .)%2# ')B,3% .(#1: % -C%$C ,*/% O3,' ** FA#
*(8&# %) 08(% ,'.#)1% #1% 6( 5.,3% GRD % +(, ,% ,*/%2# ')B,3#, % * .D%
T1,%,^',5.#)1%) /%#2, %.( .% .0'@%;#.(%$,% 3,%.() ,%)/%>#3%_ 3*8%;()$%
<%2# ')B,3,2%O)3%5,3( 5 %3,2# ')B,3,2R% .(3)0:(%.(,%;3#.#1: %) /%.(,%.3 2,3%
12% ,*/9 .C*,2%5(#*) )5(,3%V,)3:,%>)3) %;()% ,,$,2%.)%( B,% )3: 1#j,2%
(# % *#/, % -C% -,')$#1:% % 53)$).,3% )/ % .(,% #2, % )/% _ 3*% M)55,3D% L( .% <%
*, 31,2%/3)$%V,)3:,%>)3) %; %1).%`0#.,%#1%.(,%; C%(,%5,3( 5 %#1.,12,2%
0 % .)% *, 31% /3)$% (#$D% < %2# :3,,2% ;#.(% (# % . .,$,1. % ;(,1% #.% ' $,% .)%
,')1)$#' % 12%5(#*) )5(C%9% -0.% )$,();%<% 0''0$-,2% .)%.(,%'( 3$% )/%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 120/219
IHW %
> T 7 T & U >% L K S& <& V%
.(# %E01: 3# 1%$ 1%;()%*#@,%$,%# % ( $,2%) /%-,#1:% %.3 2,3% 12%53,/,3 %
(# %.3 2#1:%.)%-,% %$#1)3%,^.,1 #)1% )/%(# %#1.,**,'.0 *%*#/,%O#.%' 1%-,% ,,1%#1%
(# %/#3 .% -))@ FA# =5/A#., 8< V%-'-/#de% E B#1:%1,B,3%-,,1%#$53, ,2%-C%
5,)5*,%;#.(%$)1,C% O 12%<%( B,%$,.%5*,1.C%)/%.() ,%.(3)0:()0.%$C%*#/,R8%<%
2#2%1).%*))@% .% 1C%)/%.(,$% %3,$).,*C% %3)*,%$)2,*%/)3%$,D%M,3( 5 %.(,%
)55) #.,%,//,'.%()*2 8% %<% $%:,1,3 **C%3,5,**,2%-C%.(,%;, *.(C8%:,1,3 **C%
-,' 0 ,% )/% .(,% ..#.02,% )/% ,5#'%(,3)# $% .( .% 0 0 **C% '')$5 1#, % 3 5#2%
,13#'($,1.D% >)3) %; %.(,%)1*C%)1,%;()% ,,$,2%.)% ( 3,%$C%B *0, D%E,%
; 1.,2 % .) % -,% . @,1 % ,3#)0 *C % % % =#22*,% 403)5, 1 % 53)/, )3% ;() %
( 55,1,2% .)% ( B,% :)..,1% 3#'(% );#1:% .)%.(,%B *#2#.C% )/% (# % #2, % O#. %; %
)1*C%-C%/ #*#1:%.)%: #1% '',5. 1',%-C%).(,3%#1.,**,'.0 * %.( .%(,%;)0*2%.3C%
.)%: #1% *5( % . .0 %.(3)0:(%(# %$)1,C8% )3.%) /%*#@,% % ,20',3%;()% /.,3%
.3C#1:%( 32 8%;)0*2%,12%05%0 #1:% 0'(% 1% 55,12 :,% %.(,%3,2%F,33 3#% .)%
,20',% .(,% :#3*RD % <1% 22#.#)18% *.()0:(% >)3) % 2#2% 1).% ')$,% '3) % B,3C%
'*, 3*C% #1%(# %;3#.#1: 8%(,%@1,;%(); %.)%( 12*,%3 12)$1, 8%-C%@,,5#1:% %
'3#.#' *% )5,1%$#12% 12%'( 1:#1:%(# %)5#1#)1 %;#.(%$#1#$ *% ( $,%O;(#'(%
' 33#, % .(,% #2,% ,//,'.% )/% $ @#1:% (#$% .3, .% 5,)5*, % *#@,% 1 5@#1 RD% E,%
; *@,2% 3)012% ' **#1:% (#$ ,*/ % / ** #-*, 8% -0.% ; % )% 5).,1.% -,' 0 ,% (,%
@1,;% #.%;(#*,% ).(,3 % ( 2%*)/.#,3% #2, % -)0.% .(,$ ,*B, D%E,% 012,3 .))2%
M)55,3D% E,% *#B,2% %M)55,3# 1% *#/,D%
K % 1% #2,8% M)55,3%; % 1).% 1,;% .)% $,D% < %( 2% -3#,/*C% (, 32%)/% _ 3*%
M)55,3% ;(,1% <% ; % #1% $C% .,,1 % 12% , 3*C% .; ,1.#, 8% % 5 3.% )/% %
$).#B .,2% ,20' .#)1% #1 % 403)5,% 12% .(,% A1#.,2% >. ., D% J0.% <% 2#2% 1).%
012,3 . 12% (# % #2, % % 53, ,1.,2% .(,1 8% 1)3% 2#2% <% .( #1@% #.% ;)0*2% -, %
#$5)3. 1.% O*#@,%$,. 5(C #' R% /)3% 1C.(#1:% #1%*#/,D% <%; % .% .(,% :,%;(,1%
)1,% /,*.% *#@,% )1,%1,,2,2% .)% 3, 2% ,B,3C.(#1:8%;(#'(%53,B,1.,2% )1,% /3)$%
$ @#1:% ')1.,$5* .#B,% .)5 D% >0'(% (033C% $ 2,% #.% ( 32% .)% 2,.,'.% .( .%
.(,3,%; % )$,.(#1:%#$5)3. 1.%#1%M)55,3D%<.%; %,#.(,3%$C% ')12#.#)1#1:%
-C% .(,% #1.,**,'.0 *9'(#'% '0*.03,% .% .(,% .#$,% O.))% $0'(% M* .)8 % .))% $ 1C%
= 3^# . 8% .))%$0'(%E,:,*8% .))%$ 1C% 5 ,02) '#,1.#/#'% #1.,**,'.0 * R8% .(,%
,20' .#)1 *% C .,$% O.))%$ 1C%')1i,'.03, % 53)5)012,2% % .30.(R% )3% .(,%
/ ' .% .( .% <% ; % .)) % C)01:% 12% ; % 3, 2#1:% .))% $0'(% .(,1 % .)% $ @,% %
-3#2:,%.)% 3, *#.CD%
M)55,3%.(,1% *#55,2%)0.%)/%$C%$#12%;#.()0.%( 1:#1:%)1% % #1:*,%-3 #1%
',**%9% .(,3,%; %1).(#1:%#1%.(,%- :: :,%)/% %-)C%;#.()0.%,^5,3#,1',%.)%*,.%#.%
.#'@D%J, #2, 8%( B#1:% . 3.,2%.3 2#1:8%<%,1.,3,2% 1% 1.#9#1.,**,'.0 *%5( ,h%<%
1,,2,2% .)%$ @,
'
% 1)193 12)$% -0'@% .)% ,'03,%$C%1,;*C% *) .%/0.03,% 12%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 121/219
+ E 4% M ST J7 4=% T F% < & NA 6+ < T &%
IH\ %
;, *.(%.( .% ( 2%i0 .%,B 5)3 .,2%;#.(% .(,%7,- 1, ,%; 3% O01.#*% .(,1%<%; %
*#B#1:%;#.(%.(,%2, #3,%.)% -,')$,% %')$/)3. -*,% $ 1% )/%*,# 03,%*#@,% *$) .%
,B,3C)1,% #1 % $C% / $#*C8% )B,3 % .(,% 5 .% .;)% ',1.03#, RD% <% 022,1*C% /,*.%
/#1 1'# **C% #1 ,'03,% 12%/, 3,2% -,')$#1:% 1%,$5*)C,,% )/% )$,% /#3$% .( .%
;)0*2%.031%$,%#1.)% %')35)3 .,% * B,%;#.(%g;)3@%,.(#' g%O;(,1,B,3%<%(, 3%
?8$> #(A%/)% <%#1.,353,. %-#<<%/%#-( .#1%8/$%(,de% < %1,,2,2%.(,%- '@#1:%)/%$C%
- 1@% '')01.% )%<%')0*2% -0C%.#$,%.)% .(#1@% 12%,1i)C%*#/,D%+(,% * .%.(#1:%<%
1,,2,2%; %#$$,2# .,%5(#*) )5(#j#1:% 12%;)3@% .%.(,%*)' *%='N)1 *2 U D%
M(#*) )5(C8%.)%$,8%-,' $,% )$,.(#1:%3(,.)3#' *%5,)5*,%2#2%;(,1%.(,C%( 2 %
5*,1.C%) /%.#$,% )1%.(,#3%( 12 h%#.%; % 1% '.#B#.C%3, ,3B,2%.) %.() ,%;()% 3,%
1).% ;,**% B,3 ,2% #1%`0 1.#. .#B,% $,.()2 % 12% ).(,3% 53)20'.#B,% .(#1: D% <.%
; % % 5 .#$,% .( .% ()0*2% -,% *#$#.,2% .)% * .,% ()03 8% #1% - 3 % 3)012% .(,%
' $50 , 8%;(,1%)1,%( 2 % % /,;%23#1@ % 12% %*#:(.% '(,20*,%9% 53)B#2,2%)1, %
/)3:).%.(,%: 330*)0 % ,5# )2,% %, 3*C% % .(,%1,^.% 2 CD%+))%$0'(%)/% #.%' 1%
:,.% %$ 1% #1%.3)0-*,8% 5,3( 5 % .031%)1,%#1.)% %= 3^# .% #2,)*):0,D% M)55,3%
; %1).%.)% 3,,$,3:,% 01.#*% <% ,'03,2%$C%' 3,,3% % %.3 2,3D%
. & = C A < & + P$ . & = C A < & +$
<.% # % #2 % .( .% 5,)5*,% :,1,3 **C % 3,$,$-,3% .(,% .#$,% 12 % :,):3 5( #'%
')12#.#)1% ;(,3,% .(,C% ;,3,% ;,5.%;#.(% % :)B,31#1:% #2, D% +(,% 3,*#:#)0 %
5),.% 12% 2#5*)$ .% M 0*% 6* 02,*% 3,$,$-,3 % .(,% ,^ ' .% 5).% ) /% (# %
/8-&#$)%8- % O)3% 3,9')1B,3 #)1R% .) % 6 .()*#' # $% #1 % .(,% 6 .(,23 *% &).3,9
N $,% )/%M 3# 8%1, 3% %53,'# ,%')*0$1D%+(0 % <%3,$,$-,3%,^ '.*C%.(,% 5).%
. % J 31, % 12% &)-*,% )1% GI .% >.3,,.% 12% F#/.( % KB,10,%;(,3,% #1 % IPZQ 8%
#1 5#3,2% -C%>)3) 8% < %3, 2% \H% 5 :, % )/ FA# a8+%/ 8< */%#-(%<%/ %)/8&#$,
12%/,B,3# (*C% -)0:(.% **% .(,%M)55,3% .#.*, %<% ')0*2% :,.%$C%( 12 % )1%*, .%
.(,C % 301 % )0.% ) /% .)'@ D% <.% ; % #1 % % 5 3 ,*C % *#.% #2,93))$% .( .% ( 2 % %
2# .#1'.#B,% $,**%) /%$#*2,;D%<%3,$,$-,3%B#B#2*C%.(,%.()0:(. % .( .%30 (,2%
.(3)0:(%$C%(, 2%*#@,% %3,B,* .#)1D%
M)55,3% .031,2 % )0.% .) % -,% ,^ '.*C % .(,% )55) #.,% ) /% ;( .% <% #1 #.# **C %
.()0:(.% -)0.% g5(#*) )5(,3 gh% (,%; % .(,% ,5#.)$,% )/% 1)% 1)1 ,1 ,D% JC%
.(,1% <%( 2% -,,1% 1% )5.#)1% .3 2,3% /)3% % ')05*,% )/%C, 3 % 12% <%/,*. % 1:3C%
.( . % < %; % -,#1:% . @,1% /)3% % .). *% 3#2,% -C%.(,% ' 2,$#'% 3, , 3'(,3 % #1%
/#1 1',8%5 3.#'0* 3*C% #1',%<%; %2,3#B#1:%$C %#1')$,% /3)$% .(,% / #*03,% )/%
.(,#3%$)2,* D%<% ( 2% *3, 2C% . 3.,2% . *@#1:% .)% /#1 1',% ' 2,$#' % %5 3.%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 122/219
I H X% > T 7 T & U >% L K S& <& V%
)/%$C%#1B)*B,$,1.%;#.(%2,3#B .#B, % 12%<%( 2%.3)0-*,%:,..#1:%.(3)0:(% .)%
.(,$% )$,% - #'% 5)#1. % -)0.% /#1 1'# *% $ 3@,. % O.(,C% -,*#,B,2% #1% .(,#3%
$)2,* % % *#..*,% .))% $0'(RD %+(,3,% ; % **% *)1:% *03@#1:% #19$C% $#12%.(,%
#2, %.( .%.(, ,%3, , 3'(,3 % ( 2%$# ,2% %5) #1.8% -0.%<%2#2%1).%`0#.,%@1); %
;( .% #. %; D% < .% ; % 1).%;( .% .(,C%@1,;8% #. %; % ();% .(,C%@1,;%#. % .( .%
; % .(,% 0-i,'.% )/%$C% 11)C 1',D%
\ & \ \ ' : L$ C + L # '$
M)55,3%' $,%05%;#.(% %$ i)3% 1 ;,3%.)%.(,%53)-*,$%)/%#120'.#)1%O.)%$,%
(,%' $,% 05%;#.(
(A#
% 1 ;,3RD%& )%$ 1%( %#1/*0,1',2%.(,%; C% '#,1.# . %
2)% ' #,1', % $)3, % .( 1 % > #3% _ 3 *% 9% #1 % 5 #., % )/% .(,% / ' .% .( . % $ 1C% )/% (# %
/,**);% 53)/, #)1 *% 5(#*) )5(,3 % /#12% (#$% `0#.,% 1 #B,% O.)% (# % '3,2#.8% #1%
$C%)5#1#)1RD%M)55,3U % #2, %# %.( .% '#,1',%# %1).%.)% -,%. @,1% % ,3#)0 *C%
% #.% )012 % OM)55,3% ;(,1% $,,.#1:% 4#1 .,#1% 2#2% 1).% . @,% (#$% % .(,%
2,$#:)2% (,%.()0:(.% (,%; RD% +(,3,% 3,% )1*C% .;)% .C5, % )/% .(,)3#, d%
ID% +(,)3#, % .( .% 3,% @1);1% .)% -,% ;3)1:8% % .(,C% ;,3,% ., .,2 % 12 %
2,`0 .,*C% 3,i,'.,2% O(,%' ** % .(,$ <'5)%<%#1de
GD% +(,)3#, % .( .%( B,%1).%C,.%-,,1%@1);1%.)%-,%;3)1:8%1). <'5)%<%#1% C,.8%
-0.% 3,% ,^5) ,2% .)% -,%53)B,2%;3)1:D%
L(C% # % % .(,)3C% 1,B,3 $%+A(a% J,' 0 ,% ;,%;#** % 1,B,3% @1);% #/% **% .(,%
; 1 % 3,%;(#.,% OM)55,3%-)33);,2% .(,%_ 1.# 1% #2, %) /%.(,%/* ; % #1%)03%
$,'( 1# $ % ) /% 5,3',5 .#)1RD% +(,% ., .#1: % $,'( 1# $% $ C % -,% / 0*.C D%
E);,B,38%.(,8% . .,$,1.%.( .%.(,3,%# % %-* '@% ; 1%# %5) #-*,%.)%$ @,D%K%
.(,)3C% ' 11).% -U,
&#$%<%#1e
% + )% 5 3 5(3 ,% - ,- **% ') '(% ?): #% J,33 %
: #18 :')( 1'(' A') ' 58( 8< +881 %- %(N YB( %( %) (A# Y'1 )%1# (A'( %) Y'1e% <.%
' 1% )1*C% -,%53)B# #)1 **C% '',5.,2D%K% .(,)3C% .( .% / ** % )0. #2,% )/% .(, ,%
.;)% ' .,:)3#, % # % 1).% % .(,)3CD% K% .(,)3C% .( . % 2), % 1).% 53, ,1.% % ,.% )/%
')12#.#)1 % 012,3%;(#'(% #.%;)0*2% -,%')1 #2,3,2%;3)1:%;)0*2% -,%.,3$,2%
'( 3* . 1# $% 9% .(,C% ;)0*2% -,% #$5) #- *, % .)% 3,i,'.% ).(,3;# , D% L(CaD%
J,' 0 ,%.(,% .3)*):# .%' 1% *; C %/#12% %3, )1%.)% /#.%.(,%5 .%,B,1.8%-C%
C#1:% .( . 3 '$) ?') :$8Y'Y5, %- 5%-# YB( -8( (88 .B/A )8% O*#@,;# ,% .)%
$,% %.3 2,3%;()%2), %1).%( B,% %5)#1.%.( .%;)0*2%$ @,%(#$%'( 1:,%(# %
$#12%# %1).% %.3 2,3RD%<12,,2%.(,%2#//,3,1',%-,.;,,1%&,; .)1# 1% 5(C #' 8%
;(#'(% ; % / * #/#,2% -C% 4#1 .,#1 U % 3,* .#B#.C8% 12% .3)*):C% *#, % #1 % .(,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 123/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 124/219
IHZ %
> T 7 T & U >% L K S& <& V%
L#.()0.%2;,**#1:%)1%5) #.#B# $8%<%( B,%.)%1).,%.( .%M)55,3%# %.(,% 1.#2).,%
.)% 5) #.#B# $D% +)% (#$8% B,3#/ #' .#)1% # % 1).% 5) #-*, D% Y,3#/#' .#)1# $% # %
$)3,%2 1:,3)0 %.( 1% 1C.(#1:%,* ,D%+ @,1%.)%.(,%,^.3,$,8%M)55,3U %#2, %
55, 3%1 #B,% 12%53#$#.#B,%9% -0.%.(,C%;)3@D%&).,%.( .%(# %2,.3 '.)3 %' **%
(#$% -'%&# <'5)%<%/'(%8-%)(e
<% $ % 1%,^',,2#1:*C%1 #B,%/ * #/#' .#)1# .D%L(Ca%J,' 0 ,%<%' 1% 03B#B,%
-,#1:% )1,D% =C% ,^.3,$,% 12 % )- , #B,% M)55,3# $ % # % ' 33#,2 % )0.% %
/)**); D%<% 5,'0* .,% #1% **%)/%$C% '.#B#.#, %)1%.(,)3#, %.( .%3,53, ,1.% )$,%
B# #)1% )/% .(,% ;)3*28% -0.% ;#.(% .(,% /)**);#1:% .#50* .#)1d% 1)% 3 3,% ,B,1.%
()0*2%( 3$%$,D%<1%/ '.8% <%;)0*2%*#@,% **%')1',#B -*,% 3 3,%,B,1. %.)% (,*5%
$,D% =C% #2, % )/% '#,1', % 2#B,3:, % ;#.( % .( . % )/% .(,% 5,)5*, % 3)012% $,%
; *@ #1 :% 3) 012% ' **#1 :% .(,$ ,*B, % '#,1.# . D% >'#,1',% # % $ ,3,%
5,'0* .#)18% $,3,%/)3$0* .#)1% )/% ')1i,'.03,D%
& \ +$ L & = < A ?$
M)55,3U % / * #/ #' .#)1# $% # % #1.#$ .,*C% ')11,'.,2% .)% .(,% 1).#)1% )/% 1%
)5,1% )'#,.CD%K1%)5,1% )'#,.C%# %)1,%#1%;(#'(%1) %5,3$ 1,1.%.30.(%# %(,*2%
.)% ,^# .h% .(# % ;)0*2% **);% ')01.,3#2, % .)% ,$,3:,D% _ 3*% M)55,3% ( 3,2%
#2, %;#.(% (# % /3#,128% .(,% *);9@,C% ,')1)$# .%Y)1% E C,@%;()% ,12)3 ,2%
' 5#. *# $% % % . .,% #1% ;(#'(% 53#', % ' 1% 2# ,$#1 .,% #1/)3$ .#)1% .( . %
-03, 0'3 .#'% )'# *# $% ;)0*2% '()@,D% J).(% 1).#)1 % )/% / * #/ #' . #)1# $%
12 % )5,1% )'#,.C % 3,8% ')01.,3#1.0#.#B,*C8% ')11,'.,2 % .)% .() ,% ) /% %
3#:)3)0 % $,.()2% /)3 % ( 12*#1:% 3 12)$1, % #1 % $C% 2 C% i)-% % % .3 2,3 D%
6*, 3*C8% 1% )5,1% $#12% # % % 1,', #.C% ;(,1% 2, *#1:% ;#.(% 3 12)$1, D%
M)55,3% -,*#,B,2U.( .% 1C%#2, % )/%A.)5# % # %1,', 3#*C% '*) ,2% #1%.(,% / '.%
.( .%#.%'()@, %#. %);1%3,/0. .#)1 D%+(,% #$5*,%1).#)1%)/% %:))2%$)2,*%/)3%
)'#,.C%.( .%' 11).% -,%*,/.%)5,1%/)3%/ * #/#' .#)1% # %.). *#. 3# 1D% <%*, 31,2%
/3)$%M)55,38%#1% 22#.#)1%.)%.(,%2#//,3,1',%-,.;,,1% 1%)5,1% 12% %'*) ,2%
)'#,.C8% .( .% -,.;,,1% 1% )5,1% 12% % '*) ,2%$#12D%
+ & T & , ?$ < L$ \ ' 9 = A$
<%( B,% )$,% )-,3#1:% #1/)3$ .#)1% -)0.% M)55,3% .(,%$ 1D%L #.1, , % )/%
( # % 53#B ., % *#/, % /#12% ( #$% 3 .(,3% 019M)55,3# 1D% +(,% 5(#*) )5(,3% 12%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 125/219
+ E 4% M S T J 7 4 =% T F% < & N A 6 + < T &% I H P%
T^/) 32% 2)1% J 3# 1% = :,,
X
% ;()% -,/3#,12,2% (#$ % /)3% '*) ,% .)% .(3,,%
2,' 2, % 2,5#'. % (#$% % 01;)3*2*C% O,^',5.% #1% (# % C)0.(R% 12% 1 33);*C%
/)'0 ,2 % )1% (# % ;)3@ D% E,% 5,1.% .(,% * .% \ H% C, 3 % ) /% (# % *)1:% ' 3,,3%
OM)55,3% *#B,2% PG% C, 3 R% ' *) ,2% .)% .(,% )0. #2,% ;)3*28% #1 0* .,2% /3)$%
)0. #2,% 2# .3 '.#)1 % 12% .#$0* .#)1D% M)55,3% * )% ,1: :,2% #1 % :#B#1:%
5,)5*,% g/#3$% )012#1:% 2B#',% -)0.% .(,#3% ' 3,,3% )3% .(,#3% 53#B .,% * #/,8%
.()0:(% (,%( 2% *#..*,% 012,3 . 12#1:% )/% ,#.(,3D% K**% .(# 8% )/%')03 ,8%; % #1%
2#3,'.% ')1.3 B,1.#)1% )/% (# % 53)/, ,2% O 12% #12,,2% :,10#1,R% -,*#,/ 8 % 12%
53 '.#', 8% #1% 5(#*) )5(CDg%
E,% ; % 1).%$0'(%-,..,3%#1%(# %C)0.(D% =,$-,3 % )/%.(,%Y#,11 % 6#3'*,%
.3#,2% .)% B)#2% (#$8% 1).% -,' 0 ,% )/% (# % 2#B,3:,1.% #2, 8% -0.% -,' 0 ,% (,%
L % % )'# *% 53)-*,$D% gE ,%; %-3#**# 1.8%-0.% ,*/9/)'0 ,28% -).(% #1 ,'03,%
12% 33): 1.8% #3 '#-*,% 12% ,*/93#:(.,)0 D%E,%; % %.,33#-*,%*# .,1,3% 12%
-,1.% )1% ;#11#1:% 3:0$,1. % .% **% ') . D% E,% ( 2% 1)% 012,3 . 12#1:% )/%
:3)05%2C1 $#' % 12%1)% -#*#.C% .)% 1,:).# .,% .(,$ gD
Q%
<%;#**%3,/3 #1%/3)$%')$$)15* ',%2# ')03 ,% -)0.%.(,%2#B)3',%-,.;,,1%
.() ,%;()% ( B,% #2, % 12%.() ,%;()%' 33C% .(,$% #1% 53 '.#',8% ,^',5.% .)%
-3#1:% )0.% .(,% #1.,3, .#1:% :,1,.#' % 53)-*,$h% ;,% *#@,% .)% ,$#.% *):#' *% 12%
3 .#)1 *% #2, % -0.%;,%2)%1).% 1,', 3#*C #-g8,% .(# %,^,'0.#)1D% >.3 1:,% %
#.% )012 8% .(# % 5)#1.% ( % )1*C% -,,1%2# ')B,3,2%B,3C%3,',1.*C% O;,%;#**% ,,%
.( .% ;,% 3,% 1).% :,1,.#' **C% /#. %.)% -,%3 .#)1 *% 12% '.% 3 .#)1 **Ch% ;,% 3,%
$,3,*C% /#.% /)3 % .(,% $ ^#$0$% 53)- -#*# .C% )/% .3 1 $#..#1:% )03% :,1, % #1 %
)$,% :#B,1% 01 )5(# .#' .,2% ,1B#3)1$,1.R D% K* )% .3 1:,% % #.% )012 8%
V,)3:,%>)3) 8% )- , #B,*C% ,*/9'3#.#' *8% ,,$ %.)% -,%$)3,%M)55,3# 1% .( 1%
M)55,3% #1%(# % 53)/, #)1 *% -,( B#)3D%
\ C L = C . : L$ # C / '$
<%')1'*02,% ;#.(%.(,% ,^5) #.#)1% )/%$C%);1% $,.()2% )/% 2, *#1:%; #.(% .(,%
5 3)-*,$% )/% #120'.#)1D% +(,% 5(#*) )5(,3% M ' *% 5 3)'* #$,2% .( .% .(,%
)5.#$ *% .3 .,:C% /)3% (0$ 1 % # % .)% -,*#,B,% #1%.(,% ,^# .,1',% )/% V)2D % F)3%
# /% V)2% ,^# . 8% .(,1 % .(,% -,*#,B,3% ;)0*2% -, % 3,; 32,2D% < /% (,% 2), % 1).%
,^# .8% .(,%-,*#,B,3%;)0*2%( B,%1) .(#1:%.)% *) ,D%K'')32#1:*C8%;,% 1,,2% .)%
'',5.% .(,% C$$,.3C % #1 % @1);*,2:,h% .(,3,% 3,% #.0 .#)1 % #1 % ;(#'( %
0 #1:% . .# .#' % 12%,')1)$,.3#' % ' 1% -,% 0 ,/0*D% J0.% < %2)% 1).% ; 1.% $C%
*#/,% .)% 2,5,12% )1% #.D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 126/219
I I H %
> T 7T & U>% L K S& <& V%
7#@,% M ' *8% <% ;#**% .(,3,/)3, % . ., % .(, % /) **);#1:% 3:0$,1.D% < /% .(,%
'#,1',%)/% . .# .#' %' 1% -,1,/#.%$,% #1% 1C.(#1:8%<%; #**%0 ,%#.D% </%#.%5) , % %
.(3, .8% .(,1% <%;#**%1).D% < %; 1.% .)%. @,%.(,% -, .%)/%;( .%.(,ia .%' 1%:#B,%
$,% ;#.()0.% #. % 2 1:,3 D% K'')32#1:*C8% <%; #**% 0 ,% . .# .#' % 12% #120'.#B,%
$,.()2 %.)% $ @,% ::3, #B,% -,. 8%-0.%<%;#**%1).% 0 ,%.(,$%.)%$ 1 :,%$C%
3# @ % 12 %,^5) 03,D% >0353# #1:*C8% **%.(,% 03B#B#1:%.3 2,3 %<%@1);% ,,$% .)%
( B,% 2)1,% .(,% $,D% +(,C% .3 2,% )1% #2, % - ,2% )1% )$,% )- ,3B .#)1%
O.( .% #1'*02, % 5 .%(# .)3CR% -0.8%*#@,%.(,%M)55,3# 1% '#,1.# . 8%.(,C%$ @,%
03,% .( .% .(,% ') . % )/% -,#1:%;3)1:% 3,% *#$#.,2% O 12%.(,#3% 53)- -#*#.C% # %
1).%2,3#B,2% /3)$% 5 .%2 . RD%A1*#@,% 6 3*) % 12%f)(18% .(,C% @1);% -,/)3,%
:,..#1:% #1B)*B,2%#1%.(,%.3 2#1:% .3 .,:C%;(#'(% ,B,1. %;)0*2%53)B,% .(,#3%
')1i,'.03,%;3)1:% 12% **);% /)3%#.% O3,' **%.( .%6 3*) % 12%f)(1% 0 ,2%5 .%
(# .)3C%-).(%.)%$ @,%.(,#3%-,. % 12%$, 03,%.(,#3%3# @RD%+(,C%;)0*2%.(,1%
.,3$#1 .,% .(,#3 % .3 2,D% +(# % # % ' **,2% )(8: 58))N% % 53,2,.,3$#1,2% ,^#.%
5)#1.8 % %53).,'.#)1% /3)$% .(,% -* '@% ; 1D% < %/#12% #. %3 3,*C% 53 '.#',2D%
4')/K& :#$& <#1#/&
F#1 **C8 %< % ( B,%.)% ')1/, % .( .% 05)1% /#1# (#1:% $C%;3#.#1:% )/% M 3.% < %.( .%
;3#.#1:% -)0.%.(,%:,1#0 %)/% >)*)1U % #1 #:(.% ( %' 33#,2% 1%,^.3,$,% ,//,'.%
)1% -).( % $C% .( #1@#1:% 12% $C% 53#B ., % *#/, D% +(,% ')$5) #.#)1% )/% M 3.% <%
$ 2,%$,%,B,1%$)3,%')1/#2,1.%#1%$C%;#.(23 ; *%/3)$%.(,%$,2# % 12%$C%
2# . 1'#1:% $C ,*/% /3)$% ).(,3% $,$-,3 % )/% .(,% -0 #1, % ')$$01#.C 8%
$) .*C% ).(,3% #1B, .)3 % 12%.3 2,3 %/)3%;()$% <% $ %2,B,*)5#1:%$)3,% 12%
$)3,% ')1.,$5.D% <% $%'033,1.*C%,1i)C#1:% %.(3#**%)/% .(,%'* #' % <%( B,%1).%
/,*.% #1',%'(#*2())2D%=C%$#128% -C%, ' 5#1:%.(,%1,; %5)**0.#)18% **);,2%
$,% .)% ,B 2,%.(,% -0**%$ 3@,.% .( .% 53,B #*,2%)B,3%.(,% 5 .% I\% C, 3 % O 12%
53)/, #)1 **C% -,1,/#.% /3)$% #. % 2,$# ,RD% < % $% 1);% .(#1@#1:% )/% .(,% 1,^.%
.,5d%.)% 3,'3, .,% %*);9#1/)3$ .#)18%$)3,%2,.,3$#1# .#'% 1'#,1.%.#$,8% C%
#1 % .(,% 1#1,.,,1.(% ',1.03C8% **% .(,% ;(#*, % -,1,/#.#1:% /3)$% )$,% )/% .(,%
.,'(1#' *% : #1 % O 0'( % % .(, % =)1., % 6 3*) % ,1:#1,R8% **% ) /% .(, % $,2#' *%
-3, @.(3)0:( % 12% **%.(,%: #1 %)/% )'# *%i0 .#',%) /%)03% :,D%<%;)0*2%.(,1%
( B,% .(,% -, .% )/% ,B,3C.(#1:D% +(# % # % ' **,2% ,B)*0.#)1D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 127/219
-@;E$22$
U '&
d ) 1 @ , C % ) 1% . C 5 , ; 3 # . , 3 d%
0 3 B # B ) 3 ( # 5% 1 2 $ 8 E K 6 3$
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 128/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 129/219
I
/% )1,%50. % 1% #1/#1#.,%10$-,3% )/%$)1@,C % #1%/3)1.% )/% O .3)1:*C% -0#*.R%
.C5,;3#.,3 8% 12% *,. % .(,$% '* 5% ; C8% .(,3,% # % %',3. #1.C% .( .% )1,% )/%
.(,$ % ;)0*2% ')$,% )0.% ;#.(% 1% ,^ '.% B,3 #)1% )/% .(, M5%'1e% A5)1%
,^ $#1 .#)18% .(# % $ C% -,% *, % #1.,3, .#1:% % ')1',5.% .( 1% #.% 55, 3 % . %
/#3 .d% 0'(%53)- - #*#.C% # %B,3C%*);D%J0.%*,.%0 %' 33C%.(,%3, )1#1:%)1,% .,5%
-,C)12D%&);% .( .%;,%( B,%/)012%.( .%(,3)% $)1:%$)1@,C 8%;)0*2% 1C%
3, 2,3%#1B, .%(# %*#/,U % B#1: %)1% % -,.%.( .%.(,%$)1@,C%;)0*2%;3#.,% .(,%
91,))#,% 1,^.a%
<1% .(# % .)3C8% #.% # %.(,% ,')12% .,5%.( .% # % #1.,3, .#1:D% E);% $0'(% ' 1%
5 .%5,3/)3$ 1',% O(,3,%.(,%.C5#1:%) /%.(, M5%'1d% -,%3,*,B 1.%#1%/)3,' .#1:%
/0.03,% 5,3/)3$ 1',a% +(,% $,% 55*#, % .)% 1C% 2,'# #)1% - ,2% )1% 5 .%
5,3/)3$ 1',8% $,3,*C% 3,*C#1:% )1% .(,% ..3#-0., % )/% .(,% 5 . % .#$,% ,3#, D%
+(#1@% -)0.% .(,%$)1@,C% ();#1:% 05% .%C)03% 2))3%; #.(% (# % #$53, #B,%
5 .%5,3/)3$ 1',D% E,C8%(,%;3).,%.(,
M5%'1e
% u0#'@*C8% #:1%(#$% 05%/)3%.(,%
,`0,*D%
+(,% $ i)3% 53)-*,$% ;#.( % #1 /,3,1', % #1 % :,1,3 *% # % .( .% .() , % ;() , %
53)/, #)1% # % .)% 2,3#B,% ')1'*0 #)1 % /3)$% 2 . % )/.,1% / **% #1.)% .(,% .3 5%
/ .,3% 12% $)3,% ')1/#2,1.*C% .( 1% ).(,3 D% +(,% $)3,% 2 . % ;,%( B,8% .(,%
$)3,% *#@,*C%;,% 3,% .)% 23);1%#1%#. D% F)3% ')$$)1% ;# 2)$% $)1:% 5,)5*,%
;#.(% % -022#1:%@1);*,2:,% )/%53)- -#*#.C% * ; % # %.)% - ,%.(,#3% 2,'# #)19
$ @#1:% )1% .(,% /)**);#1:% 53#1'#5*,d% #.% # % B,3C% 01*#@,*C% /)3% )$,)1,% .)%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 130/219
I I W% =T&_4?>% T&% +? M 4L S <+ 4 S >%
5,3/)3$% ')1 #2,3 -*C% ;,**% #1 % % ')1 # .,1.% / (#)1% ;#.()0.% (# % 2)#1:%
)$,.(#1:% 3#:(.D%+3 '@% 3,')32 % .(,3,/)3,% -,')$,%53,,$#1,1.D%+(,C% ' **%
)1%.(,%30*,% )/%.(,%*#@,*#())2% )/% 0'(% % 0'', /0*% 301% 12%.,**% .(,$ ,*B, %
.( .% #/% )$,)1,% 5,3/)3$,2% -,..,3%.( 1% .(,%3, .%#1%.(,%5 .%.(,1%.(,3,%# % %
:3, . % '( 1',% )/% (#$% 5,3/)3$#1:% -,..,3% .( 1% .(,% '3);2% #1% .(,% /0.03,% 9
12% % B,3C% :3, . % )1,% . % .( . D% J0.8% % 0 0 *8% -,; 3,% .(,%$#22*,-3);d% %
$ **% @1);*,2:,% ) /% 53)- - #*#.C% ' 1% *, 2% .)% ;)3 ,% 3, 0*. % .( 1% 1)%
@1);*,2:,% .% **D %
< A$ , \ + , L$ & +$ A > $ + 0 B T '$ & 9$ B & + ( ? L$
<% 2)% 1).% 2,1C% .( .% #/% )$,)1,% 5,3/)3$,2% -,..,3% .( 1% .(,% '3);2% #1% .(,%
5 .8% .(,3,%# % % 53, 0$5.#)1% )/%(# % -#*#.C%.)% 2)%-,..,3% #1%.(,% /0.03,D% J0.%
.(,%53, 0$5.#)1%$#:(.%-,%;, @8% B,3C%;, @8%.)% .(,%5)#1.%)/% -,#1:%0 ,*, %
#1 % 2,'# #)1% $ @#1:D% L(Ca% J,' 0 ,% #.% **% 2,5,12 % )1% .;)% / '.)3 d% .(,%
3 12)$1, % ')1.,1.% )/% (# % 53)/, #)1% 12% .(,% 10$-,3% )/ % $)1@,C % #1 %
)5,3 .#)1D%
+( ,% #1#.# *% $5*,% #j,%$ ..,3 %:3, .*CD%</%.(,3,% 3,%/#B,%$)1@,C % #1%.(,%
: $,8% <%;)0*2% -,%3 .(,3% #$53, ,2%; #.(% .(, M5%'1% ;3#.,38% .)% .(,%5)#1.% )/%
0 5,'.#1:% (#$% .)% -,% %3,#1' 31 .#)1% )/% .(,% 1'#,1.% 5),.D% </% .(,3,% 3,% %
-#**#)1%.)%.(,%5);,3%)1,%-#**#)1%$)1@,C %<%;)0*2%-,%*, %#$53, ,2%9% % %
$ ..,3% )/%/ '.%<%;)0*2% -,% 0353# ,2%#/%)1,%)/%.(,$% 2#2%1).% :,.% )$,%;,**%
@1);1% O-0.% 01 5,'#/#,2R% 5#,',% )/% ; )3@8% i0 .% -C% *0'@% O5,3( 5 %
6 1)B U 3#. 8%$) 8< 3, a%<#de% T1,%$)1@,C%;)0*2% ,B,1% -,%,^5,'.,2%
.)%53)B#2,%0 %;#.(%/)3$,3%Y#',%M3, #2,1.%KI%V)3,U 6'$(A %- (A# X'5'-/#N
5,3( 5 % .3#55,2%)/%.(,% 5* .#.02, D%
+(# % 53)-*,$% ,1.,3 % .(,% -0 #1, % ;)3*2% $)3,% B#'#)0 *C% .( 1% ).(,3 %
; *@ % )/% * #/,8% );#1:% .)% .(,% (#:(% 2,5,12,1',% )1% 3 12)$1, % O;,% ( B,%
*3, 2C% -,* -)3,2% .(,%')1.3 .%-,.;,,1% 3 12)$1, 92,5,12,1.% -0 #1, %
;#.(% 2,1.# .3CRD% +(,% :3, .,3%.(,%10$-,3% )/%-0 #1, $,18%.(,%:3, .,3% .(,%
*#@,*#())2% )/% )1,%) /%.(,$%5,3/)3$#1:% #1% % .,** 3%$ 11,3% i0 .% -C%*0'@D%<D%
( B,%3 3,*C% ,,1% 1C)1,%')01.%.(,%$)1@,C D%<1%.(,% $,%B,#18%/,;%')01.%
.(,% #1B, .)3 % #1% .(,% $ 3@,.% #1% )32,3% .)% ' *'0* .,8% #1 ., 2% ) /% .(,%
53)- -#* #.C% )/% 0'', 8% .(,% ')12#.#)1 *% 53)- -#*# .C% )/% 0'', /0*% 301 %
:#B,1%.(,%10$-,3% )/%#1B, .)3 % #1%)5,3 .#)1% )B,3% % :#B,1%$ 3@,.% (# .)3CD%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 131/219
II\%=T&_4?>% T&% + ? M 4L S < + 4 S >%
Q < = < & 0 L$ ' C .$ . < 9 $
+(,3,% 3,% ).(,3% 5,'. % .)% .(,% $)1@,C % 53)-*,$h% #1% 3, *% * #/,% .(,% ).(,3%
$)1@,C % 3,% 1).%')01. -*,8% *,.% *)1,%B# #-*,D%+(,C% 3,%(#22,1% ; C8% %
)1,% ,, % )1*C% .(,%; #11,3 % 9% #.% # % 1 .03 *% /)3% .() ,% ;()% / #*,2% .)% B 1# (%
')$5*,.,*CD%K'')32#1:*C8% )1,% ,, %.(,% 03B#B)3 8% 12%)1*C% .(,% 03B#B)3 8%
;(#'( % #$5 3. % 0'( % % $# . @,1 % 5,3',5 .#)1% ) /% .(,% )22 D% L, % 2) % 1).%
3, 5)12%.) %53)- - #*#.C8% -0.%.)% )'#,.CU '))#)).#-( % ) /%#.D%K ?# )'? % ;#.(%
& ,3)% + 0*#5 8% ,B,1% 5,)5*,% ; #.(% .3 #1#1:% #1% 53)- - #*#.C% 3, 5)12%
01#1.,**#:,1.*C% .)% )'# *% 53, 03,D%
A > < L$ L = A < & +$
M 3.% <% 2, '3#-,2% #.0 . #)1 % ;(,3,% 5,)5*,% 2)% 1).% 012,3 . 12% .(,% 3 3, %
,B,1.8% 12%2)% 1).% ,,$% .)% '',5.%,#.(,3% .(,% 5) #-#*#.C%) /% #. % )''033,1',%
)3% .(,% 2#3, % ')1 ,`0,1', % )/% 0'(% )''033,1',D% <.% * )% ,.% )0.% $C% );1%
#2, 8%.() ,%.( .%2)%1).% ,,$%.)%( B,%-,,1%,^5*)3,2% #1%.(,%*#.,3 .03,D%J0 .%
% -))@% )1% 3 12)$1, % # % 1).% ')$5*,.,%;#.()0.% % 53, ,1. .#)1% )/% ;( .%
5) #-*,% -# , % )1,%$#:(.% ( B,% #2,% /3)$% .(,% 2,/)3$ .#)1 % ' 0 ,2% -C%
.(,% 3 3,% ,B,1.D%+(,% -0 #1, % )/% M 3.% <<% # %$)3,%5,2, .3# 1h% <%;#**% 3 5#2*C%
53)B#2,% % C1.(, # % )/%.(,%-# , % )/%3 12)$1, % %2# '0 ,2%#1%.(,%1);%
-012 1.% *#.,3 .03,% )1% .(,% 0-i,'.D%
+(, ,% -# , % ' 1% -,% )0.*#1,2% % /)**); d% O R% .(,% 03B#B)3 (#5% -# , %
O D@D D% $)1@,C %)1% (,:#?$%(#$dN '$%)%-+% /3)$% .(, <'/(% .( . %;,% ,,%)1*C%
;#11,3 % 12% :,.% % 2# .)3.,2% B#,;% )/% .(,% )22 % O6( 5.,3 % Z % 12% P 8% +))%
3'-, 3%55%8-'%$#)% 12 V$, '- 6++dN% O-R% .(,% / '.% .( .% *0'@% # % $) .%
/3,`0,1.*C%.(,%3, )1% /)3%,^.3,$,% 0'', %O6( 5.,3% IH 8
a8)#$ F'>#) =55dN
12% O'R% .(,% -#)*):#' *% ( 12#' 5% )/% )03% #1 -#*#.C% .)% 012,3 . 12%
53)- -#*#.C% O6( 5.,3% II8 K'-18.- #)) '-1 9B$ X $'%-de
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 132/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 133/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 134/219
I I Z% =T&_4?>% T&% +? M 4L S <+ 4 S >%
$,1. *#.C 8% 12 % ')12 #.#)18% ; #.(% O#1% .(,% /)**);#1:% )32,3R% $ .,3# *%
')$/)3. 8% (, *.( 8% 12% . .0 D% L,,@2 C 8% (,% 2), % 1).% ')$,% ()$,% 01.#*%
.% *, .% PD [H% 5D$D% 128% .%.#$, 8%(,%' 1% -,%/)012%#1%.(,%)//#',% .%'*) ,%.)%
$#21#:(.D%JC%.(,%,12%)/%.(,%;,,@8%= 3'% # % )%/ .#:0,2%.( .%(,%/ ** % *,,5%
203#1:%.(,#3%.(3,,9()03% 23#B,% .)% g.(,% ()0 ,gh% 12%= 3'% 5,12 %$) .% )/%
> .032 C% *C#1:% #1% -,2% 3,')B,3#1:% 12% (, *#1:D%
= 3'% :3,;%05%#1% % $ **%.);1%#1%.(,%$#2;, .8%.(,% )1%)/% %`0#,.% . ^%
'')01. 1.% ;()%;)3@,2%;#.(% ( 35%C,**);% 5,1'#* D% E# % )- , #)1% ;#.(%
( 351, % ; % )% .3)1:%.( .% (,%' 33#,2% % ( 35,1,3% #1%(# %5)'@,.% .% **%
.#$, D%= 3'% ,^(#-#.,2% B,3C%, 3*C% #:1 % )/%#1.,**#:,1',D% E,% 2#2% ,^.3,$,*C%
;,**% #1 % (#:( % '())*D% E,% ..,12,2 % E 3B 32 % 6)**,:, 8% .(,1 % ? *,% 7 ;%
>'())*D%&) .% - 28%)1,%;)0*2% CD% 7 .,3%(# %' 3,,3%.))@% (#$% .)% ')35)3 .,%
* ;8% ;(,3, % (, % . 3.,2% ;)3@#1:% )1 % * 3:,% ' , % /)3% % 53, .#:#)0 % &,;%
?) 3@% * ; %/#3$8%;#.(% - 3,*C%,1)0:(%()03 %*,/.%/)3%(#$%.)% -30 (%(# %.,,.(D%
+(# % # % 1).% .))% $0'(% 1% ,^ ::,3 .#)18% /)3% (,% .,% *$) .% **% )/% (# %
2#11,3 % #1% .(,% ) //#',8% ''0$0* .#1:% -)2C% / .% 12 % J3);1#,% 5)#1. %
.); 32 % (# % 5 3.1,3 (#5D% E,% * .,3% -,' $,% % 5 3.1,3 % ;#.(#1% .(,% 0 0 *%
,B,1% C, 3 8% -0.% 1).% ; #.()0.% .(,% 0 0 *% (0$ 1 % ') . D% E# % /#3 .% ; #/,%
O;()$% (,% $,.% #1 % ') **,:,R% *,/.% ( #$8% % (,% ; % .#3,2 % ) /% 1 % - ,1.,,%
* ;C,3% (0 - 12% 12% ;, 3C% )/% .(,% 2,.,3#)3 .#)1% #1 % (# % ')1B,3 .#)1% 9
-0.8%#3)1#' **C8% (,%,12,2%05%$)B#1:%#1%;#.(% 12%* .,3%$ 33C#1:% 1).(,3%
&,;% ?)3@% * ;C,38% 53)- -*C% ;#.(% % 1)9*, % /* . %')1B,3 .#)18% -0.% ;()%
$ 2,%(,3%( 55#,3D%
A & &$ B 0 = >$ # & ' ($
= 3' U % -)2C%-,' $,%53):3, #B,*C%/* --#,38% 12%(# %. #*)3,2% 0#. %1,,2,2%
5,3#)2#'%B# #. %.)%.(,%. #*)38%#1% 5#.,%) /%(# %)'' #)1 *%'3 (%2#,. D%K/.,3%(,%
:).%)B,3%.(,% 2,53, #)1%)/% .(,% - 12)1$,1.8%(,% . 3.,2%2 .#1:%f 1, .8%(# %
5 3 *,: *8% 12% 53)$5.*C% $ 33#,2%(,3D% +(,C% ( 2% .(3,,% '(#*23,1% #1% `0#'@%
0'', #)18% -)0:(.% .(,% M 3@% KB,10,% 5 3.$,1.8% 12%.(,% ')01.3C% ()0 ,D%
f 1, .U % #$$,2# .,% '`0 #1. 1',% # % ')$5) ,2% )/% .(,% ).(,3% 5 3,1. % )/%
.(,% = 1( .. 1 % 53#B ., % '())*% ..,12,2% -C% .(,#3% '( #*23,18% 12% .(,#3%
1,#:(-)3 % .%.(,%')9)5,3 .#B,% 5 3.$,1.% -0#*2#1:%;(,3,%.(,C%*#B,D% F3)$%
% $ .,3# *# .#'% . 125)#1.8% .(,C % ')$,% .% .(,% *);% ,12% ) /% 0'( % % ,.8%
5,3( 5 % ,B,1% .%.(,% ,^ '.% -)..)$D% +(,C%;)0*2% -,% .(,% 5))3, .% )/% .(, ,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 135/219
+ T T% = K& ?% = < 7 7 < T &K <S 4 >% & 4c +% N T T S%
IIP %
'#3'*, 8% % .(,#3 % ')9)5% # % #1( -#.,2% -C% ,^.3,$,*C% 0'', /0*% ')35)3 ., %
,^,'0.#B, 8% L **% >.3,,.% .3 2,3 8% 12% (#:(9/*C#1:% ,1.3,53,1,03 D% +(,#3%
'(#*23,1U % 53#B .,% '())*%( 3-)3 %.(,% ,')12% ,.%)/%'(#*23,1%)/% ')35)3 .,%
3 #2,3 8%/3)$%.(,#3%.3)5(C%;#B, %9% 5,3( 5 %,B,1%.(,%.(#32% ,.8%#/%)1,%. @, %
#1.)% '')01.%.(,% :,%2# '3,5 1'C% 12%.(,%$)2,*9*#@,%/, .03, %) /%.(,%).(,3%
$).(,3 D%JC%')$5 3# )18%= 3'U %;#/,%f 1,.8% *#@,%(#$8%53, ,1. % %()$,*C%
')01.3C9()$,9;#.(9 93) ,9: 32,1% .C5,% )/% 55, 3 1',D%
? & 0 : ' $ C$ 9 C < . 0 ' $
= 3 'U % .3 .,:C% )/% . C#1:% #1% = 1( .. 1% $ C% -,% 3 .#)1 *8% % (# %
2,$ 12#1:%;)3@%()03 %;)0*2%$ @,% #.% #$5) #-*,% /)3% (#$% .)% ')$$0.,D%
J0.% .(,% ') . % )1% (# % ;#/,%f 1,.% 3,% $)1 .3)0 D% L(Ca% J,' 0 ,% )/% .(,#3%
3,* .#B,% 1)1 0'', % 9 % % :,):3 5(#' **C% 2,/#1,2% -C% .(,#3% M 3@% KB,10,%
1,#:(-)3())2D% 4B,3C% $)1.(% )3% )8% f 1,.% ( % % '3# # 8% :#B#1:% #1 % .)% .(,%
.3 #1 % 12%(0$#*# .#)1 % )/%-,#1:% 10--,2% -C% )$,%).(,3%$).(,3% .%.(,%
'())*%;(,3,% (,% 5#'@ % 05%.(,% '(#*23,18% )3% 1).(,3%;)$ 1% ;#.(% * 3:,3%
2# $)12 %-C%.(,%,*,B .)3%)/%.(,%')9)5%;(,3,%.(,C%*#B,%#1%.(,% $ **, .%.C5,%
)/% 5 3.$,1. % O.(,%V% *#1,RD%L(C%# 1U.%(,3%(0 - 12% )% 0'', /0*a% < 1U.%(,%
$ 3.% 12%( 32%;)3@#1:a%N #21U.%(,%:,.%'*) ,%.)% IX HH% .%.(,%>K+a%L(C%# %
.(# % S)1 *2% >)$,.(#1:% ;() ,% ;#/, % 1,B,3 % ,B,1% 1)2 % .)% f 1,. 8% ;)3.(%
(0123,2% )/%$#**#)1 % ;(,1% (,3% (0 - 12%;,1.% .)% E 3B 32% 12% ? *,% 12%
( % 0'(% %(#:(%<Du D8% 12%( % ( 32*C% 1C% 0- . 1.# *% B#1: a%
L,% ;#**% 1).% :,.% .))% #1B)*B,2 % #1 % .(,% 6(,@)B# 1 % 2 #*,$$ % #1 % .(,%
53#B .,%*#B, %) /%= 3'% 12%f 1,.8% -0.% .(,#3%' ,% 53)B#2, % % B,3C%')$$)1%
#**0 .3 .#)1% )/% .(,% ,$).#)1 *% ,//,'.% )/
)B$&%&8$)A%: Y%')e
% f 1,. % /,,* % .( .%
(,3% (0 - 12% # % % / #*03,8% -C%')$5 3# )18% -0.% (,% # %$# 9')$50.#1:% .(,%
53)- -#*#.#, % #1% %:3) %$ 11,3% 9% (,% # %0 #1:%.(,%;3)1:% 2# .3#-0.#)1% .)%
2,3#B,% % 3 1@D% K % ')$5 3,2% .)% .(,% :,1,3 *% AD>D% 5)50* .#)18% = 3'% ( %
2)1,%B,3C%;,**8% -,..,3% .( 1% PP D\l% )/%(# % ')$5 .3#). D% K %')$5 3,2% .)%
(# %(#:(9 '())*% /3#,12 8%(,%2#2%,^.3,$,*C%;,**8% % / '.%.( .%(,%')0*2%( B,%
B,3#/#,2% ( 2% (,%( 2%.#$,% .)% ..,12% .(,%5,3#)2#'% 3,01#)1 8% 12%(,%;)0*2%
')$,% . % .(,% .)5D% K % ')$5 3,2% .)% .(,% ).(,3% 5,)5*,% . % E 3B 328% (,% 2#2%
-,..,3%.( 1%P Hl% )/%.(,$% O/#1 1'# **C8%) /%')03 ,RD%K %')$5 3,2%.)%(# %* ;%
'())*% ')$3 2, % .% ? *,8% (,% 2#2% -,..,3% .( 1% X Hl % ) /% .(,$ D% J0.% %
')$5 3,2% .)%(# %')9)5% 1,#:(-)3 8%(,%# % .%.(,%-) ..)$b%L(Ca% J,' 0 ,%(,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 136/219
DL_ =T&_4 ?>% T &% + ? M 4LS < + 4S >%
'() ,%.)%*#B,% $)1:%.(,%5,)5*,%;()%( B,%-,,1% 0'', /0*8%#1% 1% 3, %.( .%
,^'*02, % / #*03,D%<1%).(,3%;)32 8%.() ,%;()%( B,%/ #*,2% 2)%1).% ();%05%
#1%.(,% $5*,% .% **8%.(0 %$ @#1:%(#$%*))@% %#/%(,%;,3,%1).%2)#1:%;,**% .%
**D% JC% *#B#1:%)1% M 3@%KB,10,8%)1,%2), %1).%( B,%,^5) 03,%.)% .(,%*) ,3 8%
)1, % )1*C % ,, % .(,% ;#11,3 D% K % ;,% 3, % '0.% .)% *#B, % #1 % B,3C % $ * *% ')$9
$01#.#, 8% #. % # % 2#//#'0*.% .)% , % )03% #.0 .#)1% )0. #2,% )/% .(,% 1 33);*C%
2,/#1,2% :,):3 5(#'% ')1/#1, % )/% )03% ( -#. .D% <1 % .(, % ' , % )/% = 3'% 12%
f 1,. 8% .( # % *, 2 % .) % ')1 #2,3 -*, % ,$).#)1 *% 2# .3, h% (,3, % ;,% ( B, % %
;)$ 1%;()%$ 33#,2% 1%,^.3,$,*C% 0'', /0*%$ 1% -0.% **% (,%' 1% ,,%# %
')$5 3 .#B,% / #*0 3,8% /)3% (,% ' 11).% ,$).#)1 **C % ')$5 3,% (#$% .) % %
$5*,% .( .%;)0*2% 2)%(#$% i0 .#',D%
>)$,)1,%;)0*2%3 .#)1 **C% C%.)%f 1,.d%g:)%3, 2%.(# %-))@8 V885#1 Y,
K'-18.-#)) % -C%)1,%$ .(,$ .#' *%.3 2,3%)1%.(,%2,/)3$ .#)1 % )/%'( 1',%
#1% *#/,h% #.% ;)0*2% :#B,% C)0% % . .# .#' *% ,1 ,% )/% 5,3 5,'.#B,% 12% ;)0*2%
'')32#1:*C% $ @,% C)0%/,,*%- ,..,3gD%K % 1% 0 .()38% <%;)0*2%*#@,% .)% )//,3% %
5 1 ', % /)3%p GQ DP \ 8% -0.%<%;)0*2%3 .(,3% C%.( .%#1%$C%-, .%()5, %#.%$ C%
53)B#2,% 1% ()03%)3% )%)/% )* ',D%f 1, .%$ C%1,,2% )$,.(#1:%$)3,%23 .#'%
/)3% 3,*#,/D% < % ( B,% 3,5, .,2% .( .% -,')$#1:% $)3,% 3 .#)1 *8% )3% 1).% /,,*#1:%
,$).#)1 % )/% )'# *% *#:(. %# %1).%5 3.%)/%.(,%(0$ 1% 3 ',8% .%*, .%1).%;#.(%
)03%'033,1.%N&K% ')2,D%+(,3,%# %1)% )* ',%.)%-,%/)012%/3)$%3, )1#1:% 9
% % .3 2,3% < % ( B,% *, 31,2% )$,.(#1:% -)0.% .(, ,% 01/30#./0*% ,//)3. % .)%
3, )1% : #1 .%.(,%:3 #1D%<%;)0*2% 2B# ,%f 1, .%.)%$)B,%)0.8% 12%:)%*#B,%#1%
)$,%-*0,9')** 3%1,#:(-)3())2%;(,3,%.(,C%;)0*2%/,,*%*, %(0$#*# .,2%-C%
.(,#3%1,#:(-)3 % 12%3# ,%#1%.(,%5,'@#1:%)32,3%-,C)12% .(,#3%53)- -#*#.C% )/%
0'', D% +(,C% ')0*2% 0 ,% .(,% 2,/)3$ .#)1% #1% .(,% )55) #.,% 2#3,'.#)1D% </%
f 1,. % ' 3, % -)0.% . .0 8% .(,1% < %;)0*2% ,B,1% 3,')$$,12% )$,% )/% .(, ,%
* 3:,% ()0 #1:% -*)'@ D%
>#$ 1(& <$*D.D#*,'.5& M.),(,&
B & ' $ V \ ' A L$
<% 3,',1 .*C % 3, 2 % % -, . ,**,3% ' **,2 FA# 3 %55%8-'%$# E#7( 88$N% 1%
,^.3,$,*C% $# *, 2#1:% O-0.% *$) .% ,1i)C -*,R% -))@% -C%.;)% g,^5,3. g8 % #1%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 137/219
+ T T% = K& ?% = < 7 7 < T & K <S 4 >% & 4 c +% N TT S%
IGI %
;(#'(%.(,% 0.()3 % .3C% .)%#1/,3% )$,% ..3#-0., % .( .% 3,% ')$$)1% .)%3#'(%
5,)5*,D% +(,C% ,^ $#1,2% % ')**,'.#)1% )/% '033,1.*C% ;, *.(C% 5,)5*,% 12%
/)012% )0.% .( .% .(, ,% 3, % 01*#@,*C% .)% *, 2% * B# (% *#B, D% +(,C% ' * *% 0'(%
5,)5*,% .(,% ''0$0* .)3 h% 5,3 )1 % 3, 2C% .)% 5) .5)1,% ')1 0$5.#)1% #1 %
)32,3% .)% $ % /012 D% =) .% )/% .(,% 55, *% )/% .(,% -))@% ')$, % /3)$% .(,%
#$5*,%-0.%')01.,3#1.0#.#B,% / '.%.( .%.(, ,% 3,%*, %*#@,*C%.)%*))@ %*#@,%B,3C%
3#'(%5,)5*,%9% #.%'*, 3*C%') . %$)1,C%.)% *))@% 12%-,( B,%3#'(8%1).%.)%')01.%
.(,% .#$,% 2,$ 12 % )/% 5,12#1:%$)1,CD% 7, 2#1:% 53) 5,3)0 % *#B, % # % .#$,%
')1 0$#1:h% ()55#1:% /) 3% .3,12C % '*) .(, 8% -,')$#1: % ')1B,3 1.% #1%
J)32, 0^% ;#1, 8% :,..#1:% .)% @1);% .(,% ,^5,1 #B,% 3, . 03 1. D% K** % .(, ,%
'.#B#.#, % ' 1% 50.% (#:(% 2,$ 12 % )1% )1,U % .#$,% 12% 2#B,3.% .(,% 0-i,'.%
/3)$% ;( .% ()0*2% -,%.(,% 3, *% 53,)''05 .#)18% 1 $,*C% .(,% ''0$0* .#)1%
) /% 1)$#1 *% O 12 % 5 5,3R% ;, *.(D% +(,% $)3 *% ) /% .(,% -))@% # % .( .% .(,%
;, *.(#, .% 3,%.)% -,%/)012% $)1:%.() ,%*, % 0 5,'.,2%.)%-,%;, *.(CD%T1%
.(,%).(,3% ( 128%.() ,%;()% '.% 12%*))@%;, *.(C% 0-i,'.%.(,#3%1,.%;)3.(%
.)% 0'(% %23 #1% .( .% .(,C%#1/*#'.%')1 #2,3 -*,% 12%#33,B,3 #-*,% 2 $ :,%.)%
.(,#3% -3)@,3 :,% '')01.D%
<%;#**% ,.% #2,%.(,%5)#1.%.( .%<% ,,%1)% 5,'# * A#$8%).% #1 % ''0$0* .#1:%
$)1,C8% 5 3.#'0* 3*C% #/8% #1% 22#.#)18% .(,% 5,3 )1% # % /))*# (% ,1)0:(% .)% 1).%
,B,1% .3C% .)% 2,3#B,% 1C%. 1:#-*,% -,1,/#. % /3)$% .(,%; , *.(% O #2,% /3)$% .(,%
5 *, 03, % )/% 3,:0* 3*C % ')01.#1:% .(,% -, 1 RD% <% ( B,% 1)% * 3:,% 2, #3, % .) %
'3#/#',% $0'(% )/% $C% 5,3 )1 *% ( - #. 8% #1 .,**,'.0 *% 5*, 03, 8% 12 %
5,3 )1 *% . 12 32 % #1%)32,3%.)% -,')$,% %-#**#)1 #3,% *#@,%L 33,1% J0//,..8%
12% <%',3. #1*C% 2)%1).% ,,% .(,%5)#1.% )/% -,')$#1:%)1,% #/%< %;,3,% .)% 2)5.%
>5 3. 1% O,B,1% $# ,3*CR% ( -#. % 12% *#B,% #1% $C% . 3.,3% ()0 ,D% >)$,.(#1:%
-)0.% .(,%53 # ,%* B# (,2%05)1%(#$% /)3% *#B#1:%#1% 0 .,3#.C%;(#*,%-,#1:% )%
3#'(% , ' 5, % $,h% #/% 0 .,3#.C% # %.(,% ,128% (,% ()0*2% -,')$,% %$)1@% )3% %
)'# * % ;)3@,3% 9% ;,% ()0*2% 3,$,$-,3 % .( .% -,')$#1:% 3#'( % # % % 503,*C %
,*/# (% '.8% 1).% % )'# *% )1,D% +(,% B#3.0,% )/%' 5#. *# $% # %.( .% )'#,.C% ' 1%
. @,% 2B 1. :,% )/% 5,)5*, U % :3,,2% 3 .(,3 % .( 1% .(,#3 % -,1,B)*,1',8% -0.%
.(,3,% # % 1)% 1,,2% .) 8% #1% 22#.#)18% ,^.) *% 0'(% :3,,2% % % $)3 *% O)3%
#1.,**,'.0 *R% '')$5*# ($,1.% O.(,%3, 2,3% ' 1% , #*C% ,,%.( .8% #2,% /3)$%
B,3C% /,;% ,^',5.#)1 % *#@,% V,)3:,% >)3) 8% < % $% 1).% #$53, ,2% -C% 5,)5*,%
;#.(% $)1,CRD% J,')$#1:% 3#'(% # % 1).% 2#3,'.*C% % $)3 *% '(#,B,$,1.8% -0.%
.( .% # % 1).%;(,3,% .(,% ,B,3,%/* ; % #1% .(,% -))@% *#, D%
K % ;,% #28% .(,% (,3), % )/ FA# 3%55%8-'%$# E#7( 88$% 3,% .(,%
' '0$0* .)3 8% 5,)5*,% ;() % 2,/,3% 5,12#1: % #1 % )32,3% .) % #1B, .D% <.% # %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 138/219
I G G% =T&_4?>% T&% +? M 4L S <+ 4 S >%
012,1# -*,% .( .% 0'(% .3 .,:C% $#:(.% ;)3@h% $)1,C% 5,1.% -, 3 % 1)% /30#.%
O,^',5.% .(,% ,1i)C$,1.% )/%.(,% 5,12,3RD%J0.% .(,% -,1,/#. % 53)$# ,2% #1% .(,%
-))@% ,,$% :3) *C% )B,3 . .,2D% K% /#1,3% 3, 2% )/% .(,#3% .(, # 9%3,B, * % .( .%
.(,#3% $5*,%#1'*02, % %2)0-*,%2) ,%)/% 03B#B)3 (#5%-# D%<1%) .(,3%;)32 8%
#.% ( % .;)% ')$5)012#1:% /* ; D%
Q < L < T < . < A ?$ # < + + ' L$
+(,% /#3 .%-# % ')$, % /3)$% .(,% / '.% .( .%.(,%3#'(% 5,)5*,% ,*,'.,2% /)3%.(,#3%
$5*,% 3,% $)1:% .(,%*0'@C%$)1@,C %)1%.C5,;3#.,3 D%+(,% 0.()3 %$ 2,%
1)% ..,$5.%.)% ')33,'.%.(,#3% . .# .#' %;#.(%.(,%/ '.%.( .%.(,C% ;% )1*C%.(,%
; #11,3 D% +(,C% $ @,% 1) % $,1.#)1% ) /% .(,% g ''0$0* .) 3 g% ;()% ( B,%
''0$0* .,2% .(,% ;3)1:% .(#1: % O$,$-,3 % )/% $C% / $#*C% 3,% ,^5,3. % )1%
.( .h% .() ,%;()% ''0$0* .,2% $ 1 :,2% .)% ''0$0* .,% '033,1'#, % -)0.%
.)% -,%2,B *0,2% 12% .)'@ % )/%')$5 1#, % .( .%* .,3%;,1.% -0 .RD% &);(,3,%
2)%;,% ,,% %$,1.#)1% )/%.(,%/ '.%.( .% )$,% 5,)5*,%;,3,% *0'@C% ,1)0:(% .)%
( B,% #1B, .,2% #1% .(,%; #11,3 h% .(, ,% 5,)5*,% 1)% 2)0-.%;)0*2% $ @,% .(,#3%
; C% #1.)% .(,% -))@D% +(,3,% # % % ; C% .)% . @,% ' 3,% )/% .(,% -# d% *);,3% .(,%
;, *.(%)/%C)03% B,3 :,%$#**#)1 #3,%-C 8% C8%\ Hl 8%)1%.(,%:3)012 %.( .%.(,%
- # % ' 0 , % .(,% B,3 :,% 1,.% ;)3.( % )/% .(, % )- ,3B,2% $#**#)1 #3, % .)% -, %
(#:(,3%-C% 0'(% $)01.% O#.%')1 # . %#1% 22#1:%.(,%,//,'.%)/% .(,% *) ,3 % #1.)%
.(,% 5).RD% <.% ;)0*2%',3. #1*C% $)2#/C% .(,% ')1'*0 #)1D%
A
$ < A : L$ C$ T 0 . .$ B C ' ( A$
K % .) % .(,% ,')12 8% $)3,% ,3#)0 % /* ;8% <% ( B,% *3, 2C% 2# '0 ,2 % .(,%
53)-*,$% )/% #120'.#)1D% +(,% .)3C % /)'0 , % )1% 1 % 010 0 *% ,5# )2,% #1 %
(# .)3Ch% -0C#1:% #. % .(, # % #$5*#, % '',5.#1:% .( .% .(,% '033,1.% 3,.031 % #1%
,.% B *0, % 3,% 5,3$ 1,1.% O.(,% )3.% )/% -,*#,/% .( .% 53,B #*,2% -,/)3,% .(,%
:3, .%'3 (%.( .% . 3.,2%#1% IP GP RD % S,$,$-,3% .( .% ,.%53#', % ( B,%O .#**%
.%.(,%.#$,% )/%;3#.#1:R%;#.1, ,2%.(,%:3, ., .%-0**%$ 3@,.% #1%(# .)3C% 12%
.( .% B *0, % 2#2%')$5)012% .3)1)$#' **C% 203#1:%.(,% 5 .% .;)% 2,' 2, D%
K%2)** 3%#1B, .,2%#1%.(,% B,3 :,% .)'@%;)0*2%( B,%:3);1% *$) .%.;,1.C9
/)*2 % #1',% IPZG% 9% 12 % .( .% # % .(,% B,3 :,% .)'@ D% +(,% $5*,% $#:(.%
#1'*02,% 5,)5*,% ;()% #1B, .,2% #1% .)'@ % 5,3/)3$#1:% -,..,3% .( 1% B,3 :,D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 139/219
+ T T% = K& ?% = < 7 7 < T & K < S 4 >% & 4 c +% N T T S% I G [%
Y#3.0 **C% ** % )/% .(,% 0-i,'. % -,' $,% 3#'(% /3)$% ,.% 53#',% #1/* .#)18% #1%
).(,3%;)32 % /3)$% .(,% 3,',1.% #1/* .#)1% #1% /#1 1'# *% 5 5,3% 12% ,. % .( .%
. 3.,2% #1% IPZ GD % K1% #1B, .)3% ;()% ,1: :,2% #1% .(,% $,% .3 .,:C% 203#1:%
*, % 0:0 .%2 C %/)3% .(,%$ 3@,.%;)0*2%',3. #1*C% ( B,% %2#//,3,1.% .)3C%.) %
.,**D%<$ :#1,%.(,%-))@%-,#1:%;3#..,1%#1%IPZG8% /.,3%.(,%53)*)1:,2%,3) #)1%
)/%.(,%#1/* .#)19 2i0 .,2%B *0,%)/%.(,% .)'@ 8%)3%#1% IP [\ 8% /.,3%.(,%*) % )/%
#1.,3, .% #1%.(,% .)'@% $ 3@,.D%
T3% ')1 #2,3% .( .% .(,% A1#.,2 % >. ., % .)'@ % $ 3@,.% # % 1).% .(,% )1*C %
#1B, .$,1.%B,(#'*,D%6)1 #2,3%.(,%/ .,% )/%.() ,%;()8%#1%5* ',% )/% 5,12#1:%
.(,#3 % $)1,C% -0C#1:% ,^5,1 #B,% .)C % 12% 5 C#1:% /)3 % @#% .3 #5 8% -)0:(.%
7,- 1, ,% *#3 % 2,1)$#1 .,2% +3, 03C% -#** % O % $C% :3 12/ .(,3% 2#2R8% )3%
i01@ % -)12 % /3)$% =#'( ,*% =#*@,1 % O % $ 1C % ) /% $C% ') **, :0, % #1 % .(,%
IPZH % 2#2RD% V)% - '@% #1 % (# .)3C% 12% #$ :#1,% .(,% ''0$0* .)3% -0C#1:%
S0 # 1% <$5,3# *% -)12 % -, 3#1:% .(,% #:1 .03,% )/% 6j 3% &#'()* % <<% 12%
.3C#1:% .)% ''0$0* .,% /03.(,3% -C%' (#1:% .(,$% /3)$% .(,% >)B#,.% :)B,319
$,1.8% )3% K3:,1.#1,% 3, *% , . ., % #1 % .(,% IP[H % O % $C% :3, .% :3 12/ .(,3 %
2#2RD%
+(,% $# . @,% )/% #:1)3#1:% .(,% 03B#B)3 (#5% -# % # % '(3)1#' 8% ,B,1% O)3%
5,3( 5 % , 5,'# **CR% $)1:% 53)/, #)1 * D% E);a% J,' 0 ,%;,% 3,% .3 #1,2%
.)% . @,% 2B 1. :,% )/% .(,% #1/)3$ .#)1% .( .% # % *C#1:%#1% /3)1.% )/% )03% ,C, 8%
8
% #:1)3#1:% .(,% #1/)3$ .#)1% .( .%;,%2)% 1).% ,,D%
K%-3#,/% 0$$#1:% 05% .%.(# % 5)#1.d% < % ();,2% ();%;,%.,12% .)% $# . @,%
)1,% 3, *#j .#)1% $)1:% **% 5) #-*,% 3 12)$ % (# .)3#, % % .(,% $) .%
3,53, ,1. .#B,% )1,8% /)3:,..#1:% .( . % .(,3,% $ C% -,% ).(,3 D% <1% % 10. (,**8%
.(,% 03B#B)3 (#5% -# %#$5*#, %.( . (A# A%+A#)( :#$<8$.%-+ $#'5%Z'(%8- ?%55
Y# (A# .8)( &%)%Y5#e% L(Ca% J,' 0 ,% .(,% *) ,3 %2)%1).% ();%05D%
& F$*$U,& I5./.#/&
+(,% /012% $ 1 :,$,1.% #120 .3C% # % 5)50* .,2% ;#.(% :030 D% 6*, 3*C8% .(,%
/#,*2 % # % 3 12)$1, 9* 2,1 % 12% .(,% :030 % # % :)#1:% .)% / **% #1 .) % % .3 5 8%
5 3.#'0* 3*C% # /% (,% ( % 1)% 53)5,3% .3 #1#1:% #1 % #1/,3,1',D% K.% .(,% .#$,% )/%
;3#. #1:8% .(,3,% # % )1,% 0'(% :030% ;()% 2,B,*)5,2% .(,% B,3C% 01/)3.01 .,%
( -#. % )/%;3#.#1:% -))@ % )1% .(,% 0-i,'.D% K*)1:%;#.(% )1,% )/%(# %5,,3 8% (,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 140/219
IGW %
=T&_4 ?>% T&% + ? M 4LS <+ 4 S >%
')$50.,2% .(,% 0'', % )/% % gS)-#1% E))2g% 5)*#'C% )/% #1B, .#1:% ;#.(% .(,%
*, .% 0'', /0*%$ 1 :,3%#1% %:#B,1%5)50* .#)1%)/%$ 1 :,3 D%<.%')1 # . %#1%
;#.'(#1:% 2);1%-C%. @#1:%$)1,C% ; C% /3)$% .(,%;#11,3% 12% **)' .#1:%
#.%.)%.(,% *) ,3D%+( # %:), % : #1 .%.(,%53,B #*#1:%;# 2)$% )/%#1B, .#1:%;#.(%
%; #11#1:%$ 1 :,3% 12%. @#1:% ; C%$)1,C%/3)$% %*) #1:%)1,D%N)#1:% )8%
.(,#3% g5 5,3% .3 .,:Cg% O#D,D% % #1% %=)1)5) *Cv % : $,8% 1).% ,^,'0.,2%#1%
3, *% *#/,R% 2,3#B,2% ')1 #2,3 -*C% (#:(,3% 3,.031 % .( 1% #/% .(,C% .0'@% .)% .(,%
;#11#1:%$ 1 :,3D% +(,#3% (C5).(,.#' *% ,^ $5*,% ,,$,2%.)% .(,$% .)%53)B,%
.( .%)1,% ()0*2%1).% . C%;#.(%.(,%-, .%$ 1 :,38% %;,%;)0*2% -,%#1'*#1,2%
.)% 2)8% -0.%3 .(,3% ;#.'(%.)% .(,%;)3 .%$ 1 :,38% )3% .% *, .% 0'(% ,,$ % .)%
-,%.(,% 5)#1.% .(,C%;,3,% ..,$5.#1:% .)% ')1B,CD%
+(,#3% 1 *C # % 53, ,1. % )1,% ,B,3,% (#.'(% .( .% 1C% :3 20 .,% .02,1.% #1%
/#1 1'# *% ,')1)$ #' % ()0*2%-,% -*,%.)%5#15)#1.% .%.(,%/#3 .%3, 2#1:D%+(,#3%
$5*,% )1*C% ( 2 )B$&%&8$)e% +(,C% #$5*C%/)3:).% .)% . @,% #1.)% '')01.% .(,%
$ 1 :,3 % ;()%;,1.% )0.% )/% -0 #1, D% >0'(% % $5*,% #1'*02, % $ 1 :,3 %
.( .%;,3,%)5,3 .#1:%203#1:% .(,% #$0* .#)18% 12 '$# )(%55 8:#$'(%-+ (81',e
+30,8% .(,#3% $5*,% #1'*02,2% $ 1 :,3 % ;()% 2#2% 5))3*C8% -0.% )1*C% .() ,%
$ 1 :,3 % ;()% 2#2 % 5))3*C % 12 % 3,')B,3,28% ; #.()0.% :,..#1:% )0.% ) /%
-0 #1, D% >)% #. % ;)0*2% -,% )-B#)0 % .( .% #1B, .#1:% ;#.(% .() ,% ;()% / 3,2%
5))3*C% .% )$,% 5)#1.8% -0.% 3,')B,3,2% O;#.(% .(,% -,1,/#.% )/% (#12 #:(.R%
;)0*2% C#,*2% % 5) #.#B,% 3,.031b% E 2% .(,C% ')1.#10,2% .)% / 3,% 5))3*C8% .(,C%
;)0*2% -,%)0.% )/% -0 #1, % 12%;)0*2% 1).% -,% #1'*02,2% #1%.(,% $5*,D%
E); % ()0*2% )1,% ')120'.% .(,% 53)5,3% #$0* .#)1a% JC% . @#1:% %
5)50* .#)1% )/% $ 1 :,3 % #1% ,^# .,1',8% C8% /#B,% C, 3 % :)% 12% 3011#1:%
.(,% #$0* .#)1% 01.#*%.)2 CD% 6*, 3*C8%.(,% ..3#-0., % )/%.() ,%;()%*, B,%.(,%
5)50* .#)1% 3,% -# ,2% .); 32 % / #*03,h% /,;% 0'', /0*% 5,)5*,% #1% 0'(% %
*0'3 .#B,% -0 #1, % ' **% #.% `0#. % /)3 % $ @#1:% .))% $0'(% $)1,CD% &,^.% ;,%
.031%.)% %$)3,% .,'(1#' *% 53, ,1. .#)1% )/%.(, ,% # 0, D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 141/219
1 # 1 , %
# .% # % , # , 3% . )% - 0 C% 1 2% , * *%
. ( 1% / 3 C% 1% , : :%
*8. # (#/A-%/'5 #7(#-)%8-) 8< (A# )B$&%&8$)A%: Y%')e 9- (A#
1%)($%YB(%8- 8< h/8%-/%1#-/#)h %- 5%<#e M( %) :$#<#$'Y5# (8 Y# 5B/>,
(A'- /8.:#(#-( cYB( ,8B /'- Y# /'B+A(de FA# Y%$(A1', :'$'187e
3 8$# /A'$5'('-) c'-1 .8$# g8B$-'5%)()de 08? (A# $#)#'$/A#$
?%(A ?8$> #(A%/) /'- <%-1 gB)( 'Y8B( '-,(A%-+ %- 1'('e 9- 18+)
(# % /.,31))1% <%( B,% 1% 55)#1.$,1.%;#.(%$C%2,1.# .% O#.%;#**%$) .*C%
')1 # .%#1%.(,%2,1.# .%5#'@#1:%$C%-3 #1%)1%J3 j#*# 1%-)12 RD%<%' 1% . .,%
;#.(% % ',3. #1% *,B,*% )/% ')$/)3.% .( .% (,% @1); % )$,.(#1:% -)0.% .,,.(8%
5 3.#'0* 3*C%#/%<%,1.,3%(# %)//#',%;#.(% %.)).( '(,% 12%,^#.%#.%;#.(% )$,%/)3$%
)/%3,* ,/D%<.%;#**%-,%2#//#'0*.%/)3% )$,)1,%;()%@1); %*#.,3 **C%1).(#1:% -)0.%
.,,.(% .)% 53)B#2,%$,%;#.(% 0'(% 3,*#,/8% ,^',5.% #/%(,%# %5 3.#'0* 3*C% *0'@C%)1%
.( .%2 C%9% )3%( %-,,1%B,3C%*0'@C%#1%(# %*#/,%.)% -,')$,% %2,1.# .%;(#*,%1).%
@1);#1:% 1C.(#1:% -)0.% .,,.(D% 7))@#1:% . % (# % 2#5*)$ % )1% .(,% ; **8% < %
2,.,3$#1,% .( .% .(,% )22 % .( .% (,% 3,5, .,2*C% : B,% ')33,'.% 1 ;,3 % .)% .(,%
,^ $% `0, .#)1 % 12%5,3/)3$,2% .# / '.)3#*C% )1% % /,;%.()0 12% ' B#.#, %
-,/)3,%(# %:3 20 .#)1% 9% )0.%)/% 5* #1%3 12)$1, %9% 3,%3,$ 3@ -*C% $ **D%
7 .,3%#1%.(,% ,B,1#1:8% < %:)%.)% 6 31,:#,%E **D% < %' 1% C%*#..*,% -)0.% .(,%
5# 1# .h%<%,B,1%/)3:).%(,3%01/ $ #*# 3% /)3,#:1% )012#1:%1 $,D%K **% <%@1);%
-8( Y'$>%-+e
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 142/219
I G X% =T&_4?>% T&% +? M 4L S <+ 4S >%
# %.( .% (,% .02#,2%#1% )$,%=0 ')B#.,%')1 ,3B .)3CD% J0.%<%' 1% ,^5,'.% .)%
:,. % )$,%$0 #'% )0.% )/% .(,% 5# 1)D% < .% ;#** % -,%3 3,% .)% ( B,% )$,)1,% ;()%
5,3/)3$,2%-3#**# 1.*C%,1)0:(%#1%.(,%5 .%.)%:,.%.)%6 31,:#,%E **% 12%1);%
.031 %)0.%.)%( B,%-,1,/#.,2%/3)$%*0'@% *)1,D%+(,%,^5,'. .#)1%)/%( B#1:% %
/3 02%;()%;#**%- 1:%)1%.(,%5# 1)8%53)20'#1:%)1*C%' ')5()1)0 % )012 8%
# % #12,,2%*);% ,1)0:(% /)3% $,%.)% 30*,% #.% )0.% ')$5*,.,*CD%
<% ; % #1 % 7)12)1% * .% > .032 CD% > .032 C % #1 % 7)12)1% 3, % $ :#' *h%
-0 .*#1:% -0.% ;#.()0.% .(,%$,'( 1#' *% #120 .3C% )/% % ;,,@2 C% )3% .(,% 2%
3, #:1 .#)1% )/% %>012 CD%L #.()0.% %;3# .; .'(% )3% %5* 1%<%/)012%$C ,*/%
#1% /3)1.% )/%$C% / B)3#.,% ' 3B#1: % -C% 6 1)B % .% .(,% Y#'.)3# % 12%K*-,3.%
=0 ,0$D%= C%53)/, #)1 *% -,1.%#$$,2# .,*C%$ 2,%$,%`0, .#)1%;(,.(,3%
3 12)$1, % 5* C,2% % * 3:,% 3)*,% #1% .(,% ' 3B#1:% )/% .(, ,% $ 3-*,% . .0, D%
+(,% -)2#, % ;,3,% 3, *# .#'% 3,53)20'.#)1 % )/% (0$ 1% /#:03, 8% ,^',5.% .( .%
.(,C% ;,3,% $)3,% ( 3$)1#)0 % 12% /#1,*C% - * 1',2% .( 1% 1C.(#1:% < % ( B,%
,,1% $).(,3 % 1 .03,% 53)20',% )1% #. % );1% OTB#2U
.'(#$%#. )B:#$'Y'(
8:B)% ')$, % .)%$#12RD% 6)0*2% 0'(% /#1, ,% -,% %53)20'.% )/% *0'@a%
<%' 1%53 '.#' **C%$ @,%.(,% $,% . .,$,1.% -)0.% 1C)1,%)5,3 .#1:%#1%
.(,%5(C #' *%;)3*28%)3% #1% %-0 #1, %#1%;(#'(%.(,%2,:3,,%)/%3 12)$1, %# %
*);D% J0.%.(,3,% # % %53)-*,$% #1% 1C.(#1:% 3,* .,2% .)% .(,%-0 #1, %;)3*2D% <%
$% -).(,3,2% -,' 0 ,% .)$)33);8% 01/)3.01 .,*C8% < %( B,% 1% 55)#1.$,1.%
;#.(% %/012%$ 1 :,3% ,,@#1:%$C%(,*58% 12%.( .% )/%$C% /3#,12 8%#1%/#12#1:%
#1B, .)3 D%E,%( %;( .%(,%'* #$ %# % +881 ($'/> $#/8$1e% K**%< %' 1%#1/,3%# %
.( .% (,% ( % *, 31,2% .)% -0C% 12% ,**D% K12% #. % # % ( 32,3% .)% /3C% 1% ,::%.( 1%
-0C% 12% ,**D%L , * * D D D% .(,%/ '.%.( .%(,%$ 2,%$)1,C%#1%.(,%5 .%$ C%( B,%
)$,%3,*,B 1',8%-0.%1).%.,33#-*C% )D%+(# %# %1).%.)% C%.( .%#.%# % *; C %.(,%
' ,h%.(,3,% 3,% )$,%#1 . 1', %#1%;(#'(%)1,%' 1%.30 .% %.3 '@%3,')32 8%-0 .8%
* 8%.(,3,% 3,%1).%.))%$ 1C%)/%.(, ,D%K %.(,%3, 2,3%1);%@1); 8%.(,%/012%
$ 1 :,3% ' 1% ,^5,'.% .) % -,% (,'@ *,2 % -C % $,% 203#1: % .(,% 53, ,1 . .#)18%
5 3.#'0* 3*C% #/% (,% 2), % 1).% ,^(#-#.% .(,% $#1#$0$% )/% (0$#*#.C% 12% ,*/9
2)0-.% .( .% < %;)0*2%,^5,'.% /3)$% )$,)1,% 53 '.#'#1:% 3 12)$1, D% < %;#**%
53)- -*C% -)$- 32% (#$%;#.(% `0, .#)1 % .( .% (,%$ C% 1).% -,%53,5 3,2% .)%
1 ;,38% -*#12,2% -C% (# % 5 .% 3, 0*. D% <% ;#**% 53)- -*C% *,'.03,% (#$% .( .D%
= '(# B,**#% '3#-,2% .)% *0'@% .% *, .% % \Hl% 3)*, % #1 % *#/, % O.(, % 3, .% ; %
'011#1: % 12 % -3 B03 R8% 12 % .( .% ; % -,/)3,% .(,% '3, .#)1% ) /% $)2,31 %
$ 3@,. D%
<1%.(# %'( 5.,38%<%2# '0 % )$,%;,**9@1);1% ')01.,3#1.0#.#B,% 53)5,3.#, %
)/%5,3/)3$ 1',% 3,')32 % 12%(# .)3#' *% .#$,% ,3#, D%+(,% ')1',5.% 53, ,1.,2%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 143/219
< +% < >% 4 K > < 4 S% + T% JA?% K&N% > 4 7 7% + E K&% F S ?% K&% 4 V V% I G Q%
(,3,%# %;,**%@1);1% /)3% )$,%)/%#. %B 3# .#)1 %012,3%.(,%1 $, )B$&%&8$)A%:
Y%')N 1'(' .%-%-+N 1'(' )-88:%-+N 8&#$<%((%-+N $#+$#))%8- (8 (A# .#'- N% , .' D8%
- #' **C% #.0 .#)1 % ;(,3,% .(,% 5,3/) 3$ 1',% # % ,^ ::,3 .,2 % -C % .(,%
)- ,3B,38% );#1:% .)% % $# 5,3',5.#)1% )/% .(,% #$5)3. 1',% )/% 3 12)$1, D%
6*, 3*C8% .(# % ')1',5.% ( % 3 .(,3% 01 ,..*#1:% #$5*#' .#)1 D% < .% ,^.,12 % .)%
$)3,%:,1,3 *% #.0 .#)1 %;(,3,% 3 12)$1, %$ C%5* C% % ( 3,8% 0'(% %.(,%
'()#',%)/% %$,2#' *%.3, .$,1.%)3%.(,%#1.,353,. .#)1%)/%')#1'#2,1. *%,B,1. D%
L(,1 % <% $% .,$5.,2 % .) % 0::, .% % 5) #- *,% /0.03,% ')1.3#-0.#)1% ) /%
/#1 1'# *% 3, , 3'(% .)% '#,1',% #1% :,1,3 *8% < % 220',% .(,% 1 *C # % )/% 2 . %
$#1#1:% 12%.(,% .02C%)/% 03B#B)3 (#5% -# , D% +(, ,% ( B,%-,,1%3,/#1,2% #1%
/#1 1',% -0.% ' 1% ,^.,12% .)% ** % 3, % )/% '#,1.#/#' % #1B, .#: .#)1D% L(C% # %
/#1 1',% )%3#'(% %/#,*2a% J,' 0 ,%#.%# %)1,%) /%.(,%3 3,% 3, %) /% #1B, .#: .#)1%
;(,3,% ;,% ( B,% 5*,1.C% )/% #1/)3$ .#)1% O#1 % .(,% /)3$% )/% -012 1.% 53#',%
,3#, R8% -0.% 1)% -#*#.C% .)% ')120'.% ,^5,3#$,1. % % #18% C8% 5(C #' D% +(# %
2,5,12,1',% )1% 5 .% 2 . % -3#1: % -)0.% #. % *#,1.% 2,/,'. D%
J##1(2& C& 3$= (*,&
\ . C = T &$ < + Q L A & ' L$
<% ( B,% )/.,1% -,,1% / ',2%; #.(% `0, .#)1 % )/% .(,% )3.d % gL()% 2)%C)0% .(#1@%
C)0% 3,%.)%.,**%$,%.( .%< %$#:(.%( B,%-,,1% 5* #1% *0'@C% #1%$C%*#/,ag% L,**8%
1)-)2C% 3, **C% -,*#,B, % .( .% (,% )3% (,%; % *0'@CD% =C% 553) '(% # % .( . 8%
; #.( % )03% =)1.,% 6 3 *) % ,1: #1,8% ;,% ' 1 % $ 10/ '.03,% 503,*C % 3 12)$%
#.0 .#)1 D% L,% ' 1% 2)% .(,% ,^ '.% )55) #.,% )/% ')1B,1.#)1 *% $,.()2 h% #1%
5 * ', % )/% 1 *Cj#1:% 3, *% 5,)5*, % (01.#1:% /)3% ..3#-0., % ;,% ' 1 % '3, ., %
3.#/#'# *% )1, % ;#.(% 53,'# ,*C% @1);1% ..3#-0., D% +(0 % ;,% ' 1% $ 10/ '9
.03,% #.0 .#)1 % .( . % 2,5,12% )1% 503,8% 01 20*.,3 .,2% *0'@8% ;#.()0.% .(,%
( 2);% )/% @#** % )3%;( .,B,3%;,% ( B,%' **,2% 1)19*0'@% #1%+ -*,% M D * D % <1%
).(,3%;)32 8%;,%' 1%$ 19$ @,% 503,%1)-)2#, %.)% * 0:(% .h%.(,C%;#**%-,%
Y, 1#)%+-% .3#55,2%) /% 1C% ( 2);%) /% -#*#.C%O,^ '.*C%*#@,% %5* ',-) %230:RD%
L,% ;% #1% 6( 5.,3 % \ % ();% 5,)5*,% $ C% 03B#B,% );#1:% .)% .3 #. % .( .%
$)$,1. 3#*C% /#. %.(,% :#B,1% .30'.03,% )/% 3 12)$1, D% E,3,% ;,%. @,% % / 3%
#$5*,3% #.0 .#)1% ;(,3,
?# >-8? (A# )($B/(B$# 8< $'-18.-#))HN
% .(,%/#3 . %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 144/219
IGZ %
=T&_4 ?>% T&% + ? M 4LS < + 4 S>%
0'(%,^,3'# ,% # % %/#1, #1:% )/%.(,%)*2%5)50* 3% C#1:%.( .
#&#- ' Y$8>#-
/58/> %) $%+A( (?%/# ' 1',e
% L,% ;#**% . @,% #.% % - #.% /03.(,3% .)% ();% .( .%
. .# .#' % # % % @1#/,% .( .% '0. % )1% -).(% #2, D%7,.% 0 %0 ,%.(,%=)1.,% 6 3*)%
:,1,3 .)3% #1 .3)20',2 % , 3*#,3% 12 % ')1 .30'.% % 5)50* .#)1% ) /% IH 8 HHH%
/#'.#)1 *% #1B, .$,1.% $ 1 :,3 % O.(,% :,1,3 .)3% # % 1).% .,33#-*C% 1,', 3C%
#1',%;,% ' 1% 0 ,% %')#18% )3%,B,1%2)%5* #1% *:,-3 8% -0.%#.%# % ')1 #2,3 -*C%
$)3,% #**0 .3 .#B,%9% 12%/01RD%K 0$,%.( .%.(,C%, '(%( B,% % 5,3/,'.*C%/ #3%
: $,h%, '(%)1,%( % %\ Hl% 53)- -#*#.C% )/%$ @#1:%p IH 8HH H% . % .(,%,12%) /%
.(,%C, 38% 12% %\ Hl% 53)- -#*#.C% )/% *) #1:%pI H8H HH D% 7,.%0 % #1.3)20',% 1%
22#.#)1 *% 3, .3#'.#)1h% )1',% % $ 1 :,3% ( % % #1:*,% - 2 % C, 38% (,% # %
.(3);1% )0.% )/% .(,% $5*,8% :))29-C,% 12%( B,% %1#',% *#/,D% +(0 % ;,%;#**%
)5,3 .,% *#@,%.(,%*,:,12 3C% 5,'0* .)3% V,)3:,% >)3) %;()%; % #2%.)%.,**%
(# %$ 1 :,3 % : .(,3,2% #1% % 3))$d% g( */%)/%C)0%:0C %;#**%-,%)0.% -C%1,^.%
C, 3g% O;#.(% 1%4 .,31%403)5, 1% '',1.RD% 7#@,%>)3) 8%;,%( B,%,^.3,$,*C%
(#:(% . 12 32 h% ;,% 3,% *))@#1:%)1*C%/)3%$ 1 :,3 % ;#.(% 1% 01-*,$# (,2%
3,')32D%L ,% ( B,% 1)%5 .#,1',% /)3% *);% 5,3/)3$,3 D%
+(,%=)1.,% 6 3*)% :,1,3 .)3%;#** % .) % % ')#1h A#'1)% 12% .(,% $ 1 :,3%
;#**%$ @,%pIH8HHH%)B,3%.(,%C, 38 ('%5)% 12%(,%;#** % *) ,%p IH 8HH HD %L ,%301%
#.%/)3%.(,%/#3 .%C, 3D%K.%.(,%,12%)/%.(,%C, 38%;,%,^5,'.% \8 H HH%$ 1 :,3 %.)%
-, %05 %pI H 8HHH % , '(8% 12%\ 8HHH % .) % -, %2);1% pIH 8HH H D% &);% ;,% 301% .(, %
: $,% % ,')12%C, 3D%K: #18%;,%' 1%,^5,'.% G8 \H H%$ 1 :,3 %.)% -,%05%.;)%
C, 3 % #1% %3);h% 1).(,3%C, 38% I8G\H h% % /)03.(%)1,8% XG\ h% % /#/.(8% [I[ D% L,%
( B,% 1);8% #$5*C% #1 % % / #3% : $,8% [I[% $ 1 :,3 % ;()%$ 2,%$)1,C% /)3%
/#B,%C, 3 % #1% % 3);D% T0.% )/% 503,% *0'@D%
+ & T & , ?$ > C L$ A & $ T $ = & B \ A + A$
7,.U %50 (% .(,% 3:0$,1.%/03.(,3%.)%$ @,% #.%$)3,%#1.,3, .#1:D%L ,%'3, .,% %
')()3.% .( .% # %')$5) ,2% ,^'*0 #B,*C% )/%#1')$5,.,1.% $ 1 :,3 D%L ,%;#**%
2,/#1,% 1%#1')$5,.,1.%$ 1 :,3% % )$,)1,%;()%( % %1,: .#B,
#7:#/(#1
$#(B$-N
% .(,%,`0#B *,1.%) /%.(,%)22 %-,#1:% . '@,2% : #1 .%(#$D%L,%#1 .30'.8%
.(,%=)1.,% 6 3*)%:,1,3 .)3% 1);%.)% 23 ;% /3)$% 1%031D%+(,% 031%( % IHH%
- ** 8% W\% -* '@% 12%\ \% 3,2D% JC%23 ;#1:%;#.(% 3,5* ',$,1.8% .(,% 3 .#)% )/%
3,2% .)% -* '@% - ** % ;#**% 3,$ #1% .(,% $,D% < /% ;,% 23 ;% % -* '@% - * *8% .(,%
$ 1 :,3%;#**%, 31% pI H8H HH D% </%;,%23 ;% %3,2%- **8%(,%;#**% *) ,% pI H8H HH D%
+(,% $ 1 :,3% # % .(0 % ,^5,'.,2% .)% , 31% pIH 8HHH% ;#.(% W \l% 53)- -#* #.C8%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 145/219
< +% < >% 4 K > < 4 S% + T% J A ?% K&N% > 4 7 7% + E K&% F S ?% K&% 4 V V% I G P%
12% *) ,% pIH 8HHH% ;#.(% \\ l D% T1% B,3 :,8% .(,%$ 1 :,3%;#**% *) ,% pI8HH H%
, '(% 3)012%9% -0.% )1*C 8- '&#$'+#e
K.%.(,% ,12% )/% .(,% /#3 . % C, 38% ;,% .#** % ,^5,'.% .)% ( B,% W8\ HH% $ 1 :,3 %
.031#1:% %53)/#.% OW \l % )/%.(,$R8%.(,% ,')128%W \l% )/%.( .%10$-,38% G8H G\ D%
+(,% .(#328% PI Ih% .(,%/)03.(8%W IH h% .(,%/#/.(8% IZW D% 7,.% 0 %:#B,%.(,% 03B#B#1:%
$ 1 :,3 % 1 $, % 12%23, % .(,$% #1% -0 #1, % 0#. D% +30,8% .(,C% 3,53, ,1.%
*, %.( 1%G l% )/%.(,%)3#:#1 *%')()3.D%J0.%.(,C%;#**%:,.% ..,1.#)1D%&)-)2C%
;#** %$,1.#)1% .(,%).(,3% PZ l D% L( .%' 1% ;,%')1'*02,a%
+(,% /#3 .%')01.,3#1.0#.#B,%5)#1.%# %.( .% %5)50* .#)1% ,1.#3,*C% ')$5) ,2%
)/% - 2%$ 1 :,3 %; #**%53)20',% % $ **% $)01.%)/%:3, .%.3 '@% 3,')32 D%K %
% $ ..,3% )/% / '.8% 0$#1:% .(,% $ 1 :,3% (); % 05% 01 )*#'#.,2% .% C)03%
2))38%#.%;#**%-,%53 '.#' **C%#$5) #-*,%.)% /#:03,%)0.%;(,.(,3%(,%# %:))2%)3%
- 2D% +(,% 3, 0*. % ;)0*2% 1).% $ 3@,2*C% '( 1:,8% ,B,1% #/ % .(,% 5)50* .#)1%
;,3,%')$5) ,2%,1.#3,*C%)/%$ 1 :,3 %;()% 3,%,^5,'.,2% #1%.(,%*)1:%301%.)%
*) ,%$)1,CD%L(Ca% J,' 0 ,% );#1:%.)% B)* .#*#.C8% )$,% )/%.(,$%; #**%$ @,%
$)1,CD% L,% ' 1% ,,% (,3,% .( .% B)* .#* #.C% '.0 **C% (,*5 % - 2% #1B, .$,1.%
2,'# #)1 D%
+(,% ,')12% ')01.,3#1.0 #.#B,% 5)#1.% # % .( .% .(, #7:#/('(%8- 8< (A#
.'7%.B.
% )/%.3 '@% 3,')32 8%;#.(%;(#'(%;,% 3,%')1',31,28%2,5,12 %$)3,%
)1% .(,% #j,% ) /% .(,% #1#.# *% $5*,8% .( 1% )1% .(,% #12#B#20 *% )22 % 5,3%
$ 1 :,3D% <1 % ) .(,3% ;)32 % .(,% 10$-,3% ) /% $ 1 :,3 % ;#.( % :3, .% .3 '@ %
3,')32 % #1% % :#B,1% $ 3@,.% 2,5,12 % / 3% $)3,% )1% .(,% 10$-,3% )/% 5,)5*,%
;()% . 3.,2% #1 % .(,% #1B, .$,1.% -0 #1, % O#1 % 5 * ', % )/% :)#1:% .) % 2,1. *%
'())*R8% 3 .(,3% .( 1% )1% .(,#3% -#*#.C%.)% 53)20',% 53)/#. D% <.% * )% 2,5,12 %
)1% .(,% B)* .#*#.CD% L(C% 2)% <% 0 ,% .(,% 1).#)1% )/% ,^5,'. .#)1% ) /% .(,%
$ ^#$0$a% J,' 0 ,% <% $% 1).% ')1',31,2% .% **% ;#.(% .(,% B,3 :,% .3 '@%
3,')32D% <% ;#**% :,.% .)% ,,% )1*C% .(, Y#)(% ) /% .(,% $ 1 :,3 8% 1).% **% ) /% .(,%
$ 1 :,3 D% +(# % $, 1 % .( .% ;,% ;#**% ,,% $)3,% g,^',**,1.% $ 1 :,3 g% #1 %
GHHG % .( 1 % #1 % IPPZ 8 % 53)B#2,2% .(,% ')()3.% )/% -,:#11,3 % ; % :3, .,3% #1 %
IPPQ% .( 1% #.%; % #1 % IPP[% 9% <% ' 1% /,*C% C% .( .% #.% ; D%
' / & , < = < A ? $
+)% :,. %$)3,% .,'(1#' *8% < %( B,% .)% C% .( . % 5,)5*,% -,*#,B,% .( . % .(,C% ' 1%
/#:03,% )0.% .(,% 53)5,3.#, % )/% .(,% 2# .3#-0.#)1% /3)$% .(,% $5*,% .(,C% 3,%
;#.1, #1:D%L(,1% #.%')$, %.)%$ ..,3 %.( .%2,5,12%)1%.(,%$ ^#$0$8%#.%# %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 146/219
I [ H %
=T&_4 ?>% T&% + ? M 4LS <+ 4 S >%
*.):,.(,3% 1).(,3% 2# .3#-0.#)1% .( . % # % -,#1:% #1/,33,28% .( . % )/% .(,% -, . %
5,3/)3$,3 D% L,% ' **% .(,% 2#//,3,1',% -,.;,,1% .(,% B,3 :,% ) /% 0'(%
2# .3#-0.#)1% 12% .(,% 01')12#.#)1 *% 2# .3#-0.#)1% )/% ;#11,3 % 12% *) ,3 %
.(, )B$&%&8$)A%: Y%') H% (,3,%.(,%/ '. % .( . % -)0.%[ l% )/% .(,% #1#. # *% ')()3.%
;#**%$ @,%$)1,C%/#B,%C, 3 %#1% %3); D%<1% 22#.#)18%.(# %,^ $5*,% #**0 .3 ., %
.(,% 53)5,3.#, % ) / #$+81%/%(,N% 1 $,*C8% .( .% .#$,% ;#**% ,*#$ #1 .,% .(,%
11)C#1:% ,//,'. % )/% 3 12)$1, D% 7))@#1:% /)3; 328% #1% 5#.,% )/% .(,% / '. %
.( . % .(, ,% $ 1 :,3 % ;,3,% 53)/#. -*,% #1% .(,% 5 .% /#B,% C, 3 8% ;,% ,^5,'. %
.(,$% .)% -3, @% ,B,1% #1% 1C% /0.03,% .#$,% 5,3#)2D% +(,C%;#**% / 3,% 1)% -,..,3%
.( 1% .() ,% )/%.(,%#1#.# *%')()3.% ;()% / #*,2%, 3*#,3%#1%.(,%,^,3'# ,D%K(8%.(,%
*)1:%.,3$D%
K% /,;% C, 3 % :)8%;(,1% <%.)*2%)1,%KD8 % % .(,1% = .,39)/9.(,9A1#B,3 ,%
.C5,8%.( .%.3 '@% 3,')32 %;,3,%*, %3,*,B 1.%.( 1%(,%.()0:(.8%(,% /)012%.(,%
3,$ 3@% )% )//,1 #B,% .( . % (,% B#)*,1.*C% /*01:% (# % '#: 3,..,% *#:(.,3% #1% $C%
2#3,'.#)1D% +(,% ,5# )2,% . 0:(.% $,% %*).D% S,$,$-,3% .( .% 1)-)2C% '',5. %
3 12)$1, % #1%(# %);1% 0'', 8%)1*C%(# %/ #*03,D%E # %,:)%; %50$5,2%05%
% (,%; % (, 2#1:% 05% %2,5 3.$,1.% )/% g:3, . % .3 2,3 g% ;()% ;,3,% .(,1%
.,$5)3 3#*C% $ @#1:% % /)3.01,% #1% .(,%$ 3@,. D% +(,C% 0- ,`0,1.*C% -*,;%
05%203#1:%.(,% ( 3 (%&,;%?)3@%;#1.,3%)/% IP PW% O#. %; %.(,% -)12%$ 3@,.%
'3 (% .( .% /)**);,2% .(,% 0353# ,% #1.,3, .% 3 .,% (#@,% -C%K* 1% V3,,1 5 1RD%
+(,% #1.,3, .#1:% 5 3.% # %.( .% #^% C, 3 % * .,3% <%' 1% ( 32*C% /#12% 1C%) /%.(,$%
.#**% .3 2#1:% O,3:)2#'#.CRD%
S,' **% .( . % .(,% 03B#B)3 (#5% -# % 2,5,12 % )1% .(,% #j,% )/% .(,% #1#.# * %
5)50* .#)1D%+( ,%#1/)3$ .#)1%.( .% %5,3 )1%$ 2,%$)1,C%#1%.(,%5 .8% i0 .%
-C%#. ,*/8%# %1,#.(,3%$, 1#1:/0*%1)3%3,*,B 1.D%L,%1,,2%.)%@1); %.(,% #j,%)/%
.(,% 5)50* .#)1% /3)$%;(#'(% (,% ' $,D% <1% ).(,3% ;)32 8% ;#.()0.% @1);#1:%
();%$ 1C%$ 1 :,3 %)0.%.(,3,%( B,%.3#,2% 12%/ #*,28%;,%;#**%1).%-,% -*,%
.) % , % .(,% B *#2 #.C % ) /% .(,% .3 '@% 3,')32 D% </% .(,% #1 #.# *% 5)50 * .#)1%
#1'*02, %.,1%$ 1 :,3 8%.(,1%<%;)0*2%:#B,%.(,%5,3/)3$,3%( */%$C% B#1: %
; #.()0.% % -*#1@D% </% .(,% #1#.# *% 5)50* .#)1% # % ')$5) ,2% ) /% I H 8H H H%
$ 1 :,3 8%<%;)0*2%#:1)3,%.(,%3, 0*. D%+(,%* ..,3% #.0 .#)1%# %:,1,3 **C%.(,%
' ,h% .(, ,% 2 C % )% $ 1C % 5,)5*,% ( B,% -,,1% 23 ;1% .)% .(,% /#1 1'# *%
$ 3@,. D% = 1C% ')**,:,% :3 20 ., % 3,% .3 2#1:% % % /#3 .% ' 3,,38% / #*#1:8%
.(,1%:)#1:% .)% 2,1. *% '())*D%
< / 8% % #1% % / #3C% . *,8% .(, ,% /#'.#)1 *% $ 1 :,3 % $ .,3# *#j,2% #1.)% 3, *%
(0$ 1%-,#1: 8%)1,%)/%.(, ,%')0*2% -,%.(,%5,3 )1%<% $%$,,.#1:% .)$)33); %
.% IIDW\% D$D%L(C%2#2%< % ,*,'. % IIDW\% D$Da% J,' 0 ,% < %;#** %`0, .#)1% (#$%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 147/219
< +% < >% 4 K > < 4 S% + T% J A ?% K&N% > 4 7 7% + E K&% F S ?% K&% 4 V V% I [ I%
-)0.%(# %.3 2#1:% .C*,D%<%1,,2%.)%@1);%(); %(,%.3 2, D%<%;#**%.(,1%-,% -*,%
.)%'* #$% .( .%<%( B,%.)% 30 (%.)% %*01'(% 55)#1.$,1.% #/%.(,%$ 1 :,3% 50. %
.))% $0'(% ,$5( # % )1% (# % .3 '@% 3,')32D%
V.L(& ?,& 0#./@.2(/%)1&
&,^.% ;,% *))@% .% .(,% ,^.,1 #)1 % .)% 3, *% *#/,% )/% )03% -# % #1% .(,%
012,3 . 12#1:% )/% .(,% 2# .3#-0.#)1% )/% ')#1'#2,1', D%
A > $ B ? L A ' < & 0 L$ . A A ' $
?)0% :,.% 1% 1)1C$)0 % *,..,3% )1% f 10 3C% G12% #1/)3$#1:% C)0% .( .% .(,%
$ 3@,.% ;#**% :)% 05 % 203#1:% .(, % $)1.( D% <.% 53)B, % .)% -, % .30,8% -0.% C)0%
2# 3,: 32% #.% );#1:% .)% .(,%;,**9@1);1% f 10 3C% ,//,'.% O .)'@ % ( B,% :)1,%
05%(# .)3#' **C%203#1:%f 10 3CRD%+(,1% C)0%3,',#B,% 1).(,3%)1,%)1% F,-% I .%
.,**#1:% C)0% .( .% .(,% $ 3@,.% ;#** % :)% 2);1D% K: #18% #. % 53)B, % .)% -,% .30,D%
+(,1%C)0%:,.% 1).(,3% *,..,3%)1%= 3'(% I .%9% $,% .)3CD% JC%f0*C%C)0% 3,%
#1.3#:0,2%-C%.(,%53, '#,1',%)/%.(,% 1)1C$)0 %5,3 )1% 12%C)0% 3,% @,2%
.)% #1B, . % #1% % 5,'# *% )// ()3,% /012D% ?)0% 5)03% ** % C)03% B#1: % #1.)% #.D%
+;)%$)1.( %* .,38%C)03%$)1,C%# %:)1,D%?)0% :)% 5#**%C)03%., 3 % )1%C)03%
1,#:(-)3U % ()0*2,3% 12%(,%.,** %C)0%.( .%(,% 3,$,$-,3 %.( .%(,%3,',#B,2%
.;)% 0'(% $C .,3#)0 % *,..,3 D% J0.% .(,% $ #*#1: % .)55,2% .% .(,% ,')12%
*,..,3D%E,% 3,' ** %.( .%.(,%/#3 .%)1,%; %')33,' .%#1%#. %53,2#'.#)18%.(,%) .(,3%
#1')33,'.D%
L( .% ( 55,1,2a% +(,% .3#'@ % # % % /) **); D% +(,% ')1% )5,3 .)3% 50** %
IH 8HH H% 1 $, %)0.%)/% %5()1,%-))@D%E,%$ #* % %-0**# (%*,..,3%.)%)1,% ( */%
)/%.(,% $5*,8% 12% %-, 3# (%)1,%.)% .(,%).(,3%( */D%+(,% /)**);#1:%$)1.(%
(,% ,*,'. % .(,%1 $, %)/%.(,%5,3 )1 % .)%;()$% (,%$ #*,2%.(,%*,..,3%;() ,%
53,2#'.#)1% .031,2%)0.%.)% -,%3#:(.8%.( .%# 8 %\ 8HH H% 1 $, D%+(,% 1,^.% $)1.(%
(,%2), %.(,% $,%;#.(%.(,%3,$ #1#1:%G 8\ H H% 1 $, 8% 01.#*%.(,%*# .%1 33); %
2);1%.)% \H H% 5,)5*,D% T/% .(, ,%.(,3,%; #**%-,%G HH% B#'.#$ D% K1% #1B, .$,1.%
#1% %/,;%.()0 12%2)** 3 %;)3.(%)/%5) . :,% . $5 %;#**%.031% #1.)% ,B,3 *%
$#**#)1D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 148/219
I [ G %
=T&_ 4? >% T&% + ? M 4LS <+ 4 S >%
C +$ < + A ' ' 0 \ A ,$ A + + < L$ / C B $
<.%# %1).%01')$$)1% /)3% )$,)1,%; .'(#1:% %.,11# %: $,%)1%.,*,B# #)1% .)%
-,% -)$- 32,2% -C% 2B,3.# ,$,1. % /)3% /012 % .( .% 2#2% O01.#*% .( .% $#10.,R%
)0.5,3/)3$% ).(,3 % -C% )$,% 5,3',1. :,% )B,3% )$,% 5,3#)2D% J0.8% : #18%
;(C% ;)0*2% 1C-)2C% 2B,3.# ,% #/% (,% 2#21U. % ( 55,1% .)% )0.5,3/)3$% .(,%
$ 3@,.a% +(,3,% # % %(#:(% 53)- -#*#.C% )/%.(,% #1B, .$,1.% ')$#1:% .)%C)0% #/%
#. % 0'', % # %' 0 ,2% ,1.#3,*C% -C%3 12)$1, D% +(# % 5(,1)$,1)1% # %;( .%
,')1)$# . % 12% #1 03 1', % 5,)5*, % ' **% 2B,3 , % , *,'.#)1D% f02:#1:% 1 %
#1B, .$,1.% .( . % ')$, % .)% C)0% 3,`0#3, % $)3,% .3#1:,1.% . 12 32 % .( 1%
i02:#1: % 1 % #1B, .$,1.% C)0 % ,,@ 8% );#1: % .) % 0'( % ,*,'.#)1% - # D% F)3%
,^ $5*,8% -C%:)#1:%.)% %')()3.%')$5) ,2% )/%I H8H HH% $ 1 :,3 8%< %( B,%Gr%
I HH% '( 1', % ) /% /#12#1: % % 503#)0 % 03B#B)3D% JC% . C#1:% ()$,% 12 %
1 ;,3#1: % $C% 2))3% -,**8% .(,% '( 1',% ) /% .(,% ) *#'#.#1: % 5 3 .C % -,#1: % %
503#)0 % 03B#B)3% # %'*) ,3% .)% IH Hl D%
A > $ T < ' A > , C ?$ \ C ' C , & V$
+(,% $) .% #1.0#.#B,%; C% .)% 2, '3#-,% .(,% 2 . % $#1#1:% 53)-*,$% .)% % 1)19
. .# .#'# 1% # %.(3)0:(% ;( .% # %' **,2% .(,%-#3.(2 C% 5 3 2)^8% .()0:(% #.% # %
1).% 3, **C% % 5 3 2)^8% #$5*C% % 5,3',5.#)1 *% )22#.CD% </% C)0% $,,.%
)$,)1,% 3 12)$*C8% .(,3, % # % % )1, % #1 % [X\ DG\ % '( 1', % )/% C)03% ( 3#1:%
.(,#3% - #3.(2 C8% 12 % % ')1 #2,3 -*C % $ **,3% )1,% ) /% ( B#1: % .(,% ,^ '.%
-#3.(2 C% )/% .(,% $,% C, 3D% >)8% ( 3#1:% .(,% $,% -#3.(2 C% ;)0*2% -,% %
')#1'#2,1. *% ,B,1.%.( .% C)0%;)0*2% 2# '0 % .%.(,% 2#11,3% . -*,D% &); % *,.%
0 %*))@% .% % #.0 .#)1%;(,3,%.(,3,% 3,%G [% 5,)5*,% #1% %3))$ D%L( .% # %.(,%
'( 1',% )/%.(,3,% -,#1:%.;)%5,)5*,%;#.(%.(,% $,% -#3.(2 Ca% K-)0.% \ Hl D%
F)3% ;,% 3,% 1).% 5,'#/C#1:% ;(#'(% 5,)5*,% 1,,2% .)% ( 3,% % -#3.(2 Ch% 1C%
5 #3% ;)3@ D%
< A : L$ C$ L B C . .$ # & ' . , ^
1$
K% #$ #* 3% $ # ')1',5.#)1% )/% 53)- -#*#.#, % 3# , % /3)$ % .(,% 3 12)$ %
,1')01.,3 % )1,%$ C%( B,%;#.(% 3,* .#B, % )3%/3#,12 %#1%(#:(*C% 01,^5,'.,2%
5* ', D% g<. U % % $ **% ;)3*2g% # % )/.,1%0..,3,2%;#.(% 0353# ,D% J0.%.(, ,% 3,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 149/219
< +% <>% 4 K > < 4 S% + T% JA?% K&N% > 4 7 7% + E K&% F S ?% K&% 4 V V% I [ [%
1).%#$53)- -*,% )''033,1', %9% .(,%;)3*2%# %$0'(%* 3:,3%.( 1%;,%.(#1@D% <.%
# %i0 .%.( .%;,% 3,%1).% .30*C%., .#1:% /)3%.(,% )22 % )/%( B#1:% 1% ,1')01.,3%
;#.(%)1,% 5,'#/#'%5,3 )18%#1% % 5,'#/#'%*)' .#)1% .% % 5,'#/#'%.#$,D% S .(,38%
;,% 3,% #$5*C% ., .#1:% /)3% 1C%,1')01.,38%;#.(% 1C%5,3 )1%;,% ( B,% ,B,3%
$,.% #1% .(,% 5 .8% 12 % #1% 1C % 5* ',% ;,% ; #**% B# #.% 203#1: % .(,% 5,3#)2 %
')1',31,2D% +(,% 53)- -#*#.C% )/%.(,% * ..,3%# %')1 #2,3 -*C% (#:(,38%5,3( 5 %
,B,3 *% .()0 12% .#$, % .(,%$ :1#.02,% )/% .(,% /)3$,3D%
L(,1%.(,% . .# .#'# 1%*))@ % .%.(,%2 . (8 (#)( ' +%&#- $#5'(%8-)A%: 8% C%
.)%/,33,.%)0.%.(,%')33,* .#)1% -,.;,,1%.(,%)''033,1',% )/% %:#B,1%,B,1.8%*#@,%
% 5)*#.#' *% 11)01',$,1.8% 12% .)'@%$ 3@,.% B)* .#*#.C8% )22 % 3,% .( .%.(,%
3, 0*. % ' 1% -,% . @,1% ,3#)0 *CD% J0.% ;(,1% )1,% .(3); % .(,% ')$50.,3% .%
2 . 8%*))@#1:%/)3%i0 .% -)0. '- ,% 3,* .#)1 (#58% #.%# %',3. #1%.( .% % 503#)0 %
')11,'.#)1%;#**%,$,3:,8% 0'(% %.(,%/ .,%) /%.(,% .)'@%$ 3@,.%-,#1:%*#1@,2%
.)%.(,%*,1:.(% )/%;)$,1U % @#3. D%K12%i0 .%*#@,%.(,% -#3.(2 C% ')#1'#2,1', 8%
#.%;#**% $ j,% 5,)5*,D%
, C A C$ B < + < + / P$ L A C A < L A < = L P$ C + ,$ = > C ' . C A C + < L B $
L( .% # %C)03%53)- -#*#.C% )/%;#11#1:% .(,%&,;% f,3 ,C% *)..,3C% .;#',a% T1,%
#1%IQ% .3#**#)1D%? ,.%#.%( 55,1,2%.)%4B,*C1%K2 $ 8%;()$% .(,%3, 2,3%$ #:(.%
:0, % ()0*2% /,,*% 5 3.#'0* 3*C% '() ,1% -C% 2, .#1CD% A #1:% .(,%$,.()2%;,%
2,B,*)5,2% -)B,8% E 3B 32U % M,3'C% N# ')1# % 12% F3,2,3#'@% =) .,**,3 %
, .#$ .,2% .% [H % .) % I % .(,% 53)- -#*#.C % .( .% )$,)1,8% )$,;(,3, 8% #1 % %
.). **C% 01 5,'#/#,2% ; C8%:,. % )% *0'@Cb%
>)$,% 5,)5*,% ' 33C% .(,#3% 2 . % $#1#1:% '.#B#.#, % #1.)% .(,)*):C% 9% /.,3%
**8% 1'#,1.%=,2#.,33 1, 1 % 0 ,2%.)%3, 2%5).,1.% $, :, % #1%.(,% ,1.3 #* %
)/%-#32 D%K1%#1.,3, .#1:%,^.,1 #)1% )/% 2 . %$#1#1:% #1.)%-#-*#' *%,^,:, # %# %
53)B#2,2% #1 FA# X%Y5# @81#% -C % =#'( , *% N3) 1 #1 D% N3) 1 #1 8% % /)3$,3%
i)031 *# .% O ,,$#1:*C%#11)',1.% )/% 1C%.3 #1#1:% #1% . .# .#' R8% #2,2%-C% .(,%
;)3@ % )/% % g$ .(,$ .#'# 1g8% (,*5,2% g53,2#'.g% S -#1U % #1 .#)1% -C%
2,'#5(,3#1:% % -#-*,% ')2,D% E,% #1/)3$,2% S - #18% ;()% )-B#)0 *C% 2#2% 1).%
. @,%#.%.))% ,3#)0 *CD FA# X%Y5# @81#% /#12 % . .# .#' *%#33,:0* 3#.#, % #1%.(,%
J#-*,89%.(, ,%(,*5
:$#1%/( )8.# )B/A
% ,B,1. D%&,,2*, %.)% C%.( .%.(,%-))@%
)*2% ;,**D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 150/219
I [ W %
=T&_ 4? >% T&% + ? M 4LS <+ 4 S >%
A > $ T L A$ T & & ($ <$ > C Q $ Q '$ ' C , j$
=C% / B)3#.,% .#$,% # % 5,1.% #1% -))@ .)3, 8% ;(,3,% < % #$*, *C% $)B,% /3)$%
-))@% .)% -))@% #1% 1% ..,$5.%.)%$ @,% %2,'# #)1% %.)%;(,.(,3%.)% #1B, . %
.(,% .#$,% #1%3, 2#1:% #.D%=C% -0C#1:% # %/3,`0,1.*C%$ 2,% )1% #$50* ,8% - ,2%
)1% 05,3/#'# *%-0.% 0::, .#B,%'*0, D%F3,`0,1.*C% <%( B,%1).(#1:% -0.% % -))@%
i '@,.% % 55,12 :,%.)%$C%2,'# #)1%$ @#1:D%f '@,. %)/.,1%')1. #1%53 # ,%
-C % )$,)1,8% / $)0 % )3% 1).8% ) 3% ,^',35. % /3)$% % -))@% 3,B#,;D% V))2%
53 # , % -C% % / $)0 % 12% 3, 5,'.,2% 5,3 )1% )3% % ;,**9@1);1% $ : j#1, %
;)0*2% ; C% $,%#1.)% -0C#1:%.(,% -))@D%
L( .% # % .(,% 53)-*,$a% <% .,12 % .) % ')1/0 ,% % -))@% 3,B#,;8% ;(#'( % # %
055) ,2%.)% -,% 1% , $,1.% )/%.(,% `0 *#.C% )/% .(,% -))@8% ;#.(% .(, Y#)(
-))@% 3,B#,; 8%$ 33,2% ;#.(% .(,% $,% 03B#B)3 (#5% -# , D% < %$ # . @,% .(,%
2# .3#-0.#)1% )/% .(,% $ ^#$0$% )/% % B 3# -*, % ;#.( % .( . % )/% .(,% B 3# -*, %
#. ,*/D% +(,% 50-*# (,3% ;#**% 1,B,3% 50.% )1% .(,% i '@,.% )/% .(,% -))@% 1C.(#1:%
-0.%.(,%-, .% 53 # ,D% >)$,% 0.()3 % :)%,B,1% % .,5%-,C)128% . @#1:% %.,5#2%
)3%,B,1%01/ B)3 -*,% -))@ %3,B#,;% 12% ,*,'.#1:%;)32 %#1%#.%.( .% 55, 3%.)%
53 # ,% .(,% -))@D% T1,% 0'(% ,^ $5*,% ' $,% /3)$% )1,% M 0*% L#*$)..% O 1%
41:*# (% /#1 1'# *% $ .(,$ .#'# 1% )/%3 3,% -3#**# 1',% 12% #33,B,3,1',R% ;()%
$ 1 :,2% .)% 11)01',% .( .% < %: B,% (#$% (# % g/#3 . % - 2% 3,B#,;g8% C,.% 0 ,2%
,^',35. % /3)$% #.% % 53 # ,% )1% .(,% -))@% i '@,.% O;,% * .,3% -,' $,% /3#,12 8%
;(#'(% **);,2%$,%.)% ,^.3 '.% 1% ,12)3 ,$,1.% /3)$% (#$RD%
+(,% /#3 .%.#$,% <%; % /))*,2% -C%.(# % -# %; %05)1% -0C#1:8%;(,1%<%; %
IX8 3'- A'(('- F$'-)<#$N% % -))@% -C% f)(1% N) % M ) 8% .(,% K$,3#' 1%
;3#.,38%- ,2%)1%53 # ,%)1%.(,%i '@,.% -C%.(,%5(#*) )5(,3%f, 19M 0 *% > 3.3,8%
;()% '* #$,2% )$,.(#1:% .)% .(,% ,//,'.% .( .% N) % M ) % ; % .(,% :3, ., .%
;3#.,3% )/%)03%.#$,D% +(# % #$5*,%3,$ 3@ 8%5) #-*C% -*03.,2%)0.%#1% % . .,%) /%
#1 .)^#' .#)1% )3% ,^.3,$,% ,1.(0 # $8% ' 0 ,2 % N) % M ) % .)% -,')$,%
3,`0#3,2% 3, 2#1:%#1%403)5, 1% #1.,**,'.0 *% '#3'*, 8% %> 3.3,U % 3,$ 3@%; %
$# . @,1% /)3% % ')1 ,1 0 % , .#$ .,% )/% .(,% `0 *#.C% )/% N) % M ) % 3 .(,3%
.( 1%;( .%#.%; 8%.(,%-, .%3,$ 3@D% O<1% 5#.,%)/%( B#1:%3,',#B,2%.(,%&)-,*%
M3#j,%#1%*#.,3 .03,8% N) %M ) %( %3,B,3.,2%.)% )- '03#.CDR%
A > $ T C = ( A L A '$
K% 53):3 $$,3% (,*5,2% $,% -0#*2% Y'/>(#)(#$e% <.% # % % ) /.; 3,% 53):3 $%
')11,'.,2% .)% % 2 . - ,% )/% (# .)3#' *% 53#', % ;(#'(% **); % $,%.)% '(,'@%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 151/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 152/219
I [ X% =T&_4?>% T&% +? M 4L S <+ 4 S >%
i0 .% /)3% .( . 8% ' **,2 % T$,: % +3 2,>. . #)1v% .( .% # % '033,1 .*C % )1 % .(,%
$ 3@,.8% #1 % 0 ,% -C% .,1 % )/% .()0 12 % )/% .3 2,3 D% <.% ,B,1% )//,3 % #. % );1%
')$50.,3% * 1:0 :,D% J, ,.%;#.(% #1 )$1# 8%.(,% ')$50.,3#j,2% 2 C9.3 2,3 %
-,')$,%1#:(.9., .,3 %5*);#1:%.(,%2 . % /)3% )$,%) /%#. %53)5,3.#, D%JC%2#1.%
)/% .(3);#1:% .(,#3 % $)1@,C % )1% .C5,;3#.,3 8% ;#.()0.% 5,'#/C#1:% ;( . %
-))@% .(,C%; 1.%.(,#3%$)1@,C% .)%;3#.,8% .(,C%;#**%(#.% 05)1% (C5).(,.#' *%
:)*2% )$,;(,3,D% = 1C% )/%.(,$% -*#12*C% -,*#,B,% #1% #.D %
T1,% )/%$C%')**, :0, 8% %$ 1%;#.(%53, .#:#)0 %2,:3,, 8%:3,;%.)%-,*#,B,%
#1% 0'(% %B#3.0 *%;)3*2%.)%.(,%5)#1.%)/%*) #1:% **% ,1 ,%)/%3, *#.CD%L(,.(,3%
.(,%$)2#'0$% )/%')$$)1% ,1 ,% *,/.%#1%(#$%$#:(.% ( B,%3 5#2*C% B 1# (,2%
012,3%.(,%$)012 %)/% #$0* .#)1 8%)3%;(,.(,3%(,%$#:(.%( B,%( 2 %1)1,%.)%
,1: :,% #1% 0'(%503 0#.8%<% ' 11) .% .,**D%JC% '*) ,*C% ; .'(#1:%(#$%<% *, 31,2%
.( .% ;( .% 1 .03 *% @,5.#'# $% (,% $ C% ( B,% ( 2% B 1# (,2 % 012,3% .(,%
;,#:(.% )/%2 . %9% /)3% (,%; %,^.3,$,*C% @,5.#' *8% -0.%#1%.(,%;3)1:% 3, D%
K(8 %E0$,b%
C$ B & ' $ 0 + L A A . < + /$ V A + L < & +$
E# .)3#' **C8% $,2#'#1,% ( % )5,3 .,2% -C%.3# *% 12%,33)3%9% #1% ).(,3%;)32 8%
. .# .#' **C D% L,% @1);% -C% 1);% .( .% .(,3, % ' 1% -, % ,1.#3,*C % /)3.0 #.)0 %
')11,'.#)1 % -,.;,,1% C$5.)$ % 12% .3, .$ ,1.8% 12% .( .% )$,%
$,2#' .#)1 % 0'',,2%#1%$,2#' *%.3# * %/)3%$,3,%3 12)$% 3, )1 D%<%' 11).%
'* #$ %,^5,3.# ,%#1%$,2#'#1,8%-0.%( B,%-,,1% % ., 2C%3, 2,3%)/% % ,:$,1.%)/%
.(,% $,2#' *% *#.,3 .03, % )B,3% .(,% 5 .% ( */% 2,' 2,8% *)1:% ,1)0:(% .) % -, %
')1',31,2%;#.(%.(,% . 12 32 8% %;,%;#**% ,,%#1%.(,%1,^.%'( 5.,3D%=,2#' *%
3, , 3'(,3 % @3,.% 3 3,*C % . .# .#'# 1 h% . .# .#'# 1 % 3,% 3 3,*C % $,2#' *%
3, , 3'(,3 D% = 1C% $,2#' *% 3, , 3'(,3 % 3,% 1).% ,B,1% 3,$).,*C% ; 3,% )/%
.(# % -# D%+ 30,8% #.%$ C%5* C% % $ **% 3)*,8% -0.%#.%# %',3. #1*C%53, ,1.D% T1,%
3,',1.% $,2#' *% .02C% *#1@ % '#: 3,..,% $)@#1:% .)%
$#1B/(%8-
% #1% -3, .%
' 1',38% .(0 % ')1/*#'.#1:% ;#.(% **% 53,B#)0 % .02#, D% 7):#'% ;)0*2% #12#' .,%
.( .%.(,% 3, 0*.%$ C% -,% 0 5#'#)0 8% .(,%3, 0*.%) /%$,3,% ')#1'#2,1',D%
A > $ C ' + < + / L$ L C L & + 3$ 9 & & . ,$ T ?$ A > $ ' L 0 . A L$
L **% >.3,,.% 1 *C . 8%#1%:,1,3 *8% 3,% .3 #1,2%.)% /#12%.(,% '')01.#1:% .3#'@ %
.( .%')$5 1#, %0 ,%.)%(#2,%.(,#3%, 31#1: D%+(,C%.,12%.)% -, .%.(,%')$5 1#, %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 153/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 154/219
I [ Z %
=T&_ 4? >% T &% + ? M 4LS <+ 4 S >%
;#.'(%)1%.(,%+Y% ,.% , 3'(#1:%/)3%$ 3@,.%#1/)3$ .#)1D%L( .% .3#@, %$,%
#1% .(, ,% $)31#1:% ,^5*)3 .#)1 % # % .(,% -012 1',% ) /% '* #$ % -C% .(,%
*.,31 .#B,%$,2#'#1,%B,12)3 %)/%.(,%'03#1:%5);,3%)/%.(,#3%53)20'. D%+(, ,%
1)%2)0-.% 3,%' 0 ,2%-C%.(,%*);,3% 2B,3.# #1:%3 ., % .%.( .%.#$,D%+) %53)B,%
.(,#3%'* #$8% .(,C%53, ,1.%.(,%')1B#1'#1:%., .#$)1# *% )/% )$,)1,%;()%; %
'03,2%.( 1@ %.)% .(,#3%$,.()2 D%F)3% #1 . 1',8% <%)1',% ;% %/)3$,3% .(3) .%
' 1',3% 5 .#,1.% ,^5* #1#1:% (); % (,% ; % B,2% -C% % ')$-#1 .#)1% ) /%
B #. $#1 % /)3% *,% /)3% .(,% ,^',5 .#)1 **C % *);% 53#',% ) /% pIW D P\% 9% #1 % **%
*#@,*#())2% (,% ; % #1',3,% O *.()0:( % ) /% ')03 ,% ')$5,1 .,2 % /)3% (# %
'')01.8%5,3( 5 %;#.(% %*#/,.#$,% 055*C%)/% 0'(%$,2#'#1,RD%<1% 5#.,%)/%)03%
2B 1', 8%5,)5*,% .#**%-,*#,B,%#1%.(,%,^# .,1',%) /%*#1@ %-,.;,,1%2# , ,% 12%
'03,% - ,2% )1% 0'(% #1/)3$ .#)18% 12%.(,3,% # %1)% '#,1.#/#'% ,B#2,1',% .( .%
' 1% ')1B#1',% .(,$ % $)3,% 5).,1.*C% .( 1% % #1',3,% 12% ,$).#)1 *%
., . #$)1# * D% >0'(% ., .#$)1# * % 2), % 1).% *; C % ')$,% /3)$% .(,% 3,:0* 3%
:0Ch% . .,$,1. % -C%&)-,*% M3#j,%;#11,3 % O#1%.(,%;3)1:% 2# '#5*#1,R% ')0*2%
, #*C% 0//#',D%7#10 %M 0*#1:8% %&)-, *%M3#j,%;#11,3%#1%'(,$# .3C8%; % #2%
.)% -,*#,B,% #1%B#. $#1% 6U %$,2#'#1 *% 53)5,3.#, 8%(#$ ,*/%#1:, .#1:%$ #B,%
2 #*C%2) , D%L #.(%(# %-0**C%50*5#.8%(,%')1.3#-0.,2 %.) %.(,%')$$)1% -,*#,/%#1%
B#. $#1% 6 U % '03 .#B,% 53)5,3.#, D% = 1C % $,2 #' *% .02#, 8% 01 -*,% .)%
3,5*#' .,% M 0*#1:U % '* #$ 8% /,** % )1% 2, /% , 3 % % #.% ; % 2#//#'0*.% .)% 012)%
.(,%., .#$)1# *% -C% %g&)-,*%M3#j,%;#11,3g8%,B,1%#/%(,%; %1).%`0 *#/#,2%.)%
2# '0 %$ ..,3 % 3,* .,2% .)%$,2#'#1,D%
= 1C% )/% .(, , % '* #$ % ( B, % -,,1 % ( 3$*, % )0. #2,% )/% .(,% /#1 1'# *%
53)/#. % /)3% .(, ,% '( 3* . 1 % 9% -0.% $ 1C% ' 1',3% 5 .#,1. % $ C% ( B,%
3,5* ',2% .(,%$)3,% '#,1.#/#' **C% #1B, .#: .,2% .(,3 5#, 8% #1% / B)3% )/% .(, ,%
$,.()2 % 12% 2#,2% % % 3, 0*. % )/% .(,#3% 1,:*,'.#1:% $)3,% )3.()2)^% '03, %
O : #18% .(,% 3 #)1 '#,1.#/#' % $,.()2 % 3,% : .(,3,2% 012,3% ;( .% # % ' **,2%
g *.,31 .#B,% $,2#'#1,g 8% .( .% # 8% 0153)B,1% .(,3 5#, % 12% .(,% $,2#' *%
')$$01#.C% ( % 2#//#'0*.#, % ')1B#1'#1:% .(,% 53, % .( .% .(,3,% # % )1*C% )1,%
$,2#'#1,% 12% .( .% *.,31 .#B,% $,2#'#1,% # % 1).% $,2#'#1,R D% +(,% 3, 2,3%
$#:(.%;)12,3% -)0.%$C%'* #$ % .( .% .(,%0 ,3%) /%.(, ,% 53)20'. % ')0*2% -,%
#1',3,8%;#.()0.% #.%$, 1#1:% .( .%(,%; %'03,2%-C%.(,%#**0 )3C% .3, .$,1.D%
+(,% 3, )1% # % )$,.(#1:% ' **,2% g 5)1. 1,)0 % 3,$# #)1g8% #1 % ;(#'(% %
B,3C% $ **%$#1)3#.C% )/% ' 1',3% 5 .#,1. 8% /)3%3, )1 % .( .% 3,$ #1% ,1.#3,*C%
5,'0* .#B,8% ;#5,% )0.% ' 1',3 % ',** % 12% 3,')B,3% g$#3 '0*)0 *Cg D% >)$,%
;#.'(% ' 0 , % .(,% 5 .#,1.U % #$$01,% C .,$% .)% ,3 2#' .,% **% ' 1',3% ',** %
/3)$%.(,%-)2CD%+(, ,%5,)5*,%;)0*2%( B,%-,,1%,`0 **C%'03,2%-C%23#1@#1:%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 155/219
< +% < >% 4 K > < 4 S% + T% JA ?% K&N% > 4 7 7% + E K&% F S ?% K&% 4 V V% I [ P%
% :* % )/%Y,3$)1.% 53#1:%; .,3% )3%'(,;#1:% )1% 23#,2%-,,/% %.(,C%;,3,%
-C% . @#1:% .(, ,% -, 0.#/0**C% ;3 55,2% 5#** D% F#1 **C8% .(, ,% 5)1. 1,)0 %
3,$# #)1 %$#:(.%1).%-,% )% 5)1. 1,)0 h%.(,C%$#:(.8% .%.(,%-)..)$8%( B,%
% ' 0 ,%.( .%;,% 3,% 1).% C,.% )5(# .#' .,2% ,1)0:(% .)% 2,.,'.D%
+(,% * ., % .3)1)$,3% 6 3*% > : 18% % 2,B).,2% 53)$).,3% )/% '#,1.#/#'%
.(#1@#1:% 12% 1% )- , #B,% ,1,$C% )/% 1)19 '#,1',8% ,^ $#1,2% .(,% '03, %
/3)$% ' 1',3% .( .% 3, 0*.% /3)$% %B# #.% .)% 7)032, % #1%F3 1',% ;(,3,% 5,)5*,%
;,3,%(, *,2% -C% #$5*,%')1. '.%; #.(% .(,%()*C%; .,3 8% 12%/)012%)0.% .(,%
#1.,3, .#1:% / '.% .( .8 % )/% .(,% .). *% ' 1',3% 5 .#,1. % ;()% B# #.,2%.(,% 5* ',8%
.(,% '03,% 3 .,% ; 8% #/% 1C.(#1:8% *);,3% .( 1% .(,% . .# .#' *% )1,% /)3%
5)1. 1,)0 %3,$ # #)1 D%<.%; %*);,3%.( 1%.(,% B,3 :,%/)3%.() ,%;() %2#2%
1).%:)%.)% 7)032, b% >()0*2% % . .# .#'# 1% #1/,3% (,3,%.( .% ' 1',3% 5 .#,1. U%
)22 % )/% 03B#B#1:% 2,.,3#)3 ., % /.,3% % B# #.% .)% 7)032, a%
\ ' & 9 L L & '$ \ C ' L & +$ / & L$ A &$ B & + A $ = C ' . &$ d . < A ' C . . ? e 3$
' C + , & B + L L$ , & L$ + & A$ . & & ( $ ' C + , & B j$
K.%.(,%-,:#11#1:%)/%.(,%.;,1.#,.(%',1.03C8% %;,%;,3,% . 3.#1:%.)% 2,B,*)5%
.,'(1#`0, % .)% 2, *% ; #.(% .(,% 1).#)1% ) /% 3 12)$ % )0.')$, 8% ,B,3 *%
$,.()2 % ;,3,% 2, #:1,2% .)% 2,.,'.% 1)$ *#, D% M3)/, )3%_ 3*% M, 3 )1% O)/%
&,C$ 19M, 3 )1% / $,8% / $#*# 3% .)% ,B,3C% 5,3 )1% ;()% .% #1% % . .# .#' %
IHI% '* R% 2,B# ,2% .(,% /#3 . % ., .% )/% 1)193 12)$1, % O#.% ; % #1% 3, *#.C% %
., . % )/% 2,B# .#)1% /3)$% 1)3$ *#.C8% ;(#'(8% /)3% ** % #1.,1. % 12% 5035) , 8%
; %.(,% $,%.(#1:RD%E,% ,^ $#1,2%$#**#)1 % )/%301 %) /%;( .%; %' **,2% %
=)1.,% 6 3*)% O.(,% )*2% 1 $,% /)3% % 3)0*,..,% ;(,,*R % 203#1:% .(,% $)1.(% )/%
f0*C% I PH GD% E,% 2# ')B,3,2% .( .8% ; #.(% % (#:(% 2,:3,,% )/% . .# .#' *%
#:1#/#' 1',% O;#.(% 1% ,33)3% )/%*, % .( 1% )1,% .)% % -#**#)1R8% .(,% 301 % ;,3,%
1).% 503,*C% 3 12)$ D% L( .b% +(,% 3)0*,..,% ;(,,*% ; % 1).% 3 12)$ b%
M3)/, )3%M, 3 )1% ; %:3, .*C% 0353# ,2% .% .(,%2# ')B,3CD% J0.% .(# % 3, 0*.%
#1% #. ,*/%.,** % 0 %1).(#1:h% ;,%@1);% .( .% .(,3,% # % 1)% 0'(% .(#1:% % %503,%
3 12)$%23 ; 8%/)3%.(,%)0.')$,%)/%.(,%23 ;%2,5,12 %)1%.(,%`0 *#.C%) /%.(,%
,`0#5$,1.D% L#.(% ,1)0:(% $#10.# ,% )1,% ;)0*2% -,% -*,% .)% 01')B,3% .(,%
1)193 12)$1, % )$,;(,3,% O #D, D% .(,% ;(,,*% #. ,*/ % $ C% 1).% ( B,% -,,1%
5,3/,'.*C% - * 1',2% )3% 5,3( 5 % .(,% 5#11#1:% - **% ; % 1).% ')$5*,.,*C%
5(,3#' *RD% M(#*) )5(,3 %) /% . .# .#' % ' **%.(# %.(, $#<#$#-/# /')# :$8Y5#.N
.)%,^5* #1% .( .%.(,3,%# %1)%.30,% .. #1 -*,% 3 12)$1, %#1%53 '.#',8%)1*C%#1%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 156/219
I W H% =T&_4?>% T&% +? M 4L S <+ 4 S >%
.(,)3CD% J, #2, 8% % $ 1 : ,3% ;)0*2% `0, .#)1% ;(,.(,3% 0'(% 1)19
3 12)$1, % ' 1% *, 2% .)% 1C% $, 1#1:/0*% 53)/#. -*, % 30*, D% < /% <% 1,,2% .)%
: $-*,% pI% )1% IH 8HH H% 301 % 12%,^5,'.% .)%$ @,% pI% /)3%$C%,//)3. 8 %.(,1%<%
;)0*2 % 2) % $0'( % -,..,3% #1 % .(,% 5 3.9.#$,% ,$5*)C$,1.% ) /% % i 1 #.)3# *%
:,1'CD%
J0.% .(,% 3, 0*. % -, 3 % 1).(,3% 0 5#'#)0 % ,*,$,1.D% T/% $)3,% 53 '.#' *%
3,*,B 1',% (,3,% # % .(,% /)**);#1:% ,B,3,% 53)-*,$% -)0.% 1)193 12)$1, D%
4B,1%.(,%/ .(,3 %) /% . .# .#' *% '#,1',%/)3:).% .( .% %3 12)$ % ,3#, %) /%301 %
1,,2%1).% ,^(#-#.% %5 ..,31% .)%*))@% 3 12)$h% % %$ ..,3% )/%/ '.% 2 . % .( .%
# %5,3/,'.*C% 5 ..,31*, %;)0*2% -,%,^.3,$,*C% 0 5#'#)0 % 12% 55, 3%.)% -,%
$ 19$ 2,D% K% #1:*,% 3 12)$% 301% # % -)012%.)% ,^(#-#. % )$,% 5 ..,31% 9 % #/%
)1,%*))@ %( 32%,1)0:(D%&) .,%.( .%M3)/, )3%M, 3 )1%; % $)1:%.(,%/#3 .%
'()* 3 % ;()% ;,3,% #1.,3, .,2% #1% '3, .#1:% 3.#/#'# *% 3 12)$ % 2 . %
:,1,3 .)3 8% . -*, % )1,% ')0*2% 0 , % % #150. % /)3% B 3#)0 % '#,1.#/#'% 12%
,1:#1,,3#1:% #$0* .#)1 % O.(,%53,'03 )3 % )/%)03%= )1.,% 6 3*)% #$0* .)3RD%
+(,%53)- *,$%# %.( .%.(,C%2#2%1).%; 1.%.(, ,%. -*, %.)%,^(#-#.% 1C%/)3$%)/%
3,:0* 3#.CD% ?,.% 3, *% 3 12)$1, % 2), % 1).%*))@% 3 12)$b%
<%;)0*2% /03.(,3% #**0 .3 .,% .(,%5)#1.%;#.(% .(,% .02C%)/% % 5(,1)$,1)1%
;,**% @1);1% %' 1',3%'*0 .,3 D%6)1 #2,3% % `0 3,%;#.(% IX% 3 12)$% 2 3. %
(#..#1:%#.%;#.(%,`0 *%53)- -#*#.C% )/%-,#1:% .% 1C%5* ',% #1%.(,% `0 3,D%</%;,%
2#B#2,%.(,% ̀ 0 3,%#1.)% IX% $ **,3% `0 3, 8%#.%# %,^5,'.,2%.( .%, '(% $ **,3%
`0 3,%;#**%')1. #1%)1,%2 3.%)1% B,3 :,%9% -0.%)1*C%)1% B,3 :,D%+(,3,%# % %
B,3C% $ **%53)- -#*#.C% )/%( B#1:%,^ '.*C% IX% 2 3. %#1% IX% 2#//,3,1.% `0 3, D%
+(,% B,3 :,%:3#2%; #**%( B,%$)3,%.( 1%)1,%2 3.%#1% %/,;% `0 3, 8% 12%1)%
2 3.% .% **%#1%$ 1C% `0 3, D% <.%;#**%-,% 1%,^',5.#)1 **C% 3 3,%#1'#2,1.% .( .%
1)% O' 1',3R% '*0 .,3% ;)0*2% ();% )1% .(,% :3#2D% &); 8% .3 1 5) ,% )03% :3#2%
;#.(%.(,%2 3. %#1%#.%.)%)B,3* C% %$ 5%)/% 1C%3,:#)1D% >)$,%1,; 5 5,3%;#**%
2,'* 3,% .( .% )1,% )/% .(,% 3, % O.(,% )1,% ;#.(% $)3,% .( 1% .(,% B,3 :,% )/%
2 3. R% ( 3-)3 % 3 2# .#)1% .( .% ' 0 , % ' 1',38% 53)$5.#1:% * ;C,3 % .)% . 3.%
)*#'#.#1:% .(,% 5 .#,1. D%
A > $ , & / $ A > C A$ , < ,$ + & A$ T C ' ( 3$ & +$ T < C L L$ < +$ L = < + A < 9 < =$ ( + & # . , / $
JC% .(,% $,% 3:0$,1.8% '#,1',% # % $ 33,2% -C% % 5,31#'#)0 % 03B#B)3 (#5%
-# 8% //,'.#1:% .(,%; C% 3, , 3'(% :,. % 50-*# (,2D% <1% % ; C%.( .% # % #$#* 3%
.)% i)031 *# $8% 3, , 3'(% .( .% C#,*2 % 1)% 3, 0*.% 2), % 1).% $ @,% #.% .)% 53#1.D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 157/219
< +% < >% 4 K > < 4 S% + T% JA ?% K&N% > 4 7 7% + E K &% F S ?% K&% 4 V V% I W I%
+( .%$ C% ,,$% ,1 #-*,8% %1,; 5 5,3 %2)%1) .%( B,%.)%( B,% % '3, $#1:%
(, 2*#1,% C#1:% .( .% 1).(#1:% 1,;% # % . @#1:%5* ',% O.()0:(% .(,%J#-*,%; %
$ 3.% ,1)0:(% .)% 2,'* 3,
#%- /A'1')A ('/A( A')A#.#)A H
% g1).( #1:% 1,;%
012,3%.(,% 01g8%53)B#2#1:%.(,%#1/)3$ .#)1%.( .%.(#1: %i0 .%2)%3,'03RD%+(,%
53)-*,$% # % .( . % % /#12#1:% )/% - ,1', % 12% 1 % - ,1', % )/% /#12#1: % :,.%
$#^,2%.):,.(,3D%+(,3,%$ C%-,%:3, .%#1/)3$ .#)1%#1%.(,%/ '.%.( . -8(A%-+
(88> :5'/#e
% K % >(,3*)'@ % E)*$, % 1).,2 % #1 % .(,
*%5&#$ X5'Z#
% ' ,% 9% .(,%
'03#)0 % .( #1:% ; % .( .% .(,% 2):% 2#2% 1).% - 3@ D% =)3,% 53)-*,$ .#' **C 8%
.(,3,% 3, % 5*,1.C% )/% ' #,1.#/ #' % 3, 0*. % .( .% 3, % *,/.% )0.% )/% 50-*#' .#)1 %
-,' 0 ,% .(,C% 3,% 1).% . .# .#' **C% #:1#/#' 1.8% -0.% 1,B,3.(,*, % 53)B#2,%
#1/)3$ .#)1D
P%
?& 7)D(& 3#& 0#/@1$,.#/&
<% $% /3,`0,1.*C% @,2% .(,% `0, .#)1d% ;(,1% # % #.% .30*C% 1).% *0'@a% +)% -,%
()1, .8%<% $ %01 -*,%.)% 1 ;,3%#.D%<%' 1% .,**%.( .%5,3 )1%K % ,,$ %*, %*0'@C%
.( 1%5,3 )1% J8% -0.%.(,%')1/#2,1',% #1% 0'(%@1);*,2:,% ' 1% -,% )%;, @% %
.) % -,% $, 1#1:*, D% <% 53,/,3% .) % 3,$ #1 % % @,5 .#'D% M,)5*,% /3,`0,1.*C %
$# #1.,353,.%$C%)5#1#)1D% <%1,B,3% #2%.( .%,B,3C%3#'(%$ 1%# % 1%#2#).% 12%
,B,3C% 01 0'', /0*% 5,3 )1% 01*0'@C8% )1*C% .( .% #1% - ,1',% ) /% $0'(%
22#.#)1 *% #1/)3$ .#)1% <%53,/,3% .)% 3, ,3B,%$C%i02:$,1.D% <.% # % /,3D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 158/219
. , 1 %
* ) , 3% . @ , % * *% 9%) 1% . ( ,%
1 ) 1 * # 1 , 3 # . # , % ) /% * # / ,%
FA# -8-5%-#'$ &%/%8B)-#)) 8< 5%<#e 3 8&%-+ (8 X#5 =%$ '-1
'/CB%$%-+ (A# &%/#) 8< (A# $%/A '-1 <'.8B)e TA, 3 %/$8)8<(R) X%55
S'(#) .', -8( Y# (A# Y#)( %- A%) YB)%-#)) cYB( :5#')# 18 -8(
%-<8$. A%. 8< )B/A ' <'/(de #:$%&%-+ 18->#,) 8< <881e
N
,^.%<%50.%.(,%5* .#.02,%.( . 5%<# %) B-<'%$% 012,3% )$,% ,^ $#1 .#)18%
-0.% #1% % 1,;% 1:*,D% +(,% .;# . d% *#/,% # % 01/ #3% #1% -8-5%-#'$ % ; CD%
+(# %'( 5.,3%# % -)0.% ();% % $ **% 2B 1. :,%#1%*#/,%' 1% .3 1 * .,%#1.)% %
(#:(*C%2# 53)5)3.#)1 .,%5 C)//8%)38%$)3,%B#'#)0 *C8%();%1)% 2B 1. :,% .%
**8%-0.% %B,3C8%B,3C% $ **%(,*5%/3)$%3 12)$1, 8%' 1%*, 2%.)% % -)1 1j D%
4'(& <)/25.1(& QLL(@%&
F#3 .%;,% 2,/#1,%1)1*#1, 3#.CD%+(,3,% 3,%$ 1C%; C %.)%53, ,1.%#.8%-0.%)1,%
)/%.(,%$) .% 5)50* 3% )1, % #1% '#,1',% # %;( .% # %' **,2%.(,% 125#*,% ,//,'.8%
;(#'(% < % ' 1% #**0 .3 .,% % /)**); D% < % $% '033,1.*C% #..#1:% )1% % -, '(% #1%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 159/219
7 T > 4 S% + K _ 4 >% K 7 7% 9% T&% + E 4 % &%T&%7 <& 4K S < + <4 >% T F% 7 < F 4% I W [%
6)5 ' - 1 8% #1 % S#)% 2,% f 1,#3)8% ..,$5.#1:% .)% 2)% 1).(#1:% .3,10)0 8%
; C%/3)$% 1C.(#1:%.)% 3, 2% 12%;3#.,% O01 0'', /0**C8% )/%')03 ,8% %<% $%
$,1. **C % ;3#.#1: % .(, ,% *#1, RD% <% $% 5* C#1: % ;#.( % 5* .#'% -, '( % .)C %
-)33);,2%/3)$ % %'(#*28%.3C#1:%.)%-0#*2% 1%,2#/#',%9% $)2, .*C%-0.%2)::,2*C%
..,$5.#1:%.)% ,$0* .,%.(,%.);,3% )/%J -,*D%<%')1.#10)0 *C% 22% 12%.)%.(,%
.)58% *);*C%3 # #1:%.(,%,1.#3,% .30'.03,D%= C%J -C*)1# 1% 3,* .#B, % .()0:(.%
.(,C% ')0*2%.(0 %3, '(% .(,% (, B,1 D% < %( B,%$)3,% (0$-*,% 2, #:1 h% .)% ., .%
();%(#:(%<%')0*2%:)%-,/)3,%#.%;)0*2%.)55*,D%<%@,,5% 22#1:% 128%., .#1:%.)%
,,%();%.(,% .30'.03,%;)0*2%0*.#$ .,*C% ')** 5 ,D%A10 ,2%.)% ,,#1:% 20*. %
-0#*2% 12' .*, 8% %'(#*2% *))@ % .%$,%;#.(% $ j,$,1.D%
<1 % .#$,% 9% 12 % $0'( % .) % .(,% )1*))@#1:% '( #*2 U % 2,*#:(.% 9% $C% ' .*,%
#1,B#. -*C%.)55*, %.)% 3,i)#1% .(,%3, .% )/%.(,% 12%)1% .(,%-, '(D%<.%')0*2% -,%
#2% .( .% .(,% * .% :3 #1% )/% 12%# % 3, 5)1 #-*,% /)3% .(,% 2, .30'.#)1% )/%.(,%
,1.#3, % .30'.03, D% L( .% ;,% 3, % ;#.1, #1:% (,3, % # % % 1)1*#1, 3% , //,'.%
3, 0*.#1:% /3)$ % % *#1, 3% /)3',% ,^,3.,2% )1% 1% )- i,'.D% K % B,3C% $ **%
22#.#)1 *% #150.8% (,3, % .(, % :3 #1 % )/% 128% ' 0 ,2% % 2# 53)5)3.#)1 ., %
3, 0*.8% 1 $,*C% .(,% 2, .30'.#)1% )/% $C% . 3.,3% .);,3% )/% J -,*D% M)50* 3%
;# 2)$% ( % #1.,:3 .,2% $ 1C% 0'(% 5(,1)$,1 8% % ;#.1, ,2% -C% 0'(%
,^53, #)1 % %g.(,% .3 ;% .( .%-3)@,%.(,%' $,*U % - '@g% )3%g.(,%23)5%.( .%
' 0 ,2% .(,%; .,3% .)% 5#**gD%
+(, ,% 1)1*#1, 3% 2C1 $#' % ( B,% % -))@ .)3,% 1 $,h% '( ) % .(,)3C 8%
;(#'(% # % % $# 1)$,3% -,' 0 ,% #.% ( % 1).(#1:% .)% 2)% ;#.(% '( ) D% 6( ) %
.(,)3C%')1',31 %#. ,*/%53#$ 3#*C%;#.(%/01'.#)1 % #1%;(#'(% % $ **%#150.%' 1%
*, 2%.)% %2# 53)5)3.#)1 .,%3, 5)1 ,D%M)50* .#)1%$)2,* 8%/)3%#1 . 1',8%' 1%
*, 2%.)% %5 .(% )/%,^5*) #B,%:3); .(8%)3% ,^.#1'.#)1% )/% % 5,'#, 8%2,5,12#1:%
)1% %B,3C% $ **% 2#//,3,1',% #1%.(,% 5)50* .#)1% .% % . 3.#1:%5)#1.% #1% .#$,D%
K1).(,3% 5)50* 3% '#,1.#/#' % 1 *):C% # % .(,% ;, .(,38% ;(,3,% #. % ( % -,,1%
();1% .( .% % #$5*,% -0..,3/*C% /*0..,3#1:% #. % ;#1: % #1% <12# % ' 1% ' 0 ,% %
(033#' 1,% #1%&,;%?) 3@ D%J0 .%.(,%'* #' % ( B,%.(,#3% ( 3,%.)%)//,3% %;,**d%
M ' *% O.(,% $,%)/%M ' *U %; :,3%#1%6( 5.,3% QR% #2%.( .%#/% 6*,)5 .3 U %
1) ,% ( 2% -,,1% *#:(.*C% ()3.,38% .(,% ;)3*2U % / .,% ;)0*2% ( B,% '( 1:,2D%
6*,)5 .3 % ( 2%')$,*C% /, .03, % 2)$#1 .,2% -C% %.(#1% 12% ,*)1: .,2% 1) ,%
.( .%$ 2,%f0*#0 %6 , 3% 12%(# % 0'', )3%= 3'%K1.)1C%/ **%/)3%(,3%O(,3,%
.(,%#1.,**,'.0 *% 1)-% #1%$,%' 11).% 3, # .%2# ,1.#1:% : #1 .% ')1B,1.#)1 *%
;# 2)$h%M*0. 3'(%'* #$,2%.( .%#.%; %6*,)5 .3 U % @#** % #1% ')1B,3 .#)18%
3 .(,3%.( 1 %(,3%:))2%*))@ 8%.( .%' 0 ,2%.(,%$ 22,1#1:%#1/ .0 .#)1%) /%.(,%
( @,3 % 12%$)B,3 %)/% (,3% 2 Ch%<%.30*C% -,*#,B,% #.RD%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 160/219
IWW %
=T&_ 4? >% T&% + ? M 4LS < + 4 S>%
+ A '$ ' C + , & B + L L$
+(#1: %' 1% -,')$,%$)3,%#1.,3, .#1:%;(,1%3 12)$1, % ,1.,3 %.(,%: $,D%
<$ :#1,% % ; #.#1:% 3))$% /0 **% )/% '.)3 % `0,0#1:% /)3% 1 % 02#.#)1D% +(,%
10$-,3% )/% '.)3 % ;()%;#** % ;#1% # % '*, 3*C% $ **8% 12%.(,C% 3,% .(,% )1, %
:,1,3 **C% )- ,3B,2% -C%.(,%50-*#'% % 3,53, ,1. .#B,% )/% .(,%53)/, #)18% %
;,% ;% #1%)03%2# '0 #)1%)1% 03B#B)3 (#5%-# D%+(,%;#11,3 %;)0*2%$)B,%
#1.)% J,*% K #38% /,,*% 53, 03,% .)% '`0#3,% )$,% - #'% .3 #1#1:% #1% .(,%
')1 0$5.#)1% )/% *0^03C% :))2 % 128% 5,3( 5 % );#1:% .)% .(,% 2# )*0.,% 12%
013(C.($#'% *#/, .C*,8% / *#3.% ;#.(% 0- . 1',% -0 ,D% K % .)% .(,% ).(,3 % O.(,%
:3, .%$ i)3#.CR8% ;,%' 1% #$ :#1,% .(,#3%/ .,h% % *#/,.#$,% )/% ,3B#1:% /) $,2%
/'<<# 5'((#% . % .(,% 1,#:(-)3#1:% >. 3-0'@ 8% /#:(.#1:% .(,% -#)*):#' *% '*)'@%
-,.;,,1% 02#.#)1 D%
T1,%$ C% 3:0,%.( .%.(,% '.)3%;()%* 12 %.(,%*, 2%3)*,%.( .% ' . 50*.,2%
(#$% #1.)% / $,% 12% ,^5,1 #B,% ;#$$#1:% 5))* % ( % )$,% @#** % ).(,3 %
* '@8% )$,% '( 3$8% )3% % 5,'#/#' % 5(C #' *% .3 #.% .( . % ; % %5,3/,'. % $ .'(%
/)3% 0'(% %' 3,,3% 5 .(D% < % -,:% .)% 2#//,3D% +(,%;#11,3%$ C% ( B,% ( 2% )$,%
'.#1:% @#** 8% -0.% )%2)% **% )/%.(,% ).(,3 8% ).(,3;# ,% .(,C%;)0*2% 1).%( B,%
-,,1% #1% .(,%; #.#1:% 3))$D%
<.% # % 1% #1.,3, .#1:% ..3#-0.,% )/%/ $,% .( .% #.% ( %#. % );1%2C1 $#' D%K1%
'.)3% -,')$, %@1);1% -C% )$,%5 3. % )/%.(,%50-*#'% -,' 0 ,% (,%# %@1);1%
-C % ).(,3% 5 3. % ) /% .(,% 50-*#'D% +(,% 2C1 $#' % ) /% 0'(% / $,% /)**); % %
3). .#1:% (,*#^8% ;(#'(%$ C% ( B,% . 3.,2% .%.(,% 02#.#)18% % .(,% ,*,'.#)1%
')0*2%( B,% -,,1%' 0 ,2% -C% )$,% #**C% 2,. #*%.( .% /#..,2% .(,%$))2% )/%.(,%
,^ $#1,3% )1% .( .% 2 CD%E 2%.(,%,^ $ #1,3% 1).%/ **,1% #1% *)B,%.(,%53,B#)0 %
2 C%;#.(% % 5,3 )1%)/% #$#* 3% )012#1:% * .%1 $,8%.(,1% )03% ,*,'.,2% '.)3%
/3)$% .( .% 5 3.#'0* 3% $5*, A%)(8$,% ;)0*2% -,% ,3B#1: /'<<# 5'((#% #1 % .(,%
#1.,3B,1#1:% $5*, A%)(8$,e
. C ' + < + /$ A & $ A ? \ $
S, , 3'(,3 % /3,`0,1.*C% 0 ,% .(,% ,^ $5*,% )/% uL4S+?% .)% 2, '3#-,% .(,%
B#'#)0 %2C1 $#' %)/%;#11#1:% 12% *) #1:%#1% 1% ,')1)$C8% 12%.)% #**0 .3 .,%
();%.(,% /#1 *% )0.')$,% # %$)3,%.( 1% /3,`0,1.*C% .(,%012, ,3B,2%)1,D%+(,%
33 1:,$,1.% )/%.(,%*,..,3 %)1% %.C5,;3#.,3%# % 1%,^ $5*,%) /%.(,% 0'', %)/%
.(,% *, .% 2, ,3B#1:%$,.()2D% F)3% )03% .C5,;3#.,3 % ( B,% .(,% )32,3 % )/%.(,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 161/219
7 T > 4 S% + K _ 4 >% K 7 7% 9% T&% + E 4
% &
%T&%7 <& 4 K S < + <4 >% T F% 7 <F 4% I W \%
*,..,3 %)1% .(,#3%@,C-) 32% 33 1:,2%#1% %1)19)5.#$ *%$ 11,38% % %$ ..,3%
)/%/ '.%#1% 0'(% %1)19)5.#$ *%$ 11,3% %.)% *);% 2);1%.(,%.C5#1:%3 .(,3%
.( 1%$ @,%.(,% i)-% , C8% #1% )32,3% .)% B)#2% i $$#1:% .(,% 3#--)1 % %.(,C%
;,3,%2, #:1,2%/)3% *, %,*,'.3)1#'% 2 C D%+(,3,/)3, 8% %;,% . 3.,2% -0#*2#1:%
-,..,3% .C5,;3#.,3 % 12% ')$50.,3#j,2% ;)32% 53)', )3 8% ,B,3 *% ..,$5. %
;,3,% $ 2,% .)% 3 .#)1 *#j,% .(,% ')$50.,3% @,C-) 328% .)% 1)% B #* D% M,)5*,%
;,3,%.3 #1,2%)1% % uL4S+?% @,C-) 32% 12%.(,#3% ( -#. %;,3,%.))% .#'@C%
/)3% '( 1:,D% f0 .% *#@,% .(,% (,*#' *% 53)50* #)1% )/% 1% '.)3% #1.)% . 32)$8%
5,)5*,% 5 .3)1#j,% ;( .% ).(,3% 5,)5*,% *#@,% .) % 2)D% F)3'#1: % % 3 .#)1 *%
2C1 $#'% )1% .(,% 53)', % ;)0*2% -,% 05,3/*0)0 8% 1 C8% #$5) #-*,D % +(# % # %
' **,2%
:'(A 1#:#-1#-( 8B(/8.#
8% 12%( %.(; 3.,2%$ 1C%$ .(,$ .#' *%
..,$5. % .%$)2,*#1:% -,( B#)3D%
<.%# %)-B#)0 % .( .%.(,%#1/)3$ .#)1% :,8%-C%()$):,1#j#1:% )03%. ., 8%# %
' 0 #1:% .(,% 01/ #31, % .)% -,% ,B,1% $)3,% '0.,% 9% .() ,%;()%;#1% ' 5.03,%
*$) .% **% .(,% '0 .)$,3 D% +(,% ,^ $5*, % .( .% .3#@, % $) .% % .(,% $) .%
5,'. '0* 3% *0'@C% 0'', %# %.( .%) /%.(,% )/.; 3,%$ @,3%= #'3) )/.% 12%#. %
$))2C% /)012,3% J#**%V ., D%L(#*,% #.% # % ( 32%.)% 2,1C% .( .% V ., %# % %$ 1%
)/%(#:(%5,3 )1 *% . 12 32 8%;)3@% ,.(#' 8% 12% -)B,% B,3 :,%#1.,**#:,1',8%
# %(,%.(,%-, .a%N), %(, 1#)#$&#% #.a%6*, 3*C%1).D%=) .%5,)5*,% 3,%,`0#55,2%
;#.(% (# % )/.; 3,% O*#@,% $C ,*/R% -,' 0 ,% ).(,3% 5,)5*,% 3,%,`0#55,2% ;#.(%
(# % )/.; 3,8% % 503,*C% ' #3'0* 3 % ,//,'.% O,')1)$# . % ' **% .( .% g1,.;)3@%
,^., 31 *#.#, gRD% &)-)2C % ,B,3% '* #$,2% .( .% #.% ; % .(,% -, .% ) /.; 3,%
53)20'.D%=) .%)/%V ., U %3#B * %( B,% 1%)- , #B,%i, *)0 C%)/%(# % 0'', D%
+(,3,% 3,% $ 22,1,2% -C% .(,% / '. % .( . % (,% $ 1 :,2% .)% ;#1% )% -#:%;(#*,%
$ 1C%) /% .(,$% 3,% .30::*#1:% .)%$ @,% .(,#3% ')$5 1#, % 03B#B,D%
>0'(% #2, % :)% : #1 .% ' * #' *% ,')1)$#'% $)2,* 8% #1 % ;(#'(% 3, 0*. %
,#.(,3%')$,% /3)$% % 53,'# ,% 3, )1% O.(,3,% # % 1)% '')01.% /)3% 01',3. #1.CR%
)3%.(,% :))2%:0C%;#1 % O.(,%:))2%:0C%# %.(,%)1,%;()% # %$)3,% @#**,2% 12%
( % )$,% .,'(1#' *% 05,3#)3#.CRD% 4')1)$# . % 2# ')B,3,2% 5 .(92,5,12,1.%
,//,'. % * .,% #1% .(,#3% : $,8% .(,1% .3#,2% .)% 50-*# (% ;()*, *,% )1% .(,% .)5#'%
.( .% ).(,3;# ,%;)0*2% -,%-* 12% 12%)-B#)0 D%F)3% #1 . 1',8%J3# 1% K3.(038%
1% ,')1)$# .% ')1',31,2% ;#.(% 1)1*#1, 3#.#, % . % .(,% > 1. % F,% <1 .#.0.,8%
;3).,% .( . % '( 1',% ,B,1. % ')05*,2% ;#.(% 5) #.#B,% /,,2- '@% 3 .(,3% .( 1%
.,'(1)*):#' * % 05,3#)3#.C% ;#**% 2,.,3$#1,% ,')1)$#' % 05,3#)3#.C% 9% 1).%
)$,% - .30 ,*C% 2,/#1,2% ,2:,% #1% % :#B,1% 3, % )/% ,^5,3.# ,D% L(#*,% , 3*C%
,')1)$#'% $)2,* % ,^'*02,2% 3 12)$1, 8% K 3.(03% ,^5* #1,2% (); %
g01,^5,'.,2% )32,3 8% '( 1',% $,,.#1: % ;#.(% * ;C,3 8% $ 1 :,3# *% ;(#$ %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 162/219
I W X %
=T&_4 ?>% T&% + ? M 4LS <+ 4 S >%
8 D D% ;)0*2% (,*5 % 2,.,3$#1, % ;(#'( % )1, % '(#,B,2% , 3*C % *, % 128% )B,3%
.#$,8%;(#'(% /#3$ % 2)$#1 .,2gD%
+)%'(=)%.@,& ?/,.2(& )/2& I$%,.2(& %'(& ;()1& G#*12 &
K% $ .(,$ .#' *% 553) '(% .)% .(,% 53)-*,$ % # % #1% )32,3D% L(#*,% #1%
')1B,1.#)1 *% $)2,* % O 0'(% % .(,% ;,**9@1);1% J3);1# 1% 3 12)$% ; *@%
0 ,2% #1% /#1 1',R% .(,% 53)- -#*#.C% )/% 0'', % 2), % 1).% '( 1:,% ;#.(% ,B,3C%
#1'3,$,1. *% .,58%)1*C%.(,% ''0$0* .,2%;, *.(8%K 3.(03% 0::, . %$)2,* %
0'(% %.(,%M)*C %53)', 8%;(#'(%# %$ .(,$ .#' **C%B,3C%2#//#'0*.%.)%;)3@%
; #.( 8% -0.% ' 1% -,% , #*C% 012,3 .))2 % ;#.(% .(,% #2 % ) /% % =)1.,% 6 3*)%
#$0* .)3D%+(,%M)*C %53)', %' 1% -,%53, ,1.,2% %/)**); d% 0$,% 1%031%
#1#.# **C% ')1. #1#1:% ,`0 *% `0 1.#.#, % )/% -* '@% 12% 3,2% - ** D % ?)0% 3,% .)%
:0, %, '(%.#$,%;(#'(%') *)3%C)0%;#**%50**%)0.%-,/)3,%C)0%$ @,%.(,%23 ;D%
E,3,% .(,% : $,% # % 3#::,2D% A1*#@,% % ')1B,1.#)1 *% 0318% .(,% 53)- -#*#.C% )/%
:0, #1:% ')33,'.*C%2,5,12 %)1%5 .% 0'', 8% %C)0%:,.%-,..,3%)3%;)3 ,% .%
:0, #1: % 2,5,12#1: % )1 % 5 .% 5,3/)3$ 1',D% +(0 % .(,% 53)- - #*#.C % ) /%
;#11#1:% #1'3, , % /.,3% 5 .% ;#1 8% .( .% )/% *) #1:% #1'3, , % /.,3% 5 .%
*) , D% >#$0* .#1:% 0'(% % 53)', 8% )1,% ' 1% ,,% % (0:,% B 3# 1',% )/%
)0.')$, 8%;#.(% .)1# (#1:% 0'', , % 12%* 3:,%10$-,3%)/% / #*03, % O;( .%
;,% ' **,2% @,;1, RD%
6)$5 3,% 0'(% % 53)', % ;#.(% .() ,% .( .% 3,% $)3,% ')$$)1*C%
$)2,*,28% .( .% # 8% 1 % 031 % /3)$% ;(#'( % .(,% 5* C,3% $ @, % :0, , % ;#.( %
3,5* ',$,1.D%> CUC)0%5* C,2%3)0*,..,% 12%;)1 D%L)0 *2%.(# %#1'3, ,%C)03%
'( 1', % )/%;#11#1:% : #1a%&) D% <1% % M)*C % 53)', % ' ,8% #.% 2), D%L(C% # %
.(# % )% $ .(,$ .#' **C% ( 32 % .)% ;)3@% ; #.(a% J,' 0 ,% .(,% 1).#)1% )/%
#12,5,12,1',% O#D,D8% ;(,1% .(,% 1,^.% 23 ; % 2), % 1) .% 2,5,12 % )1% 5 .%
)0.')$, R% # % B#)* .,2D%<12,5,12,1',% # % % 3,`0#3,$,1.% /)3%;)3@#1:%;#.(%
.(,% O@1);1R%$ .(% )/% 53)- -#*#.CD%
L( .% ( % :)1,% ;3)1:% ; #.(% .(,% 2,B,*)5$,1.% ) /% ,')1)$#' % % %
'#,1',a% K1 ;,3d% .(,3,% ; % % -01'( % ) /% #1.,**#:,1.% 5,)5*,% ;() % /,*.%
')$5,**,2% .)% 0 ,% $ .(,$ .#' % i0 .% .)% ., **% .(,$ ,*B, % .( . % .(,C% ;,3,%
3#:)3)0 % #1%.(,#3%.(#1@#1:8%.( .%.(,#3 %; % % '#,1',D% >)$,)1,% #1% % :3, .%
30 (% 2,'#2,2% .)% #1.3)20',% $ .(,$ .#' *% $)2,*#1:% .,'(1#`0, % O'0*53#. d%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 163/219
7 T > 4 S% + K _ 4 >% K 7 7% 9% T&% + E 4 % &%T&%7 < & 4K S < + <4 >% T F% 7 < F 4% I W Q%
7,)1%L *3 8% V,3 32%N,-3,08% M 0*%> $0,* )1R%;#.()0.% ')1 #2,3#1:% .(,%
/ '.% .( .% ,#.(,3% .(,% '* % ) /% $ .(,$ .#' % .(,C% ;,3,% 0 #1:% ; % .))%
3, .3 #' .#B,% /)3 % .(,% ' * % )/ % 53)-*,$ % .(,C% ;,3,% 2, *#1:% ;#.(8% )3% .( .%
5,3( 5 % .(,C% ()0*2% -, % ; 3,% .( . % .(,% 53,'# #)1% )/% .(,% * 1:0 :,% )/%
$ .(,$ .#' % ')0*2%*, 2% 5,)5*,% .)% -,*#,B,% .( .% .(,C% ( 2% )*0.#)1 %;(,1%
#1%/ '.% .(,C%( 2%1)1,% O3,' **% M)55,3% 12%.(,%') . %) /%. @#1:% '#,1',% .))%
,3#)0 *CRD% <12,,2% .(,%$ .(,$ .#' % .(,C% 2, *.%; #.(% 2#2%1).%;)3@% #1% .(,%
3, *%;)3*28%5) #-*C% -,' 0 ,%;,%1,,2,2%3#'(,3%'* , % )/%53)', , %9% 12%
.(,C%3,/0 ,2%.)% '',5.%.(,% / '.% .( .% 1)%$ .(,$ .#' % .% **%; % 53)- -*C%
-,..,3D%
+(,% )9' **,2 /8.: 5#7%(, (A#8$%)()% ' $,% .)% .(,% 3, '0,D% =0'(%
,^'#.,$,1.% ; % :,1,3 .,2% -C% .(,% ;)3@ % )/% ' #,1.# . % ;()% 5,'# *#j,2%
#1%1)1*#1, 3% `0 1.#. .#B,%$,.()2 %9% .(,%= ,'' % )/%.() ,% -,#1:%.(,%> 1. %
F,% <1 .#.0 ., % 1, 3% > 1. % F,8% &,;% =,^#') D% 6*, 3*C % .(, , % '#,1.# . % 3, %
.3C#1:% ( 328% 12% 53)B#2#1:% 0 %;#.(% ;)12,3/0*% )*0.#)1 % #1%.(,% 5(C #' *%
'#,1', % 12 % -,..,3% $)2,* % #1% .(,% )'# *% #-*#1: % O.()0:(% 1).(#1:%
. # / '.)3C% .(,3,% C,.R D% K12% #/% .(,C% 0*.#$ .,*C% 2)% 1).% 0'',,28% #.% ;#** %
#$5*C% -,% -,' 0 ,% $ .(,$ .#' % $ C% -,% )/% )1*C% ,')12 3C% (,*5% #1% )03%
3, *%;)3*2D%&).,% 1).(,3% 2B 1. :,% )/%=)1.,% 6 3*)% #$0* .#)1 % # % .( .%
;,%' 1% :,.% 3, 0*. %;(,3,%$ .(,$ .#' % / #* % 0 % 12% ' 1% -,%)/% 1)% (,*5D%<1%
/3,,#1:% 0 % /3)$ % ,`0 .#)1 % #.% /3,, % 0 % /3)$ % .(,% .3 5 % )/% #1/,3#)3%
$ .(,$ .#' D% K % <% #2% #1 % 6( 5.,3% W 8 % $ .(,$ .#' % # % $,3,*C% % ; C% )/%
.(#1@#1:% 12%$,2#. .#1:8% *#..*,% $)3,8% #1% )03%;)3*2% )/% 3 12)$1, D%
T 0 ' < , C +
U
$ , & + ( ?$ & '$ A > $ / & & ,$ L < , $ & 9$ ' C + , & B + L L$
&)1*#1, 3#.C% #1%3 12)$% )0.')$, % # % )$,.#$, % 0 ,2% % % .))*% .)% -3, @%
. *,$ ., D% 6)1 #2,3 % .(,% 53)-*,$% )/% .(,% 1)1*#1, 3 % 102:,D% <$ :#1,% %
2)1@,C%,`0 **C%(01:3C% 12 %.(#3 .C%5* ',2% .%,^ ' .*C%,`0 *%2 # . 1',% /3)$%
.;)% )03', % )/% /))2% 12%; .,3D% <1% 0'(% % /3 $,;)3@8% (,% ;)0*2% 2#,% )/%
-).(%.(#3 .% 12%(01:,3% %(,%;)0*2% -,%01 -*,%.)%2,'#2,%;(#'(% )1,%.)%:,.%
. )% /#3 .D% &);% #1 i,'.% )$,% 3 12)$1, % #1% .(,% 5 #'.03,8% -C % 3 12)$*C %
102:#1:%.(,%2)1@,C8% ' 0 #1:%(#$% .)% :,.% '*) ,3%.)% )1,% )03',8%1)% $ ..,3%
;(#'(8% 12% '')32#1:*C% ; C% /3)$% .(,% ).(,3 D% +(,% #$5 ,% ;)0*2% -,%
#1 . 1.*C% -3)@,1% 12% )03% ( 55C% 2)1@,C% ;#**% -,%,#.(,3% #1% .031%;,**% /,2%
.(,1%;,**%(C23 .,28%)3%;,**%(C23 .,2%.(,1%;,**%/,2D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 164/219
I W Z %
=T&_ 4? >% T&% + ? M 4LS <+ 4 S >%
+(,% 3, 2,3% 1)% 2)0-.% ( % 5* C,2% % B,3 #)1% )/% J03#2 1U % 2)1@,C8% -C%
g/*#55#1:% %')#1 g%.)% -3, @% )$,%)/%.(,%$#1)3% . *,$ ., %#1%*#/,%;(,3,%)1,%
*,. % 3 12)$1, % (,*5%;#.(%.(,%2,'# #)1%53)', D%7,.% 7 2C%/) 3.01 % $ @,%
.(,%2,'# #)1% 12%:* 2*C% 0-$#.D% <%)/.,1% 0 ,%J03#2 1U % 2)1@,C% O012,3%#. %
$ .(,$ .#' *% 1 $,R%;(,1%$C%')$50.,3%:), %#1.)% %/3,,j,% -,.;,,1%.;)%
*.,31 .#B, % O.)%-,%.,'(1#' *8%.(, ,%g3 12)$#j .#)1 g% 3,%/3,`0,1.*C%2)1,%
203#1:% )5.#$ #j .#)1% 5 3)-*,$ 8% ;(,1% )1,% 1,,2 % .)% 5 ,3.0 3- .,% %
/01'.#)1RD%
&).,% .( .% J03#2 1U % 2)1@,C%; % 1 $,2% /.,3% .(,% /)03.,,1.(9',1.03C%
5(#*) )5(,3% f, 1% J03#2 1D% J03#2 1% ( 2% 1% #1.,3, .#1:% 2, .(% O(,% ; %
.(3);1% #1% .(,% >,#1,% .#,2% #1 % % - :% 12% 2#,2% 23);1#1:RD% +(# % . *, % ; %
')1 #2,3,2% 1% ,^ $5*,% )/% )5(# .3C% -C%(# % ')1.,$5)3 3#, % ;()% $# ,2%
.(,% #$5)3.% )/% 3 12)$#j .#)1% 9% J03#2 1% ; % '*, 3*C% (, 2% )/% (# % .#$,D%
G'(/& ?%& ;)./,A& ?%& E#$*,&
K % <% $% ;3#.#1:% .(, , % *#1, 8% <% $% )5,1#1:% $C% /012% .) % #1B, .)3 % 12%
,^5*)3#1:% ();%.)% 3 # ,%$)1,CD% <% $ % 022,1*C% 3, *#j#1:% .( .% .(,%;)3*2U %
- #95)* 3#.C % # % ( #..#1:% $,% B,3C % ( 32D% 4#.(,3% )1, % 0'',,2 % ;#*2*C 8% -C %
..3 '.#1:% ** % .(,% ' (8% )3% / #* % .)% 23 ;% % #1:*,% 5,11CD% 7#@,;# ,% ;#.(%
-))@ D % 4#.(,3% ,B,3C)1,% ; 1. % .)% 50-*# (% #.8% )3% 1)-)2C% # % #1.,3, .,2% #1%
3,.031#1:% .,*,5()1,% ' ** % O#1%.(,% * ..,3%' ,%$C%2# '#5*#1,% # %.)% 2,*,.,%.(,%
1 $,%/3)$%$C% 223, %-))@RD%+( # %# %$ @#1:%$,8%;#.(%$C%53)/)012% 12%
1 .#`0 .,2% =,2 #.,33 1, 1% ,1 ,% ) /
.#($%8-
% O$ , 03,R% ,^.3,$,*C%
01')$/)3. -*,8% ,B,1% `0, CD% +))% $0'(% 0'', % # % .(,% ,1,$C% O.(#1@% )/%
.(,%501# ($,1.%$,.,2% )0.%)1% .(,%3#'(% 12%/ $)0 R8%.))%$0'(% / #*03,% # %
2,$)3 *#j#1:D% <%;)0*2% *#@,% .(,% )5.#)1% )/% ( B#1:% 1,#.(,3D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 165/219
, * , B , 1 %
9- (A# 1%<<%/B5(, 8< (A%->%-+ 8< ,8B$ &'/'(%8- ') ' 5%-#'$
/8.Y%-'(%8- 8< ;'$%) '-1 (A# X'A'.')e E#$8 F B5%: .', -#&#$
)>% %- (A# =5:) '+'%-e *8.# 1%)/B))%8- 8< Y#A'&%8$'5 1%)/8&#$%#)e
*8. # .'- %<#)('(%8-) 8< :$8Y'Y%5%(, Y5%-1-#)) ('>#- 8B( 8< '
(#7(Y88>e = 5%((5# .8$# 8- g8B$-'5%)(%/ :855B(%8-e T A, ,8B .',
)0%( B,% .;)% )5.#)1 % /)3% C)03% 1,^.% -3#,/% B ' .#)1% #1% = 3'(D% +(,%
/#3 .% # % .)% /*C% .)% M 3# h% .(,% ,')12% # % .)% :)% .)% .(,% 6 3#--, 1D% ?)0%
,^53, ,2%#12#//,3,1',% -,.;,,1%.(,%.;)%)5.#)1 h%C)03% 5)0 ,%;#**%.#5%.(,%
2,'# #)1% )1,% ; C% )3% .(,% ).(,3D% +; )% 2# .#1'.% 12% ,5 3 .,% #$ :, %')$,%
.)% C)0% ;(,1% C)0% .( #1@% )/% .(,% 5) #- #*#.#, D% <1% .(,% /#3 .% )1, 8% C)0 % ,, %
C)03 ,*/% . 12#1:% .% .(,% =0 ,,% 2 UT 3 C% #1% /3)1.% ) /% )$,% M# 3)%
5 #1.#1:%2,5#'.#1:% %'*)02C% @C%9% .(,%:3 C%M 3# # 1%;#1.3C% @CD%?)0% 3,%
' 33C#1:% 1% 0$-3,** % 012,3% C)03% 3$D% <1 % .(,% ,')12% #$ :,8% C)0% 3,%
*C#1:%)1% %.);,*%;#.(% % . '@% )/%-))@ % -C%C)03%/ B)3#.,% 0.()3 % 1,^.% .)%
C)0%O+)$% 6* 1'C% 12%K$# 10 %= 3',**#10 R8% 12% 1%)- ,`0#)0 %; #.,3%
Y# 1#'1 Y, -8?e
E)*.,& #*& %'(& M)')=),W&
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 166/219
I \ H% =T&_4?>% T&% +? M 4L S <+ 4 S >%
,3B#1:% C)0% % - 1 1 % 2 #`0#3#D% ?)0% @1); % .( .% .(,% .;)% . ., % 3,%
$0.0 **C % ,^'*0 #B,% OC)0% ' 1% )1*C % -, % #1 % )1,% 5 * ', % .% )1, % .#$,R8% -0.%
,^( 0 .#B,% O.(,3,% # % % IHH l% 53)- -#*#.C % .( .% C)0 % ;#**% 9-,% #1 % )1,% ) /%
.(,$RD% +(,C% 3,% ,`0#53)- -*,8% ;#.(8% #1%C)03%)5#1#)18% \ Hl% 53)- -#*#.C%
#:1,2% .)% , '(D%
?)0% 2,3#B,%:3, .%5*, 03,%.(#1@#1:% -)0.% C)03%B ' .#)1h% #.% $).#B ., %
C)0% 12% $ @, % C)03% 2 #*C% ')$$0.,% $)3,% -, 3 -*,D% J0.% .(,% 2,`0 .,%
; C% .)% B# 0 *#j,% C)0 3 ,*/8% '')32 #1:% .)% 3 .#)1 *% -,( B#)3% 012,3%
01',3. #1.C8% # % \H l% #1%)1,%)/% .(,% B ' .#)1% 5). % 12%\ Hl% #1%.(,% ).(,3%
9 % ;( .% # %$ .(,$ .#' **C% ' **,2% 5%-#'$ /8.Y%-'(%8-% ) /% .(,% .;)% . ., D%
6 1% C)03% -3 #1% ( 12*,% .( .a% E);% 2, #3 -*,% ;)0*2% #. % -,% .)% ( B,% C)03%
/,,.%#1%.(,%6 3#--, 1%; .,3 % 12%C)03%(, 2%,^5) ,2%.)%.(,%M 3# # 1% 3 #1a%
T03% -3 #1%' 1% 53)5,3*C% ( 12*,% )1,% 12%)1*C% )1,% . .,% .%)1',% 9% 01*, %
C)0%( B,%5,3 )1 *#.C% .3)0-*, % )/% % 2,,5*C%5 .()*):#' *% 1 .03,D% &); % .3C%
.)% #$ :#1,% 1% Z\l rI\ l% ')$-#1 . #)1D% K1C% *0'@a%
6)1 #2,3% % -,.%C)0%$ @,%;#.(% %')**, :0,%/)3%.(,% $)01.% )/% pI 8HH H8%
;(#'(8% #1% C)03% )5#1#)18% # % ,^ '.*C% / #3D% +)$)33);% 1#:(.% C)0%;#**% ( B,%
j,3)% )3% pG 8HH H% #1%C)03% 5)'@,.8% , '(%;#.(% % \ Hl% 53)- -#*#.CD% <1%503,*C%
$ .(,$ .#' *% .,3$ 8% .(,% / #3% B *0,%)/% % -,.%# %.(,% *#1, 3%')$-#1 .#)1% )/%
.(,% . ., 8% (,3,% ' **,2% .(,
.'(A#.'(%/'5 #7:#/('(%8-
8% # D, D8% .(,%
53)- -#*# .#, % )/% , '(% 5 C)//% $0*.#5*#,2% -C% .(,% 2)** 3% B *0, % .% . @,%
O\Hl% $0*.#5 *#,2% -C% H % 12% \Hl% $0*.#5*#,2% -C% pG 8HH H % t % pI 8HHHR D% 6 1 %
C)0 %.'+%-#% O.( . % # % B# 0 *#j,8% 1).% ')$50.,% $ .(,$ .#' **CR% .(,% B *0,%
-,#1:%pI8HHHa%L,%' 1%')1i03,%05%)1,% 12%)1*C
8-#
% . .,% .% %:#B,1%.#$,D%
7,/.%.)%)03%);1%2,B#', 8%;,% 3,%*#@,*C%.)% -,.%#1% 1%#33 .#)1 *%; C8% %)1,%
)/% .(,% . ., %;)0*2% 2)$#1 .,% .(,% 5#'.03,D%
<#=(& *@'.%(@%$*)1& 0#/,.2(*)%.#/,&
+#$,% .) % 3,B, *% &,3) U % ,'3,.D% <.% ; % % - * '@ % ; 1D% E,% ; % .(,1 % [\ D%
K*.()0:(% 53,9; 3% -0#*2#1: % #1 % &,;% ?)3@% ' 1% ( B,% % 5*, 1.% /3)1.8%
.(,#3% 3'(#.,'.03,% ,,1% /3)$% .(,% - '@% )//,3 % % . 3@% ')1.3 . % -C% -,#1:%
')$5*,.,*C% -* 12 D% +(,% 2)'.) 3U % ,^ $#1 .#)1% 3))$% ( 2 % % ; #12); %
)B,3*))@#1:% .(,% - '@C 32% )/%)1,% 0'(%A55,3%4 .% #2,% .3,,.8% 12%&,3)%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 167/219
SK&N T= &4> >% K&N% TAS% J SK <& d% L 4% K S4% M ST JK J < 7 <+ ?% J 7 <& N% I \ I%
;#**% *; C %3,$,$-,3% ();%-* 12%.( .%- '@C 32%; %#1%')$5 3# )1%;#.(%
.(,% /3)1.8 % ,B,1% #/% (,% ;,3,% .)% *#B,% 1).(,3% ( */% ',1.03CD% E,% ;#**% *; C %
3,$,$-,3%.(,%B#,;%)/%.(,%0:*C%5#1@%- '@C 32%/3)$%.(,%*, 2,1%;#12);%
5 1, 8% 12%.(,%$,2#' *% 2#5*)$ % )1%.(,%; **% .( .%(,%3, 2% %2)j,1% .#$, %
%(,%; %; #.#1:% /)3%.(,%2)'.)3%.)%')$,% #1.)%.(,%3))$% O( */% 1% ,.,31#.C8%
/)3% &,3)% 0 5,'.,2% .( .% )$,.(#1:% ; % ;3)1:RD% +(,% 1,; % ; % .(,1 %
2,*#B,3,2% O:3 B,%B)#',R8% g< % ( B,% )$,% D D D% < %:).% .(,% 5 .()*):C% 3,5)3.% D D D%
<.U % D D D% <.% # % 1).% % - 2% % #.% )012 % D D D% <.U % D D D% <.U % ' 1',3gD% +(,%
2,'* 3 .#)1% ' 0 ,2% (# % -)2C% .)% -,% (#.% -C% 1% ,*,'.3#'% 2# '( 3:,8% 3011#1:%
.(3)0:(% (# % - '@% 2);1% .)% (# % @1,, D%& ,3)% .3#,2% .)%C,**% g;( .ag% -0.% 1)%
)012% ' $,% )0.% )/ %(# % $)0.(D% L( . % ' 3,2% (#$% ; % 1).% )% $0'(% .(,%
1,; % % .(,% #:(.% )/% .(,% 2)'.)3D% >)$,();% .(,% 1,; % 3, '(,2% (# % -)2C%
-,/)3,%(# %$#12D%+(,3,%; %.))%$0'(%/, 3%#1%.(,%2)'.)3U % ,C, % 12%&,3)%
#$$,2# .,*C% 0 5,'.,2% .( .%.(,%1,; %; % ,B,1%;)3 ,% .( 1%;( .% (,%; %
-,#1:% .)*2% O#.%; RD%
+(,% 1#:(.% ) /% .(,% 2 # :1) # 8% .% .(,% $,2#' *% *#- 3 3C % ;(,3,% (,% .8%
23,1'(,2%;,.%/3)$%; *@#1:%/)3%()03 %#1%.(,%3 #1%;#.()0.%1).#'#1:%#.% 12%
$ @#1:% %5022*,%)/%; .,3% 3)012%(#$% O(,%; %C,**,2% .%-C% 1% ..,12 1.%
-0.%')0*2% 1).%')1',1.3 .,% )1%;( .% (,%; % C#1:% )% (,% (30::,2% (,3%
()0*2,3 % 12% ; *@,2% ; CRh% * .,3% (,% 3, 2% .(,% ,1.,1',% gQ Gl% \9C, 3%
' .0 3# **C % 2i0 .,2% 03B#B *% 3 .,gD% <.% $, 1.% .( .% QG % 5,)5*, % )0.% )/% %
(0123,2% $ @,% # .D% < .% . @, % -,.;,,1% .(3,,% 12% /#B,% C, 3 % /)3 % .(,% -)2C%
;#.()0.% '*#1 #' *% $ 1#/, . .#)1 % ) /% .(,% 2# , ,% /)3% .(,% 5 .#,1.% .) % -,%
53)1)01',2% '03,2% O'*) ,3% .)% .(3,,% . % (# % :,RD% E,% .(,1% /,*. % #1% (# % :0. %
`0#.,% ',3. #1% .( .% (,%; % :)#1:% .)%$ @,% #.D %
&);% .(,% 3, 2,3% $#:(.% ;)12,3% -)0.% .(,% $ .(,$ .#' *% 2#//,3,1',%
-,.;,,1% %G Zl% '( 1',%)/%2, .(% 12% % Q Gl % '( 1',% )/% 03B#B *%)B,3%.(,%
1,^.% /#B,% C, 3 D% 6 *, 3*C8% .(,3,% # % 1)1,8% -0.% ;,% 3,% 1).% $ 2,% /)3%
$ .(,$ .#' D%<1%&, 3)U%$#12% %G Zl% '( 1',% )/%2, .(%$, 1.%.(,%#$ :,%)/%
(#$ ,*/% 2, 28% 12%.()0:(. % )/%.(,%'0$-,3 )$,% 2,. #* % )/% (# % /01,3 *D%K%
QGl% '( 1',% ) /% 03B#B *% 50.% (#$% #1 % % '(,,3/0 *% $))2h% (# % $#12 % ; %
5 * 11#1:% .(, % 3, 0*.% )/% % '03,2% &,3)% @##1:% #1 % .(,% K*5 D% K.% 1)% 5)#1.%
203#1: % (# % )32, *% 2#2 % &,3)% .(#1@ % ) /% ( #$ ,*/% % QGl% *#B,% 12 % GZ l%
2, 2D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 168/219
I \ G% =T&_4?>% T&% +? M 4L S <+ 4 S >%
J*#=& E,C@'#1#8C& %# & 3($*# .#1#8C&
F)3% 3, )1 % ;,% i0 .% ;8% .(,% * ; % )/% 53)- -#*#.C% 3,% #2% .)% -,%
')01.,3#1.0 #.#B,% -C% .(, % 3, , 3'(,3 % #1 % .(,% '):1#.#B,% 12% -,( B#)3 *%
'#,1', D%L,% 3, :$8Y'Y%5%(, Y5%-1N% .(, ,% '#,1.# . % CD%+(# %'( 5.,3%;#**%
3 5#2*C%#**0 .3 .,% )$,%$ 1#/, . .#)1 % )/% 0'(% -*#121, 8%; #.(% % '03 )3C%
,^5) #.#)1% )/%.(,% 3, , 3'(% #1% .( .% 3, D%
+(,% #2, % )/% 53)- -#* #.C% -*#121, % : B,% 3# ,% .)% 1% ,1.#3,% 2# '#5*#1,%
2,2#' .,2%.)% .(,% .02C%)/%.(,%,//,'.%.(, ,%-# , %' 33C%)1%)03% -,( B#)3D%<.%
# % /#**#1: % )0 .% *#-3 3C % (,*B, % 12 % ' 0 #1: % .(,% ' 3, . #)1% ) /% 10$,3)0 %
#1B, .$,1.% /012 %2,2#' .,2% .)% .(,% # .,3%#2, % .( .% 5,)5*,% 2)%1) .% -,( B,%
#1% %3 .#)1 *%; C%#1%.(,%$ 3@,. D% >)$,%/012 %( B,%-,,1%-0 #*.% 3)012 %.(,%
#2, % .( .% 5,)5*,% )B,33, '.% .)% 1,; 8%;(#*,% ).(,3 % ( B,% -,,1% 2,B).,2% .)%
.(,% 1).#)1% .( .8% .)% .(,% ')1.3 3C8% 5,)5*,% 012,33, '.% O<%; % .)*2% , 3*C% #1%
$C% ' 3,,3% .( . % .(,% $)3, % 2#B,3 #.C % .(,% -,..,3% /)3% .(,% $ 3@,.RD% +(, , %
-,*#,/ % :#B,% 3# ,%.)% .;)%' .,:)3#, % )/%.3 2#1:% .3 .,:#, D% T1% )1,% #2,%;,%
/#12%.(,%')1.3 3# 1 %;()% 0- '3#-,%.)% .(,%/)**);#1:% 3 .#)1 *,d 0#,N )%-/#
:#8:5# ),)(#.'(%/'55, 8&#$$#'/(N 5#( B) ('># (A# 8(A#$ )%1#N )#55 (A#
?%--#$) '-1 YB, (A# 58)#$)e% T1% .(,% ).(,3% #2,% . 12 % .(,% $)$,1.0$%
5* C,3 % ;()% 2)% .(,% ,^ '.% )55) #., d
*%-/# .'$>#() 18 -8( '1gB)( <')(
#-8B+A N 5#( B) YB, (A# ?%--#$) '-1 )#55 (A# 58)#$)e% J,' 0 ,% ) /%
3 12)$1, 8% -).(%' .,:)3#, %;#**% ();% 5,3#)2#'%B#'.)3#, 8%;(#'(% ' 11).%
53)B,% 2#3,'.*C% .( .% ,#.(,3%.(,)3C% # % 3#:(.% )3%;3)1:D%
4B,1% 5 C'(# .3# . % 12% '*#1#' *% 5 C'()*):# . % 3,% i)#1#1:% .(,% /3 C% -C%
-,')$#1:% g,^5,3. g% 9 % /.,3% ** % .(,C%@1);%$)3,% -)0.% .(,%(0$ 1% $#12%
.( .% .() ,% /#1 1'# *% ,')1)$# . % ;#.( % .(,#3% 013, * # .#'8% 01 '#,1.#/#'%
,`0 .#)1 8% 12%#.%# 8% /.,3% **8% (0$ 1% -,( B#)3%.( .%0*.#$ .,*C% #1/*0,1', %
.(,%$ 3@,. D%K %C, 3*C%')1/,3,1',% #1%J) .)1%: .(,3 %$,2#' *%2)'.)3 % 12%
5 C'()*):C% 3, , 3'(,3 % $0 #1:% )B,3% $ 3@,.% .3 .,:#, D% +(,% #2, % $ C%
,,$% #$5*,8% 5,3( 5 % ,B,1% -)3#1:% 01.#*% ;,% ,1')01.,3% 53)/, #)1 * 8%
;()$%;,% ,^5,'. % ;)0*2% 2, *% ;#.(% .(,%$ ..,3% ;#.(% $ ^#$ *% ,^5,3.# ,8%
/ **#1:% 3#:(.% #1.)% .(,% .3 5% *#@,% .(,%$ 1% )1%.(,% .3,,.D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 169/219
SK& NT= &4> >% K&N% TAS% JSK <& d% L 4% K S4% M ST JK J < 7 <+ ?% J 7 <& N% I \ [%
& 0 ' $ + C A 0 ' C .$ > C T < A C A$
<%;#**%1).% 2,*B,%.))% 2,,5*C%#1.)% $ .,03%,B)*0.#)1 3C%.(,)3C%.)% 53)-,% .%
.(,%3, )1 %O-, #2, 8%#1% 5#.,%) /%( B#1:% 5,1.% )$,%.#$,% #1%*#-3 3#, % <%/,,*%
.( .% <% $ % .30*C% 1% $ .,03% #1% .(,% 0-i,'.% $ ..,3RD% 6*, 3*C8% .(,%
,1B#3)1$,1.% /)3%;(#'(%;,%( B,% -0#*.%)03% :,1,.#'% ,12);$,1.% # %1) .%.(,%
)1,%.( .% 53,B #* % .)2 CD%<% ( B,%1).%.)*2% .))% $ 1C% )/%$C%')**, :0, % .( .%
.(,#3% 2,'# #)19$ @#1:% ')1. #1 % )$,% *#1:,3#1:% ( -#. % )/%' B,$,1% 9% -0.%
;(,1%$ 3@,. %,^5,3#,1',% 1% -305.%$)B,8%<%,^5,3#,1',%.(,% $,%30 (%) /%
23,1 *#1,% %#/% %*,)5 32%; % ,,1%53);*#1:%1, 3%$C%.3 2#1:%2, @D%>)$,%
)/%$C%')**, :0, %;()%-3, @% .,*,5()1,%( 12*, %05)1%*) #1:%$)1,C%$#:(.%
-,%,B,1%'*) ,3% #1%.(,#3% 5 C'()*):#' *% $ @,05% .)%)03% ')$$)1% )3#:#1D%
+(# %$#:(.% -,% %5* .#.02,% .)%.() ,%;()% /3,`0,1.% .(,%V3,,@% 12% 7 .#1%
'* #' 8 % -0.% ;,% 1,B,3% / #*% .)% -,% 0353# ,2%;(,1% 1).#'#1:% .( .% 5,)5*,% %
')05*,% ) /% 2)j,1% ',1.03#, % 3,$)B,2% /3)$ % 0 % ' 1% ,^(#-#.% #$ #* 3%
,1 #-#*#.C% 12%/,,*#1: D%L( .% 0 ,2%.)% .3#@,%$,% % %'(#*2% 05)1% B# #.#1:%
$0 ,0$ % # % .( .% 1'#,1.% V3,,@% . .0, % ,^(#-#.% $,1% ;#.(% .3 #. %
#12# .#1:0# ( -*,% /3)$% )03 % O)1*C%$)3,% ( 3$)1#)0 % 12% 3# .)'3 .#'RD% < %
; % )%;3)1:%.)% -,*#,B,%.( .%G8G HH% C, 3 %; % %*)1:%.#$,D% M3)0 .%;3).,%
/3,`0,1.*C% -)0.%.(,% 0353# ,%5,)5*,%( B,%;(#*,%')$#1:% '3) % ,$).#)1 %
#1 % E)$,3#'% (,3), % .( . % 3, % #$#* 3% .)% .() ,% ;,% ,^5,3#,1',% .)2 CD% JC%
:,1,.#'% . 12 32 8% .(, ,% E)$,3#'% (,3), % ) /% [H% ',1.03#, % :)% #1 % **%
*#@,*#())2% ( B,%.(,%,^ '.%#2,1.#' *%:,1,.#'%$ @,05% %.(,%502:C%$#22*,9
:,2% $ 1% C)0% ,,% '(*,55#1:% :3)',3#, % #1% .(,% 5 3@#1:% *).D% =)3,% .( 1%
.( .D% <1%/ '.%;,% 3,%.30*C% #2,1.#' *%.)% .(,%$ 1%;()% 5,3( 5 % ZH% ',1.03#, %
:)% . 3.,2% -,#1:%' **,2% g'#B#*#j,2g8%#1%.( .% .3#5%) /%* 12% .3,.'(#1:% /3)$%
>)0.(, .,31% >C3# % .)% >)0.(;, .,31% =, )5). $# D%
L( .% # % )03% 1 .03 *% ( -#. .a% JC% 1 .03 *% ( -#. .8% <% $, 1% .(,%
,1B#3)1$,1.% #1% ;(#'(% ;,% 3,53)20',2% .(,% $) .8% .(,% )1,% #1% ;(#'(% ;,%
5,1.% .(,% (#:(, .% 10$-,3% ) /% :,1,3 .#)1 D% + (,% ')1 ,1 0 % $)1:%
1.(3)5)*):# . % # % .( .% ;,% ( B,% -,,1% 3)012% % % ,5 3 .,% 5,'#, % /)3%
I[H8 HH H%C, 3 8%$) .%)/%;(#'(%;,3,% 5,1.%#1%.(,%K/3#' 1% B 11 (D%J0.%;,%
2)%1).%( B,%.)%:) %- '@ %.( .%/ 3%#1%(# .)3C%.)%:,.%.(,%5)#1.D%<$ :#1,% *#/,%#1%
1%, 3*C%03- 1% ,..*,$,1.8%#1%=#22*,9+);18% F,3.#*,%63, ',1.8%)1*C% -)0.%
[ 8 HHH% C, 3 % :)% 9% 03,*C% $)2,31% .#$, % /3)$% % :,1,.#'% . 125)#1.D%
<1/)3$ .#)1% # % *#$#.,2% -C% .(,% 5(C #' *% $, 1 % )/% #. % .3 1 $# #)1h% )1,%
' 11).% .3 B,*% / .8%(,1',% #1/)3$ .#)1%;#**%')$,% /3)$% / 3 ; C% 5* ', % #1%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 170/219
I \ W% =T&_4?>% T&% +? M 4L S <+ 4 S >%
')1'# , % - .'(, D% +3 B,*#1:% # % % 10# 1', % /3 0:(.% ;#.( % **% $ 11,3% )/%
5(C #' *%2 1:,3h%C)0%;#**% ,..*,%;#.(#1% %1 33); %3 2#0 %)/%;(,3,%C)0%;,3,%
-)31% 01*, %/ $#1,% )3% )$,% #1B 2#1:%01'#B#*#j,2%.3#-,% 2# *)2:, %C)0% 12%
C)03% 3,* .#B, % /3)$% C)03% ( 55C% ,..*,$,1.D % +(,% 10$-,3% )/% 5,)5*,% C)0%
;)0*2 % :,.% .)% @1);% #1% % *#/,.#$,% ; #**% -,% $ **D% >()0*2 % % '3#$,% -,%
')$$#..,28%#.%;#**% -,%, C%.)%: 0:,%.(,%,B#2,1',%)/%:0#*.%;#.(#1%.(,% $ **%
10$-,3%) /%5) #-*,% 0 5,'. D%</%C)0% 3,%01i0 .*C%')1B#'.,2%) /% %'3#$,8%C)0%
;#**% 3:0,%#1% #$5*,%.,3$ 8%53)5)012#1:% #$5*,%,B#2,1',% *#@,%g <%; %1).%
.(,3,% %<%; %53 C#1:%#1%.(,%.,$5*,%) /%J *% 12%; % ,,1% .%20 @%-C%.(,%
(#:(%53#, .g% 12% 22%.( .%T-,2 (,$, (% )1%)/% > ( 3%; %$)3,%*#@,*C%.)%
-,%:0#*.C%-,' 0 ,%(,%( 2%$)3,%.)%: #1%/3)$%.(,%'3#$,D%?)03% *#/,%;)0*2%-,%
#$5*,8% (,1',%C)03% 5 ',%) / :$8Y'Y%5%(%#)% ;)0*2 % -,% 1 3 3);D%
+(,% 3, *%53)-*,$% # 8% %<%( B,%$,1.#)1,28% .( .% 0'(% %1 .03 *% ( -#. .%
2), % 1).% #1'*02,% $0'(% #1/)3$ .#)1D% K1% ,//#' #,1.% ')$50. . #)1% )/% .(,%
)22 %; %1,B,3%1,', 3C% 01.#*%B,3C%3,',1.*CD%+(# % ,^5* #1 %;(C%;,% ( 2%
.)%; #.% 01.#*% .(,%,$,3:,1',% )/%.(,%: $-*#1:% *#.,3 .03,%.)% ,,%.(,%:3);.(%
)/%.(,%$ .(,$ .#' % )/%53)- -#*#.CD% M)50* 3%-,*#,/%()*2 %.( .% .(,%3,*#:#)0 %
- '@23)5 %)/%.(,%/#3 .% 12% ,')12%$#**,11#0$%- *)'@,2% .(,%:3);.(%)/%.))* %
.( .% (#1.% .% - ,1',%) /%2,.,3$#1# $8% 12%' 0 ,2%.(,%2,* C %#1%53)- -#*#.C%
3, , 3'(D% +(,% #2, % # % ,^.3,$,*C% 20-#)0 h% ;,% #$5*C% 2#2% 1).% ')$50.,%
53)- -#*#. #, % -,' 0 ,% ;,% 2#2% 1).
1'$#
% .)a% >03,*C % .(,% 3, )1% # % 3 .(,3 %
-,' 0 ,%;,%2#2%1). -##1% .)D%=0'(% )/% )03%53)-*,$%')$, % /3)$% .(,%/ '.%
.( .%;,%( B,%,B)*B,2%)0.%) /% 0'(% %( -#. .% / .,38%$0'(% / .,3%.( 1% )03%
:,1, D% 4B,1%;)3 ,h%)03% :,1, % ( B,%1).% '( 1:,2% .% **D%
( C 9 ( C$ < +$ C$ = & 0 ' A ' & & B $
+(,% T DfD% >#$5 )1%.3# *% 53)B#2, % 1%,^ $5*,%) /%();% )03%$)2,31% )'#,.C%
# % 30*,2% -C%53)- -#*#.C% O-,' 0 ,% )/% .(,% ,^5*) #)1% #1%#1/)3$ .#)1R8% ;(#*,%
#$5)3. 1.% 2,'# #)1 % 3,% $ 2,% ;#.()0.% .(,% $ **, .% 3,: 32% /)3% #. % - #'%
* ; D% L, % 3,% ' 5 -*,% ) /% ,12#1:% % 5 ','3 /.% .)% = 3 8% -0.% ;,% 3,%
#1' 5 -*,% ) /% ( B#1:% '3#$ #1 *% .3# * % $ 1 :,2% -C% .(,% - #'% * ; % )/%
53)- -#*#.C% 9% C,.% ,B#2,1',% # % '*, 3*C% % 53)- -#*# .#'% 1).#)1D% < % 3,$,$-,3%
-0C#1:% %-))@%)1%53)- -#*#.C% .% %J)32,3 %J))@ %'( #1%-))@ .)3,%)1*C% %
()3.% 2# . 1',% /3)$% .(,% 7) % K1:,*, % ')03.()0 ,% ;(,3,%.(,% g.3# *% )/%.(,%
',1.03Cg% ; % . @#1:% 5* ',% 9 % 1).(,3% -))@% .( .% '3C . **#j,2% .(,% (#:(*C%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 171/219
SK &NT= &4 >>% K&N% TAS% JSK <& d% L 4% KS4% M ST JK J < 7 <+ ?% J 7 <& N% I \ \%
)5(# .#' .,2% `0 1.#. .#B,%@1);*,2:,%#1%.(,%/#,*2D%E); %')0*2% 0'(% %*, 5%
#1% @1);*,2:,% ,*02,% * ;C,3 % 12%i03)3 % )1*C% % /,;%$#*, % ; Ca%
M,)5*, % ;()% 3, % % '*) , % .) % -,#1:% '3 #$#1 *% % 53)- -#*#.C % * ; % ' 1 %
**);%0 %.)% #1/,3% O.( .%# %;#.(% %')1/#2,1',% .( .% ,^',,2 % .(, )A'18? 8< '
18BY(d
% 3,% ; *@#1:% /3,,% -,' 0 ,% ) /% )03% $ # 012,3 . 12#1:% ) /% - #'%
')1',5. % )/% .(,% )22 D% ?)0% ')0*2% -,% ')1B#'.,2% /)3 % % '3#$,% C)0% 1,B,3%
')$$#..,2% );#1:% .)% %5))3% 3, 2#1:% )/%53)- -#*#.C%9% /)3% ;,% .#**% ' 11).%
( B,% %')03.%) /%* ;%53)5,3*C%')$50.,%.(,%i)#1.%5 3)- -#*#.C%) /%,B,1. % O.(,%
53)- -#*#.C % )/% .;)% ,B,1. % . @#1:% 5 * ',% .% .(, % $,% .#$,RD% <% ; % #1 % %
2, *#1:% 3))$% ;#.(% % +Y% ,.% .031,2% )1%;(,1% <% ;% )1,% )/% .(,% * ;C,3 %
3:0#1:% .( .% .(,3,%;,3,% .% *, .% /)03% 5,)5*,% #1% 7) % K1:,*, % ' 5 -*,% )/%
' 33C#1:% T DfD% >#$5 )1U %N&K% '( 3 '.,3# .#' % O.(0 %#:1)3#1:%.(,%i)#1.% ,.%
)/%,B,1. % 9% ;,%;#**% ,,%();% #1% .(,%1,^.% 5 3 :3 5(RD% < %.(,1% ;#.'(,2% )//%
.(,%.,*,B# #)1% ,.% #1%2# :0 .8%' 0 #1:% 1%053) 3% $)1:% .(,%.3 2,3 D% <%; %
012,3%.(,%#$53, #)1%01.#*%.(,1%.( .% )5(# .3C%( 2%-,,1%,*#$#1 .,2% /3)$%
*,: *%' , %.( 1@ %.)%.(,%(#:(% . 12 32 %) /%3,50-*#' 1%S)$ ,D%L)3 ,8%)1,%
E 3B 32% * ;C,3%0 ,2%.(,% 5,'#)0 % 3:0$,1.%.( .% )1*C% IHl% )/%$,1%;()%
-30. *#j, % .(,#3% ;#B, % :)% )1 % .) % $032,3% .(,$8% ;(#'( % # % % 53)- -#*#.C %
01')12#.#)1 *% )1%.(,%$032,3%O;(,.(,3%.(,% . .,$,1.%; %$ 2,%)0.% )/% %
; 35,2% 1).#)1% )/% 2B)' 'C8% 503,% $ *#',8% )3% #:1)3 1',% # % #$$ .,3# *R D%
< 1U. % .(,% * ;% 2,B).,2% .)% .(,% .30.(a% +(,% ')33,'.% ; C% .)% *))@% . % #. % # % .)%
2,.,3$#1,% .(,% 5,3',1. :,% )/%$032,3%' , %;(,3,%;)$,1%;,3,%@#**,2% -C%
.(,#3%(0 - 12 '- 1% ( 2%53,B#)0 *C%-,,1% - ..,3,2% -C%(#$% O.( .% # 8 W_nd H
/)3% ;,% 3, % 2, *#1:% ;#.( % ;( .% # % ' **,2 /8-1%(%8-'5% 5 3)- - #*#.#, h% .(,%
53)- -#*#.C% .( .% T DfD % @#**,2% (# % ;#/, /8-1%(%8-'5% )1% .(,% #1/)3$ . #)1% ) /%
(,3%( B#1:% -,,1%@#**,28%3 .(,3%.( 1% .(, B- /8-1%(%8-'5% 53)- -#*#.C %)/%T D fD%
@#**#1:%(# %;#/,D%E );% ' 1%;,% ,^5,'.%.(,%01.3 #1,2%5,3 )1%.)% 012,3 . 12%
3 12)$1, % ;(,1% % E 3B 32 % 53)/, )3% ;()% 2, * % 12 % ., '(, % .(,%
')1',5.%) /%53)- -#*# .#'% ,B#2,1',%' 1%$ @,% 0'(% 1%#1')33,'.% . .,$,1.a%
=)3,%5 3.#'0* 3*C8%;(,3,%i03)3 % O 12%* ;C,3 R%.,12%.)%$ @,%$# . @, 8%
*)1:% ;#.(% .(,% 3, .%) /%0 8% # % #1%.(,% 1).#)1% )/% i)#1.% 53)- -#*#.CD% +(,C% 2)%
1).% 3, *#j,% .( .% ,B#2,1', % ')$5)012 D% +(,% 53)- -#*#.C % )/% $C% -,#1:%
2# :1) ,2% ;#.(% 3, 5#3 .)3C% .3 '.% ' 1',3% 12% -,#1:% 301% )B,3% -C% % 5#1@%
6 2#** '% #1 % .(,% $,% C, 38% 0$#1: % , '( % )1,% ) /% .(,$% # % I rIHH 8HHH 8%
-,')$, % I r IH 8H H H 8H H H 8H H H% 9% -C% $0*.#5*C#1:% .(,% .;)% O)-B#)0 *C%
#12,5,12,1.R% ,B,1. D% K3:0#1:%.( .% T DfD % >#$5 )1% ( 2% Ir\ HH 8HH H% '( 1',%
)/%1).% -,#1:%.(,%@#**,3% /3)$% .(,% -*))2% . 125)#1.% O.(,%* ;C,3 % 0 ,2%.(,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 172/219
I \ X% =T&_4?>% T&% +? M 4L S <+ 4 S >%
)5(# .3C% .( . % .(,3,% ;,3,% /)03% 5,)5*,% ;#.(% 0'(% -*))2% .C5, % ; *@#1:%
3)012%7) %K1:,*, R% 12% 22#1:%.)%#.%.(,%/ '.%.( .%(,%; %.(,%(0 - 12%)/%
.(,% 5,3 )1% 12% .( .% .(,3,%; % 22#.#)1 *% ,B#2,1',8% .(,1% O);#1:% .)% .(,%
')$5)012#1:%, //,'.R%.(,%)22 % : #1 .%(#$%3# ,%.)% ,B,3 *%.3#**#)1% .3#**#)1D%
g>)5(# .#' .,2 g% 5,)5*,%$ @,%;)3 ,%$# . @, D%<%' 1% 0353# ,%5,)5*,%-C%
C#1: % .( .% .(,% 5 3)- - #*#.C % ) /% .(,% i) #1 .% ,B,1.% # % *);,3% .( 1 % ,#.(,3D%
J ,( B #) 3 *% ,')1)$ # . % 0-$ #..,2% 3 .#) 1 *% 12% ,20' .,2% 5,)5*,%
O:3 20 .,% .02,1. R% .)% ., . % ;(,3,% .(,C% 1,,2,2% .)% 53)20',% .(,%
53)- -#*#.C % )/% % C)01:% ;)$ 1% ;#.( % % *#-,3 *% 3 . % ,20' .#)1% -,#1:% %
Y'-> (#55#$% )3% <#.%-%)( Y'-> (#55#$e% +(,C% #:1,2%)1% B,3 :,% %(#:(,3%
53)- -#*#.C%.)%(,3%-,#1:% %/,$#1# .%- 1@%.,**,3%.( 1%.)%.( .%)/%(,3%-,#1:% %
- 1@%.,**,3D% <% $%:* 2%.)% -,% %.3 2,3%. @#1:% 2B 1. :,% )/%5,)5*,U % -# , %
-0.%<% $% ' 3,2%) /%*#B#1:% #1% 0'(% % )'#,.CD%
C +$ C T L 0 ' ,$ # & ' . , $
_ /@ U % 53)5(,.#'% -))@8 FA# F$%'58 % -)0.%.(,%5*#:(.%) /% %$ 18%f) ,5(% _D8%
;()% # % 33, .,2% /)3% %$C .,3#)0 % 12%01,^5* #1,2% 3, )1% (#.% % 5).% %#.%
; %;3#..,1%-,/)3, %;,%(, 32%)/%.(,%$,.()2 %)/%.(,%g '#,1.# /#'g% .). *#. 3# 1%
3,:#$, D%<.%53)i,'.,2% % ' 3C% /0.03,% )/%$ 1@#12%; 3 55,2% #1% - 032% ,*/9
/,,2#1:% -03, 0'3 '#, 8% ;#.(% 5)1. 1,)0 *C% ,$,3:#1:% 30*, % 0-i,'.,2% .)%
.(,%#1.,31 *%*):#'%)/%.(,%-03, 0'3 'CD%<.% 5 ;1,2% 1 %,1.#3,%*#.,3 .03,%) /%.(,%
'Y)B$1j% .(,%;)3*2%$ C%-,%.))%#1')1:30)0 %/)3%0 D%<% $%.,33#/#,2%)/%',3. #1%
* ;C,3 D% K/.,3% *# .,1#1:% .)% . .,$,1. % 203#1:% .(,% TDfD % .3# *% O 12% .(,#3%
,//,'.R% <% ; % ' 3,28% .30*C% ' 3,2% )/% .(,% 5) #-*, % )0.')$,h% $C% -,#1:%
33, .,2%/)3% )$ ,%3, )1% .( .%$ 2,%1) % ,1 ,%53)- -#*# .#' **C8% 12%( B#1:%
.)% /#:(.% )$,%:*#-%* ;C,3% #1% /3)1.%) /% % 3 12)$1, % #**#.,3 .,%i03CD%
L,% #2% .( .% $,3,% i02:$,1.% ;)0*2% 53)- -*C% 0//#',% #1% % 53#$#.#B,%
)'#,.CD%<.%# %, C%/)3% % )'#,.C%.)% *#B,%;#.()0.%$ .(,$ .#' %9% )3%.3 2,3 %.)%
.3 2,% ;#.()0.% `0 1.#. .#B,% $,.()2 % 9 % ;(,1% .(,% 5 ',% )/% 5) #-*,% )0.9
')$, %# %)1,%2#$,1 #)1 *D%T1,%2#$,1 #)1 *%$, 1 %.( .%;,% 3,%*))@#1:% .%
)1,% )*,% B 3# -*,8% 1).% % ')**,'.#)1% )/% ,5 3 .,% ,B,1. D% +(,% 53#',% )/% )1,%
,'03#.C% # %)1,%2#$,1 #)1 *8%;(,3, %.(,%')**,'.#)1% )/%.(,%53#', %)/% ,B,3 *%
,'03#.#, % # %$0*.#2#$,1 #)1 *% 12%3,`0#3, %$ .(,$ .#' *% $)2,*#1:% 9% ;,%
' 11).%, #*C% ,,%.(,%')**,'.#)1% )/%5) #-*,%)0.')$, %) /%.(,%5)3./)*#)%;#.(%
% 1 @,2% ,C,8% 12% ' 11).% ,B,1% 3,53, ,1.% # .% )1% % :3 5(% % )03% 5(C #' *%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 173/219
SK &NT =& 4> >% K&N% TAS% J SK <& d% L 4% K S4% M ST JK J < 7 <+ ?% J 7 <& N% I \ Q%
;)3*2%( %-,,1%*#$#.,2%.)%B# 0 *%3,53, ,1. .#)1% #1%.(3,,%2#$,1 #)1 % )1*CD%
L,% ;#**% 3:0,% * .,3% ;(C% ;,% 301% .(,% 3# @% )/% ( B#1:% - 2% $)2,* %
O 2$#..,2*C8% ;,% ( B,R% )3% $ @#1:% .(,% ,33)3 % )/% ')12)1#1:% #:1)3 1',% 9
;#1:#1:%-,.;,,1%.(,%6 3C-2,%)/% .(,%* ;C,3%;()%@1); % 1)%$ .(%.)%.(,%
>'C** % )/%.(,%$ .(,$ .#'# 1% ;()%$# 0 , % (# %$ .(% -,' 0 ,% (,% 2), %1).%
( B,%.(,%i02:$,1.%.)% ,*,'.%.(,%3#:(.%$)2,*D%<1%).(,3%;)32 8%;,%;#**%( B,%
.)% ;#1:%-,.;,,1%.(,%$# . @,% )/%*# .,1#1:%.) %.(,%:*#-%1)1 ,1 ,%)/% % * ;C,3%
;()% 3,/0 , % '#,1',% 12% .( .% )/% 55*C#1:% .(,% /* ;,2% .(,)3#, % )/% )$,%
,')1)$# .% ;()% . @, % (# % '#,1',% .))% ,3#)0 *CD% +(,% -, 0.C% )/% '#,1',% # %
.( .% #.%$ @, % 1% **); 1',% /)3%-).(%,33)3% .C5, D%70'@#*C8%.(,3,%# % %$#22*,%
3) 2%9% -0.% 2*C8%#.%# %3 3,*C% .3 B,*,2D%
( C > + B C +$ C + , $ A Q ' L ( ?$
L()% 3,% .(,% $) .% #1/*0,1.# *% ,')1)$# . % )/% .(,% ',1.03C8% #1 % .,3$ % )/%
i)031 *% 3, /,3,1', 8% .(,#3% /) **);#1: 8% 12 % .(,#3% #1 /*0,1',% )B,3% .(,%
53)/, #)1a% &)8 % #.% # % 1).% f)(1% = C1 32% _,C1, 8% 1).% K*/3,2% = 3 ( ** 8%
1).% M 0*% > $0,* )18% 12 % ',3. #1*C % 1).% =# *.)1% F3#,2$ 1 D% +(,C % 3,%
N 1#,*% _ (1,$ 1% 12% K$) % +B,3 @C8% 5 C'()*):C% 3, , 3'(,3 % ;() ,%
5,'# *.C% ; % .)% 01')B,3% 3, % ;(,3,% (0$ 1% -,#1: % 3,% 1).% ,12);,2%
;#.(% 3 .#)1 *% .(#1@#1:% 12%)5.#$ *% ,')1)$#'% -,( B#)3D%
+(,% 5 #3% . 0:(.% 0 % % *) .% -)0 .% .(,% ; C% ;,% 5,3',#B,% 12 % ( 12*,%
01',3. #1.CD% +(,#3% 3, , 3'(8%')120'.,2% )1% % 5)50* .#)1% )/% .02,1. % 12%
53)/, )3 % #1% .(,% , 3*C% I PQ H 8% ();,2% .( .% ;,% 2)% 1).% ')33,'.*C%
012,3 . 12% ')1.#1:,1'#, D% F03.(,3$)3,8% .(,C% ();,2% .( . % #1% .(,% 3 3,%
' , %;(,1%;,%012,3 . 12%53)- -#*#.C8%;,% 2)%1).% ,,$% .)%')1 #2,3%#.%#1%
)03% -,( B#) 3D% >#1',% .(,% _ (1,$ 1 % 12 % +B,3 @C% 3, 0*. 8% 1% ,1.#3,%
2# '#5*#1,%' **,2 Y#A'&%8$'5 <%-'-/# '-1 #/8-8. %/)% ( %/*)03# (,2D%<.% # %#1%
)5,1% ')1.3 2 #'.#)1% ;#.(% .(,% )3.()2)^% )9' **,2 -#8/5'))%/'5 #/8-8. %/)
. 0:(.% #1% -0 #1, % '())* % 012,3% .(,% 1)3$ .#B,% 1 $, % ) /
#<<%/%#-(
.'$>#()N $'(%8-'5 #7:#/('(%8-)N% 12% ).(,3% 0'(% ')1',5. D% <.% # % ;)3.(%
.)55#1:8% .% .(# % i01' .03, 8% 12 % 2# '0 #1: % .(,% 2 # .#1'.#)1 % -,.;,,1 %
1)3$ .#B,% 12% 5) #.#B,% ' #,1', D% K
-8$.'(%&#
% '#,1',% O'*, 3*C% % ,*/9
')1.3 2#'.)3C% ')1',5.R % )//,3 % 53, '3#5.#B,% ., '(#1: h% #.% .02#, % ();%
.(#1: )A8B51 % -,D% >)$,% ,')1)$# . 8% /)3% ,^ $5*,8% O.() ,%)/% .(,% ,//#'#,1. %
$ 3@,.% 3,*#:#)1R % -,*#,B,% .( .% (0$ 1 % 3,% 3 .#)1 *% 12% '.% 3 .#)1 **C%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 174/219
I\Z %
=T&_4 ?>% T&% + ? M 4LS < + 4 S>%
-,' 0 ,% #.% # % .(,% -, .% .(#1:% /)3% .(,$ % .)% 2)% O#.% # % $ .(,$ .#' **C%
g)5.#$ *gR D% +(,% )55) #., % # % :8)%(%&#% '#,1',8% ;(#'( % # % - ,2% )1% ();%
5,)5*,% '.0 **C% 3,% )- ,3B,2% .)% -,( B,D% <1% 5#.,%)/% ,')1u$# . U% ,1BC% )/%
5(C #'# . 8% 5(C #' % # % 1% #1(,3,1.*C% 5) #.#B,% '#,1',% ;(#*,% ,')1)$#' 8%
5 3.#'0* 3*C%$ #'3),')1)$#' % 12%/#1 1'# *% ,')1)$#' 8% # % 53,2)$#1 1.*C%
% 1)3$ .#B,% )1,D%
+ 0 ' & T < & . & / ?$
+(,% )/.% '#,1', % ) /% 5 C'()*):C % 12 % ,')1)$#' % ( B,% '(, .,2 % 0 % )1 %
)'' #)1 % #1% .(,% 5 . D% E);a% 4')1)$#' % ( % 53)20',2% * 0:( -*,% #2, 8%
#2, % .( .% ,B 5)3 ., % )1',% )1,% '( 1:, % .(,% 0$5.#)1 % % *#..*, % -#.D% <.%
,,$ % 2#//#'0*. % .)% . @,% #2, % ;#.(% -#'@,3#1:% ,')1)$# . % .3 2#1:% )/.,19
#1 ')$53,(,1 #- *,% 3:0$,1. % O,B,1% .)% , ')1)$# . RD% J #) *):C% 12%
$,2#'#1,8% )1% .(,% ).(,3 % ( 128% 3 1@% (#:(,3% #1 % ' #,1.#/ #' % /#3$1, h% *#@,%
($B#% '#,1', 8% .(,C % ' 1% ,^5* #1 % .(#1: % ;(#*,% .% .(,% $,% .#$,% -,#1: %
0-i,'.,2% .)% / * #/#' .#)1D% +(,C% 3,% -).(% 5) #.#B,% 12%.(,#3% .(,)3#, % 3,%
Y#((#$% .(,)3#, 8% .( .% # 8% $)3,% , #*C % ., . - *, D% +(,% :))2% 1,; % # % .( .%
1,03)*):# . % 3,% . 3.#1:% .)% ')1/#3$% .(, ,% 3, 0*. 8% ;#.(% ;( .% # % ' **,2%
,1B#3)1$,1.% $ 55#1:% #1% .(,% -3 #18% -C%. @#1:% % 5 .#,1.% ;() ,% -3 #1% # %
2 $ :,2% #1%)1,% #1:*,% 5).%O C8% -C% % .0$)3% )3% 1% #1i03C%2,,$,2%.)%-,%
*)' *R% 12%2,20'#1:% -C%,*#$#1 .#)1% .(,% /01'.#)1%5,3/)3$,2% -C% 0'(%5 3.%
)/% .(,% 1# .)$CD% +(# % # )* ., % .(,% 5 3. % )/% .(,% -3 #1% .( .% 5,3/)3$% .(,%
B 3#)0 %/01'.#)1 D%+(,%_ (1,$ 1% 12%+B,3 @C%3, 0*. %.(0 %/)012% (#$$'
<%$.'% ;#.( % .(,% *, 5 % #1 % )03% @1);*,2:, % )-. #1,2% .(3)0:(% -,( B#)3 *%
:,1,.#' % 128% / 3.(,38% 5* #1% $,2#'#1,D% >)$,% )/% .(,% 5(C #)*):C% )/% )03%
-3 #1%$ @, % 0 %5,3',#B,%.(#1: % 12%-,( B,% #1% % :#B,1% $ 11,3D%L ,% 3,8%
;(,.(,3% ;,% *#@,%#. %)3% 1).8% 53# )1,3 % )/% )03% -#)*):CD%
S, , 3'(,3 % #1% ,B)*0.#)1 3C% 5 C'()*):C% 53)B#2,% ')1B#1'#1:% 3, )1 %
/)3%.(, ,% -# , D%L,% ( B,%1).% ( 2%.(,% #1',1.#B,% .)% 2,B,*)5% 1% -#*#.C% .)%
012,3 . 12%53)- -#*#.C% -,' 0 ,%;,%2#2%1).%( B,%.)%2)% )%9% -0.%.(,%$)3,%
53)/)012% 3, )1% # % .( .%;,% 3,% 1).% 2, #:1,2%.)% 012,3 . 12% .(#1: D%L ,%
3,% -0#*.%)1*C%.) % 03B#B,% 12 %53)'3, .,D%+ )% 03B#B,8%;,%1,,2%.)% )B,3 . .,%
)$,% 5 3)- - #*#.#, 8% 0'(% % .() ,% .( .% ' 1% //,'.% )03% 03B#B *D% F)3%
#1 . 1',8% .() ,%;() ,%-3 #1%#$5 3.,2%(#:(,3%)22 %.)%2 1:,3 %)/%2, .(8%#1%
).(,3% ;)32 % .(,% 5 3 1)#28% 03B#B,2% 12% : B,% 0 % .(,#3% :,1, % O53)B#2,2%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 175/219
SK &NT =&4 > >% K&N% TAS% J SK <& d% L 4% K S4% M ST JK J < 7 <+ ?% J 7 <& N% I \ P%
0'(% 5 3 1)# % 2#2%1).% ')$,% .%.))% (#:(% % ') .8% ).(,3;# ,% #.%;)0*2%( B,%
-,,1% % 2 3 ;- '@ RD% T03% -3 #1% ( % -,,1% ; #3,2 % ; #.(% -# , % .( .% $ C %
( $5,3% 0 % #1% % $)3,% ')$5*,^% ,1B#3)1$,1.8% )1,% .( .% 3,`0#3, % % $)3,%
''03 .,% , $,1.% )/% 53)- -#*#.#, D%
+(,% .)3C% )/% .(, ,% -# , % # % .(0 % -,#1:% ')33)-)3 .,2% -C% .(,% B 3#)0 %
2# '#5*#1, h% .(,%$ :1#.02,% )/% .(,%5,3',5.#)1 *% 2# .)3.#)1 % $ @, % 0 %*, %
.( 1% 3 .#)1 *8% #1% .(,% ,1 ,% )/% -).(% ( B#1:% ')(,3,1.% -,*#,/ % O#D,D% /3,,% )/%
*):#' *% ')1.3 2#'.#)1 R% 12% '.#1:% #1% % $ 11,3% ')$5 .#-*,% ;#.(% .(, ,%
-,*#,/ D%
V C B \ . L$ & 9 $ T < C L L$ < +$ 0 + , ' L A C + , < + /$ \ ' & T C T < . < A ?$
<%/)012%#1%.(,%-,( B#)3 *%*#.,3 .03,% .%*, .%W H% 2 $1#1:%,^ $5*, %) /% 0'(%
'0.,% -# , D%J,*);% # %.(,% '')01.% )/% %;,**9@1);1% ., .8% 12% 1% ,$- 39
3 #1:% )1,%/)3% .(,%$,2#' *%53)/, #)1D%+(,% /)**);#1:%`0#j%; %:#B,1%.)%
$,2#' *% 2)'.)3 % O;(#'(% <% -)33);,2% /3)$ % .(,% ,^',**,1.% N,-)3 (%
J,11,..U K'-18.-#))de
= (#)( 8< ' 1%)#')# :$#)#-() ' $'(# 8< Wn <'5)# :8)%(%&#)e FA# 1%)#')#
)($%>#) DiDN___ 8< (A# :8:B5'(%8-e ;#8:5# '$# (#)(#1 '( $'-18. N
$#+'$15#)) 8< ?A#(A#$ (A#, '$# )B):#/(#1 8< A'&%-+ (A# 1%)#')#e =
:'(%#-(R) (#)( %) :8)%(%&#e T A'( %) (A# :$8Y'Y%5%(, 8< (A# :'(%#-( Y#%-+
)($%/>#- ?%(A (A# 1%)#')#<h
D_
=) .% 2)'.)3 % 1 ;,3,2% P \l 8% #$5*C% . @#1:% #1.)% '')01.% .(,% / '.% .( .%
.(,% ., .% ( % % P \l % ''03 'C% 3 .,D% +( ,% 1 ;,3% # % .(,% ')12#.#)1 *%
53)- -#*#.C% .( . % .(,%5 .#,1.% # % #'@% 12%.(,%., .% (); %#.% 9 % ' *) ,% .)% Gl D%
7, % .( 1% )1,% #1% /#B,%53)/, #)1 * % :).% #.% 3#:(.D%
< %;#**% #$5*#/C% .(,% 1 ;,3D% K 0$,% 1)% / * ,% 1,: .#B, D% 6)1 #2,3% .( .%
)0.%)/% I 8HHH%5 .#,1. %;()% 3,% 2$ #1# .,3,2%.(,%., .8%)1,%;#**%-,%,^5,'.,2%
.)% -,% //*#'.,2% ;#.(% .(,% 2# , ,D% T0.% )/% % 5)50* .#)1% )/% .(,% 3,$ #1#1:%
PPP% (, *.(C%5 .#,1. 8%.(,%., .%;#**%#2,1.#/C% -)0.%\ H%;#.(%.(,%2# , ,%O#.%# %
P\ l% ''03 .,R D% +(,% ')33,'.% 1 ;,3% ()0*2% -,% .( .% .(,% 53)- -#* #.C% )/%
-,#1:% //* #' .,2% ;#.(% .(,% 2# , ,% /)3 % )$,)1,% ,*,'.,2% .% 3 12)$% ;()%
53, ,1.,2% % 5) #.#B,% ., .% # % .(,% /)**);#1:% 3 .#)d%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 176/219
I X H %
=T&_4 ?>% T&% + ? M 4LS <+ 4 S >%
&0$-,3% )/% //*#'.,2% 5,3 )1 %
&0$-,3% )/% .30,% 12% / * ,% 5) #.#B, %
(,3,% I % #1 % \ID %
+(#1@% )/ % .(,% 10$-,3% )/ % .#$, % C)0% ;#**% -,% :#B,1% % $,2#' .#)1% .( . %
' 33#, % 2 $ :#1:% #2,%,//,'. % /)3% % :#B,1%2# , ,%C)0%;,3,%.)*2%C)0%( 28%
;(,1%C)0%$ C% )1*C%( B,% Gl% 53)- -#*#.C% )/%-,#1:% //*#'.,2% ;#.(% #.b%
# $ C ' $ & \ A < & +$ T . < + ,$
K % 1 % )5.#)1% .3 2,3 8% <% ( B, % 1).#',2% .( .% 5,)5*, % .,12% .)% 012,3B *0,%
)5.#)1 % %.(,C% 3,%0 0 **C%01 -*,% .)%')33,'.*C%$,1. **C% ,B *0 .,% #1 .309
$,1. % .( .% 2,*#B,3% 1 B-/#$('%-% 5 C)//8% ,B,1% ;(,1% .(,C% 3, % /0**C% ')19
'#)0 % )/% .(,%$ .(,$ .#' D% 4B,1% 3,:0* .)3 % 3,#1/)3',% 0'(% #:1)3 1',% -C%
,^5* #1 #1:% .) % 5,)5*,% .( .% )5.#)1 % 3,% 1#/',%-+% )3 ?')(%-+% ,.D%
T5.#)1 % .( .% 3,%)0.%) /%.(,%$)1,C% 3,%2,,$,2% .) 1#/',N% -C% *) #1:%.(,#3%
53,$#0$% -,.;,,1%.;)% 2 ., D%
< % ;#** % ' * 3#/C% 1,^.% ;#.(% % #$5*#/#,2% O-0.% 0//#'#,1.R% ,^5* 1 .#)1% )/%
;( .% 1 % )5.#)1% $, 1 D% > C% % .)'@% .3 2, % .% pIHH % 12% .( .% )$,)1,%
:#B, %$,% .(,%3#:(.% O-0.% 1).% .(,% )-*#: .#)1R% .)%-0C%#.% .% pI IH% )1,%$)1.(%
(, 2% )/%.)2 CD%+( # %# %20--,2%
/'55
% )5.#)1D% <.%)1*C%$ @, % ,1 ,%/)3%$,%
.) #7#$/%)#% #.8%-C% @#1:%.(,% ,**,3%)/%.(,%)5.#)1%.)%2,*#B,3%$,%.(,% .)'@% .%
pI IH 8% #/% #.%.3 2, % .% %(#:(,3%53#',%.( 1% pI IH% #1%)1,%$)1.(U % .#$,D%</%.(,%
.)'@% :), % .)% pI GH 8% $C%)5.#)1% ;#** % -,%;)3.(% pI H8 % /)3% < %;#** % -,% -*,% .)%
-0C%.(,% .)'@% .%p II H% /3)$%.(,%)5.#)1%;3#.,3% 12% ,**%#.%.)%.(,%$ 3@,.% .%
pIGH 8% 5)'@,.#1:% .(,% 2#//,3,1', D% J0.% .( # % 2), % 1).% ( B, % % B,3C % (#:( %
53)- -#* #.CD% <.% # % ' **,2
8B(H8<H(A#H.8-#,N
% /)3% <% ( B,% 1)% : #1% /3)$%
,^,3'# #1:% #.% 3#:(.% ; CD%
6)1 #2,3% .( .%<% -0C%.(,% )5.#)1% /)3% pI D%gL( .%2)%<% ,^5,'.% .(,%B *0,%) /%
.(,%)5.#)1%.)% -,%)1,%$)1.(% /3)$%1);a%= ) .% 5,)5*,%.(#1@% HD%+( .%# %1).%
.30,D% +(,% )5.#)1% ( % % (#:(% 53)- -#* #.C8% C% PH l% )/% -,#1:% ;)3.(% H % .%
,^5#3 .#)18% -0.%5,3( 5 % I Hl % 53)- -#*#.C%.)%-,%;)3.(% 1% B,3 :,%)/%p IH D%
+(0 8 % ,**#1:% .(,% )5.#)1% .)% $,% /)3% pI% 2), % 1).% 53)B#2,% .(,% ,**,3% ;#.(%
/3,,% $)1,CD% < /% .(,% ,**,3 % ( 2% #1 ., 2% -)0:(.% .(,% .)'@% .(,$ ,*B, % .%
pI HH% 12%; #.,2%.(,%$)1.(8% .(,C%')0*2% ( B,% )*2% #. % /)3% pI GHD % = @#1:%
pI% 1);%; % ( 32*C8% .(,3,/)3,8% /3,,%$)1,CD% 7#@,;# ,8% -0C#1:%#. % # %1).% %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 177/219
SK&NT= &4> >% K&N% TAS% J SK <& d% L 4% K S 4% M S T JK J < 7 <+ ?% J 7 <& N% I X I%
; .#1:% ,.D%4B,1%53)/, #)1 * %' 1% -,%/))*,2D%E);a% +(,C%')1/0 ,%.(,%
,^5,'.,2% B *0,% 12% .(,%$) .% *#@,*C% ',1 3#)% O(,3,% .(,%,^5,'.,2% B *0,% # %
pI% 12%.(,% $) .% *#@,*C% ',1 3#)% # % /)3% .(,% )5.#)1% .)% -,%;)3.(% HRD% +(,C%
$,1. **C% )B,3;,#:(% .(,% . .,% .( .% # % .(,% $) .% * #@,*C8% 1 $,*C8% .( . % .(,%
$ 3@,.%2), %1).%$)B,% .% **D%+(,% )5.#)1%# % #$5*C%.(,%;,#:(.,2% B,3 :,%
)/%.(,% 5) #-*,% . ., % .(,% ,.% ' 1% . @,D%
+(,3,% # % 1).(,3% .C5,% )/% .# / '.#)1% 53)B#2,2% -C%.(,%)5.#)1% ,**,3D% <.%
# % .(,% ., 2C% 3,.031% 12% .(,% ., 2C% /,,*#1:% )/% 3,; 32% 9% ;( .%
5 C'()*):# . % ' **
<58?e
% <.% # %B,3C%5*, 1.%.)%:)%.)%;)3@%#1%.(,%$)31#1:%
;#.(% .(,% ,^5,'. .#)1% )/% -,#1:% 05% )$,% $ **% $)1,CD% <. % 3,`0#3, % )$,%
.3,1:.(%)/%'( 3 '.,3% .)% '',5.%.(,%,^5,'. .#)1% )/%-*,,2#1:% % *#..*,8%*) #1:%
5,11#, % )1% % ., 2C% - # % ,B,1% #/%.(,% .3 .,:C% # % -)012% .)% -,% 53)/#. -*,%
)B,3%*)1:,3%5,3#)2 D% <%1).#',2%.( .%B,3C%/,;%)5.#)1%.3 2,3 %' 1%$ #1. #1%
;( .% <%' **% %g*)1:% B)* .#*#.Cg% 5) #.#)18% 1 $,*C% % 5) #.#)1%.( .%;#**%$) .%
*#@,*C% *) ,% % $ ** % `0 1.#.C% )/%$)1,C% . % ,^5#3 .#)18% -0.% # % ,^5,'.,2% .)%
$ @,%$)1,C% #1%.(,% *)1:% 301%-,' 0 ,% )/% )'' #)1 *% 503. D% < % 2# ')B,3,2%
B,3C % /,; % 5,)5*,% ;() % '',5.,2 % *) #1: % pI% /)3% $) .% ,^5 #3 .#)1 % 12 %
$ @#1:% pI H% )1',% #1% %;(#*,8% ,B,1%#/%.(,%: $,%;,3,% / #3% O#D,D8 % .(,C%$ 2,%
.(,% pIH% $)3,% .( 1% IHl% )/% .(,% . #$,RD%
<% 2#B#2,% .(,% ')$$01#.C% ) /% )5 .#)1% .3 2,3 % #1.) % .;)% ' .,:)3#, d%
:$#.%B. )#55#$)% 12 :$#.%B. YB,#$)e% M3,$#0$% ,**,3 % O * )% ' **,2 %
)5.#)1% ,**,3 R% ,**% )5.#)1 8% 12%:,1,3 **C%$ @,% ., 2C%$)1,C8%*#@,%f)(1%
#1%6( 5.,3 % I% 12% \D%M3,$#0$% -0C,3 %2) %.(,%3,B,3 ,D%T5.#)1% ,**,3 8%#.%# %
#28%, .%*#@,%'(#'@,1 % 12%:)%.)%.(,%- .(3))$% *#@,%,*,5( 1. D%K* 8%$) .%
)5.#)1% .3 2,3 % <% ,1')01.,3,2% #1%$C% ' 3,,3% 3, :$#.%B. )#55#$) H% ;(,1%
.(,C% -*);% 05%#.% # % :,1,3 **C% ).(,3% 5,)5*,U % $)1,CD%
E );% ')0*2% 53)/, #)1 * % ,,$ #1:*C% ; 3,% )/% .(,% O #$ 5*,R%
$ .(,$ .#' % -,% 50.% #1 % 0'( % % 5) #.#)1a% T03% 012,3 . 12#1:% )/% $ .(%
' 1% 3,$ #1% `0#., % 05,3/#' # *h% $,2#' #1,% # % . 3.#1:% .)% -,*#,B,% .( . % )03%
' .#)1 % 3,% 1).% `0 #.,% :0#2,2 % -C % .(,% 5 3. % ) /% )03% -3 #1 % .( .% 2 #'. .,%
3 .#)1 *#.C% O ,,% K1.)1#)% N $ #) U #)/'$(#)R 6$$8$% )3% 7,2)0^U %
6.8(%8-'5 X$'%-
DD
de
% L,% .( #1@% ;#.( % )03% ,$).#)1 % 12% .(,3, % # % 1)% ; C%
3)012% #.D% F)3% .(,% $,% 3, )18% 5,)5*,% ;() % 3,% ).(,3;# ,% 3 .#)1 *%
,1: :,% #1 % $)@#1:% )3% #1 % /#:(. % .( . % :,.% .(,$% 1)% #$$,2# ., % -,1,/#. 8%
*#@,;# ,% 5,)5*,% ,**%)5.#)1 % ,B,1%;(,1% .(,C% @1);% .( .% #.% # % 1).% % :))2%
.(#1:% .)% 2)D% J0.% .(#1: % ' 1% :,.% ;)3 ,D% +(,3,% # % % ' .,:)3C% )/% 5,)5*,8%
:,1,3 **C% ' 2,$#' 8%;()8% #1 ., 2%) /%/#..#1:% .(,#3% '.#)1 % .)%.(,#3% -3 #1 8%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 178/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 179/219
SK& NT =& 4> >% K&N% TAS% JSK <& d% L 4% K S4% M ST JK J < 7 <+ ?% J 7 <& N% I X [%
= + T =$ C A$ . 0 + = >$ A < B $
+(,% 2B,1.%)/% .(,%/#1 1'# *% .,*,B# #)1% '( 11,*% 6&J6% 53, ,1.,2%5*,1.C% )/%
-,1,/#. % .)% .(,% /#1 1'# *% ')$$01#.C% -0.% #. % * )% **);,2% % ')**,'.#)1% )/%
,^.3)B,3.%53 '.#.#)1,3 %*)1:%)1%.(,)3#, % .)%B)#',%.(,$% #1% %/,;%$#10., % )/%
.,*,B# #)1% .#$,D%T1,% )/.,1% ,, % 3, 5,'. -*,% 5,)5*,%$ @#1:% *02#'3)0 % O-0.%
$ 3.9 )012#1:R% . .,$,1. % -)0.%53)5,3.#, %) /%.(,% .)'@%$ 3@,.D%K$)1:%
.(, ,% 3,% . .,$,1. % .( .% -* . 1.*C% B#)* .,% .(,% * ; % )/% 53)- -#*#.CD% T1,%
0$$,3% 203#1:%;(#'(% <%; % #20)0 % .% .(,% (, *.(% '*0-8% < % )/.,1% (, 32%
0'(% . .,$,1.% % g.(,% 3, *% $ 3@,.% # % )1*C% IHl% )//% .(,% (#:( %;(#*,% .(,%
B,3 :, % .)'@% # % '*) ,% .) % WHl% )//% #. % ( #:( g8% ;(#'( % # % #1.,12,2% .) % -, %
#12#' .#B,%)/%2,,5%.3)0-*, %)3% 1)$ *#, %9% )$,%( 3-#1:,3%)/%-, 3%$ 3@,. D%
+(,3,% # %1)% #1')$5 .#-#*#.C% -,.;,,1%.(,%/ '.%.( .%.(,% B,3 :,% .)'@%# %
2);1% W Hl% /3)$% .(,% (#:( % ;(#*,% .(,% B,3 :,% )/% ** % .)'@ % O.( .% # 8% .(,%
$ 3@,.R% # % 2);1% IH l% /3)$% #. % );1% (#:( D% T1,% $0 .% ')1 #2,3% .( . % .(,%
.)'@ % 2#2% 1).% **% 3, '(% .(,#3% (#:( '( (A# )'.# (%.#e% V#B,1% .( .% .)'@ %
3,%1).% I HH l% ')33,* .,28% .)'@%K%$#:(.%3, '(% #. %$ ^#$0$% #1%f 10 3C8%
.)'@% J%$#:(.% 3, '(% #. % $ ^#$0$% #1%K53#*8% -0.% .(,% B,3 :,% )/% .(,% .;)%
.)'@ % K% 12% J% $#:(.% 3, '( % #. % $ ^#$0$% .% )$,% .#$,% #1 % F,-30 3CD%
F03.(,3$)3,8% #1%.(,%,B,1.%)/%1,: .#B,*C%')33,* .,2% .)'@ 8% #/% .)'@%K%# % .%
#. %$ ^#$0$% ;(,1% .)'@% J% # % .%#. %$#1#$0$8% .(,1% .(,C% ')0*2% -).(% -,%
2);1%W Hl% /3)$%.(,#3%$ ^#$0$%;(,1%.(,% .)'@%$ 3@,.% # % . % #. % (#:( b%
JC% % * ;% )/%53)- -#*#.C% ' **,2% 2# .3#-0.#)1% )/%.(,%$ ^#$0$% )/% 3 12)$%
B 3# -*, 8%.(,%$ ^#$0$% )/% 1% B,3 :,%# %1,', 3#*C%*, %B)* .#*,%.( 1%.(,%
B,3 :,% $ ^#$0$D%
? & 0$ L > & 0 . ,$ T $ , C ,$ T ?$ + & # $
+(# % -3#1: %.)%$#12% 1).(,3%')$$)1% B#)* .#)1% )/%53)- -#*#.C% -C%53#$,9
.#$,% + DY D% /#1 1'# *% ,^5,3. 8% ;()% $ C% -,% ,*,'.,2 % /) 3% .(,#3% *))@ 8%
'( 3# $ % 12%.(,#3%53, ,1. .#)1% @#** 8%-0.%',3. #1*C% 1).% /)3%.(,#3%#1'# #B,%
$#12 D% F)3% #1 . 1',8% % / ** 'C% .( .% <% ;% ')$$)1*C% $ 2,% -C% %
53)$#1,1.% +DY D% /#1 1'# *% :030%:), % % /)**); d% g+(,% B,3 :,%K$,3#' 1%
# % ,^5,'.,2% .)% *#B,% Q[% C, 3 D% +(,3,/)3,% #/% C)0% 3,% XZ% C)0% ' 1% ,^5,'. % .)%
*#B,%/#B,%$)3,%C, 3 8% 12% ()0*2%5* 1% '')32#1: *CgD%>(,%;,1.%#1.)%53,'# ,%
53, '3#5.#)1 % )/% ();% .(,% 5,3 )1% ()0*2% #1B, .% /)3% % /#B, % $)3, % C, 3 %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 180/219
I X W% =T&_4?>% T&% +? M 4L S <+ 4 S >%
()3#j)1D% &);% ;( .% #/%C)0% 3,% ZHa% < %C)03% *#/,% ,^5,'. 1'C .%-B)% ,B,1%
C, 3 a% L( .% .(, ,% i)031 *# . % ')1/0 ,% # % .(,% 01')12#.#)1 *% 12%
')12#.#)1 *%*#/,%,^5,'. 1'CD%K.%-#3.(8%C)03%01')12#.#)1 *%*#/,%,^5,'. 1'C%
$ C% -,% Q[% C, 3 D% J0.% % C)0% 2B 1',% #1 % :,% 12% 2)% 1).% 2#, 8% C)03% *#/, %
,^5,'. 1'C% #1'3, , % *)1:% ;#.( % C)03% *#/, D% L(Ca % J,' 0 , % .(, % ).(,3%
5,)5*,% -C%2C#1:%( B,% . @,1% C)03% 5).% #1% .(,% . .# .#' 8 % /)3% ,^5,'. .#)1%
$, 1 % B,3 :,D% >)% #/% C)0% 3,% Q[% 12% 3,% #1%:))2%(, *.(8% C)0%$ C% .#** %
( B,8% C8%1#1,%C, 3
%- #7:#/('(%8-e
% J0.% .(,%,^5,'. . #)1%;)0*2%'( 1:,8%
12% .% ZG 8% C)0%;#**% ( B,% 1).(,3%/#B,%C, 3 8%53)B#2,2% )/%')03 ,% C)0% 3,%
.#**% *#B,D%4B,1% )$,)1,% IH H%C, 3 %)*2% .#**%( % %5) #.#B,%')12#.#)1 *% *#/,%
,^5,'. .#)1 D% >0'( % % . .,$,1.8% ;(,1% )1, % .( #1@ % -)0.% # .8% # % 1).% .))%
2#//,3,1.% /3)$% .(,% )1,% .( .% C d
8B$ 8:#$'(%8- A') ' .8$('5%(, $'(# 8<
Dn e *8 <'$ ?# A'&# 8:#$'(#1 8- QQ :'(%#-() ?%(A +$#'( )B//#))j ,8B '$#
8B$ D__(AN A#-/# ,8B A'&# ' D__n :$8Y'Y%5%(, 8< 1,%-+ 8- (A# ('Y5#e
+ DY D% /#1 1'# *% 5* 11,3 % $ C% ')1/0 ,% % /,; % 5,)5*,D% +(# % # % `0#.,%
( 3$*, D%L( .%# %/ 3%$)3,%;)33C#1:%# %.(,% 055*C%)/%#1/)3$ .#)1% -C%1)19
53)/, #)1 * % .)%53)/, #)1 * h% #.% # %.)% .(,%i)031 *# . % .( .%;,%.031%1,^.D%
A > $ T . & & B T ' /$ V \ . C + C A < & + L$
<%( B,8%)1%$C%2, @8% %$ '(#1,%,5)1C$)0 *C%' **,2% X588.Y#$+o % O /.,3%
.(,% *,:,12 3C % /)012,3% =#'( , *% J *))$-,3:RD% <.% '. % % % /,% ,9$ #*%
,3B#',8% % 1,; % ,3B#',8% % ( # .)3#' *% 2 . % 3,.3#,B#1:% .))*8% % '( 3.#1:%
C .,$8% 1% #1B *0 -*,% 1 *C.#' *% #2% 128% 1).%*, .8% % '3,,1%;(,3,%<%' 1%
,,%.(,%53#',% `/% ,'03#.#, % 12%'033,1'#, D% <%( B,% :)..,1% )% 22#'.,2% .)% #.%
.( .% < %' 11).%)5,3 .,%; #.()0.% #. 8% %< %;)0*2% ).(,3;# ,% /,,*% '0.% )//% /3)$%
.(,%3, .%)/% .(,%;)3*2D% <%0 ,%#.%.)% :,.%#1%')1 . '.%;#.(%$C%/3#,12 8% ')1/#3$%
55)#1.$,1. 8% 12% )*B,% )$,% )/% .() ,% ,1.,3. #1#1:% `0 33,* % .( . % 50.%
)$,% ( 351, % #1.)% *#/,D% >)$,();8% .3 2,3 % ;()% 2)% 1).% ( B,% %
J*))$-,3:% 223, % 2)% 1).% ,^# . % /)3% 0 % O.(,C% ( B,% .)% ( B,% 3,')03 ,% .)%
.(,%$)3,%5*,-,# 1%#1.,31,.RD%J0.%.(,3,%# %)1,% 5,'.%)/%J*))$-,3:%<%;)0*2 D%
2# 5,1 ,%;#.(h% .(,% i)031 *# .U % ')$$,1. 3CD%L(Ca% J,' 0 ,% .(,C% ,1: :,%
#1 % ,^5* #1 #1:% .( #1: % 12% 5,35,.0 ., % .(, % 3#:(.9')*0$18% *, /.9')*0$1%
')1/0 #)1% #1% % ,3#)0 % $ 11,3D% J*))$-,3:% # % 1).% .(,% )*,% 5,35,.3 .)3h%
#.% # % i0 .% .( .% < %( B,% 1).% -,,1%,^5) ,2% .)% 1,; 5 5,3 U% -0 #1, % ,'.#)1 %
)B,3%.(,%5 .% 2,' 2,8% 53,/,33#1:%.)% 3, 2% 3, *%53) ,% #1 ., 2D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 181/219
SK &N T= &4> >% K&N% TAS% JSK <& d% L 4% K S4% M ST JK J < 7 <+ ?% J 7<& N% I X \%
K % <% $% ;3#.#1:% .(, ,% *#1, % <% ,,% .(,% /) **);#1:% (, 2*#1, % )1 % $C%
J*))$-,3:d%
pq
8? %) B: De_U 8- 58?#$ %-(#$#)( $'(#)e
pq
855'$ 18?- _ eDL ,#- 8- A%+A#$ G':'-#)# )B$:5B)e
12% )%)1%/)3% 1%,1.#3,%5 :,D%</%<%.3 1 * .,% #.%;,**8%.(,%i)031 *# .%'* #$ %.)%
53)B#2,% 1% ,^5* 1 .#)1% /)3% )$,.(#1:% .( .% $)01. % .)
:#$<#/( -8%)#e
% K%
$)B,% ) /% I DH[% ;#.( % .(,% N);% .% II 8 HHH% ')1 .#.0 ., % *, % .( 1 % % H D HIl%
$)B,D% >0'(% %$)B,% 2), % 1).% ; 33 1.% 1% ,^5* 1 .#)1D% +(,3,% # % 1).(#1:%
.(,3,% .( .% 1% ()1, .%5,3 )1%' 1% .3C% .)% ,^5* #1h% .(,3,% 3,% 1)%3, )1 % .)%
220',D% J0.% *#@,% 553,1.#',% 53)/, )3 % ) /% ')$5 3 .#B,% *#.,3 .0 3,8%
i)031 *# . % -,#1:% 5 #2% .)% 53)B#2,% ,^5* 1 .#)1 % ;#** % :* 2*C% 12% 3, 2#*C%
53)B#2,% .(,$D% +(,% )1*C % )*0.#)1 % # % /)3% =#'( , *% J *))$-,3: % .) % .)5 %
5 C#1:% (# % i)031 *# . % /)3% 53)B#2#1:% ')$$,1. 3CD%
*%+-%<%/'-/#2% ();%2#2%<%2,'#2,%.( .%#.%; %5,3/,'.%1)# ,a%+ @,% % #$5*,%
1 *):CD% </%C)0%,1: :,%#1% % $)01. #1% -#'C'*,% 3 ',%;#.(% % /3#,12% '3) %
>#-,3# % 128% % $)1.(% * .,38% -, .% (#$% -C%)1,% #1:*,% ,')128% C)0% '*, 3*C%
' 11).% `0#.,% -) . % .( . %C)0% 3,% / .,3% .( 1% (#$D%?)0% $#:(.% ( B,% -,,1%
(,*5,2% -C% )$,.(#1:88)3% #. %' 1% -,% i0 .% 5* #1% 3 12)$1, 8% 1).(#1:% ,* ,D%
+( .% ,')12% # % 1).% #1 % #. ,*/% #:1#/#' 1.% ,1)0:(% /)3% )$,)1,% .) % 23 ;%
')1'*0 #)1 D% < % ;)0*2% 1).% ;3#.,% #1% $C% 53,9-,29.#$,% 2# 3Cd /,/5%)( = %)
Y#((#$ (A'- /,/5%)( X Y#/'B)# A# %) <#1 ? %(A ):%-'/A ?A#$#') /,/5%)( X A')
L 1%#( $%/A %- (8<Be FA# $#')8- M '. . '>%-+ (A%) %-<#$#-/# %) Y#/'B)# A#
Y#'( A %. Y, DeU )#/8-1) %- ' UN___ .%5# $'/#e% >()0*2% .(,% 2#//,3,1',% -,%
)1,%;,,@8% .(,1% <%')0*2% . 3.% 1 *Cj#1:%;(,.(,3% .)/0% # %.(,% 3, )18% )3%#/%
.(,3,% 3,% ).(,3% / '.)3 D%
@'B)'5%(,2% .(,3,% # % 1).(,3% 53)-*,$ h% ,B,1% 0$#1:% . .# .#' *%
#:1#/#' 1', 8% )1, % ( % .) % '',5.% % ' 0 , % 12% ,//,' .8% $, 1#1:% .( .% .(,%
,B,1.% #1%.(,%$ 3@,.%' 1% -,%*#1@,2%.)% .(,%' 0 ,% 53)//,3,2D ;8)( A8/ #$+8
:$8:(#$ A8/% O#.% # % .(,% 3, )1% -,' 0 ,% #.% ' $,% /.,3RD% > C% E) 5#. *% K %
2,*#B,3,2% \G l% )/% -)C % 12% E) 5#. *% J % 2,*#B,3,2% .(,% $,% C, 3% )1*C %
WZlh%;)0*2%C)0%.3C%.)%:#B,%.(,%,^5* 1 .#)1%.( .%C)0%( 2% %-)C
Y#/'B)#
%( % ; % 2,*#B,3,2% #1% () 5#. *% Ka%
6 0 *#.C% ' 1% -,%B,3C% ')$5*,^D% <.% # % B,3C% 2#//#'0*.% .)% # )* .,% % #1:*,%
' 0 ,%;(,1%.(,3,% 3,%5*,1.C% 3)012D%+(# %# %' **,2%$0*.#B 3# .,% 1 *C # D%
F)3% #1 . 1',8% #/% .(,% .)'@% $ 3@,.% ' 1 % 3, '.% .)% AD> D% 2)$, .#'% #1 .,3, .%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 182/219
I X X% =T&_4?>% T&% +? M 4L S <+ 4 S >%
3 ., 8% .(,% 2)** 3% : #1 .% .(,% C,18% .(,% 2)** 3% : #1 .% .(,% 403)5, 1%
'033,1'#, 8% .(,% 403)5, 1% .)'@% $ 3@,. 8% .(,% A1#.,2% >. ., % - * 1',% )/%
5 C$,1. 8% A1#.,2% >. ., % #1/ * . #)18% 12% 1).(,3 % 2)j,1% 53#$,% / '.)3 8%
.(,1% .(,% i)031 *# . % 1,,2% .)% *))@% .% **% )/% .(, ,% / '.)3 8% *))@% .% .(,#3 %
(# .)3#' *% ,//,'.%-).(% #1%# )* .#)1% 12%i)#1.*C8%*))@ % .%.(,% . -#*#.C%)/% 0'(%
#1/*0,1',8% .(,18% /.,3%')1 0*.#1:% .(,%., .% . .# .#'%# )* .,% .(,%/ '.)3% #/%#.%# %
5) #-*,%.)% 2)% )D%F#1 **C8% %53)5,3%')1/#2,1',% *,B,*%1,,2 %.)% -,%:#B,1%.)%
.(,% / '.)3% #. ,*/h% #/ % #.% # % *, % .( .% PH l% .(,% .)3C% ;)0*2% -,% 2, 2D% <% ' 1%
012,3 . 12%;(C%E0$,%; %,^.3,$,*C%)- , ,2%;#.(%' 0 *#.C% 12%')0*2%
1).% '',5.% 0'(% #1/,3,1',% 1C;(,3,D%
<%( B,% %.3#'@%.)% @1);% #/% )$,.(#1: $#'5% #1%.(,%;)3*2%# %. @#1:%5* ',D%<%
( B,% ,.%05%$C% J*))$-,3:% $)1#.)3%.)% 2# 5* C% .(,% 53#',% 12% 5,3',1. :,%
'( 1:,% )/% **% 3,*,B 1.% 53#', % #1% .(,% ;)3*2d% '033,1'#, 8% .)'@ 8% #1.,3, .%
3 ., 8% 12% ')$$)2#.#, D% JC%2#1.%)/% *))@#1:% .%.(,% $,% ,.05%/)3%C, 3 8%
% < % @,,5% .(,% '033,1'#, % #1% .(,% 055,3% *,/.% ')31,3% 12% .(,% B 3#)0 % .)'@%
$ 3@,. % )1%.(,%3#:(.8%<%$ 1 :,2% .)% -0#*2% 1%#1 .#1'.#B,%; C% )/% @1);#1:%
#/ % )$,.(#1:% ,3#)0 % # % :)#1:% )1D% +(,% .3#'@% # % .)% *))@% )1*C% . % .(,% * 3:,%
5,3',1. :,% '( 1:, D% A1*, % )$,.(#1:% $)B, % -C% $)3,% .( 1% #. % 0 0 *%
2 #*C% 5,3',1. :,% '( 1:,8% .(,% ,B,1.% # % 2,,$,2% .)% -,% 1)# ,D% M,3',1. :,%
$)B, % 3,% .(,% #j,%)/%.(,%(, 2*#1, D%<1% 22#.#)18%.(,%#1.,353,. .#)1% # %1).%
*#1, 3h% %Gl% $)B,%# %1).%.;#',% % #:1#/#' 1.% 1%,B,1.% % Il 8% #.%# %3 .(,3%
* #@,% /)03% . #$, D% +(,% (, 2*#1,% )/% .(,% N);% $)B#1:% -C% ID[% 5)#1. % )1%$C%
'3,,1%.)2 C%( %*, %.( 1%)1,%$ #**#)1.(%) /%.(,% #:1#/#' 1',% )/%.(,% ,3#)0 %
Ql % 23)5% ) /% T '.)-,3% I PP QD% M,)5*,% $#:(.% @% $,d% ;(C% 2)% <% ; 1.%
,B,3C-)2C% .)% *, 31% )$,% . .# .#' a% +(,% 1 ;,3%# %.( .% .))% $ 1C% 5,)5*,%
3, 2% ,^5* 1 .#)1 D% L,% ' 11).% #1 .#1'.#B,*C% 012,3 . 12% .(,% 1)1*#1, 3%
5,'.% )/% 53)- -#*#.CD%
9 < . A ' < + /$ B A > & , L$
41:#1,,3 %0 ,%$,.()2 %.)%'*, 1% 05%.(,%1)# ,%/3)$%.(,% #:1 *%#1%.(,%2 . D%
N#2%#.%,B,3%)''03%.)%C)0%;(#*,%. *@#1:% .)%C)03%')0 #1% #1%K0 .3 *# % )3%.(,%
>)0.(% M)*,% .( .% .(,% . .#'% )1% .(,% .,*,5()1,% *#1,% ')0*2% -,% 2# .#1:0# (,2%
/3)$% .(,% B)#',% )/% C)03% ')33, 5)12,1.a% +(,% $,.()2% # % .)% ')1 #2,3% .( .%
;(,1% % '( 1:,% #1 % $5*#.02,% # % $ **8% #.% # % $)3,% *#@,*C% .)% 3, 0*.% /3)$%
1)# ,% 9% ;#.(% #. % *#@,*#())2% )/%-,#1:% % #:1 *% #1'3, #1:% ,^5)1,1.# **C% %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 183/219
SK &NT =&4>>% K&N% TAS% JSK <& d% L 4% KS4% M S TJ KJ <7 <+ ?% J7 <& N% I X Q%
O </ 0' $ 1 1 ^ 1$ f +9 << A ' ,$ X C A C$ S & + A C< + < +/$ 4 </+ C.$ C + ,$ & < L ̂ $
#. %$ :1#.02,% #1'3, , D%+(,%$,.()2%# %' **,2% % $)).(#1:%@,31,*%;(#'(%
( % -,,1% 55*#,2% #1% F#:03, % IIDI% 12% IIDGD % J0.% )03% 02#.)3C% C .,$% # %
#1' 5 -*,% )/% 5,3/)3$#1:% 0'(% % /01'.#)1% -C% #. ,*/ D% 7#@,;# ,% )03% -3 #1%
' 11).% ,,% .(,% 2#//,3,1',% -,.;,,1% % #:1#/#' 1.% 53#',% '( 1:,% 12% $,3,%
1)# ,8% 5 3.#'0* 3*C% ;(,1% #.% # % 5)012,2% ;#.(% 01 $)).(,2% i)031 *# .#' %
1)# ,D%
N ^ M $
N ^ I $
N ^ I $
Z N$
248$
1 Z N$ k$ I N N$
I Z N $
O < / 0 ' $ 1 1 ^ I$ 4 CB $ X C A C$ 7 < A>$ < A L$ & <L $ ; B & Q , $̂
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 184/219
IXZ %
=T&_4 ?>% T&% + ? M 4LS <+ 4 S >%
# $ , &$ + & A $ 0 + , ' L A C + ,$ = & + 9 < , + = $ . Q . L$
M3)/, #)1 * % /)3:,.% .(,% /)**);#1:% 3, *#.CD% <. % # % 1).% .(,% , .#$ .,% )3% .(,%
/)3,' .% .( .% $ ..,3 % ) % $0'(% % .(,% 2,:3,, % )/% ')1/#2,1', % ;#.( % .(,%
)5#1#)1D% 6)1 #2,3 % .( . % C)0% 3,% :)#1:% )1% % .3 #5 % )1,% / **% $)31#1:% 12%
1,,2%.)%/)3$0* .,% 1%#2, % -)0.%.(,%;, .(,3%')12#.#)1 %53#)3%.)%5 '@#1:%
C)03% *0:: :,D% </% C)0% ,^5,'. % .(,% .,$5,3 .03,% .)% -,% XH% 2,:3,, 8% 5*0 % )3%
$#10 % IH% 2,:3,, % O C%#1%K3#j)1 R8%.(,1%C)0%;)0*2%. @,%1)% 1);%'*).(, %
12% 1)%5)3. -*,% ,*,'.3#' % / 1D % &);% ;( .% #/%C)0%;,3,%:)#1:%.)% 6(#' :)8%
;(,3,% C)0 % 3,% .) *2 % .( .% .(,% ;, .(,38% ;(#*,% -,#1: % XH% 2,:3,, 8% ; #**%
1,B,3.(,*, % B 3C%-C% -)0.% [H% 2,:3,, a% ?)0% ;)0*2% ( B,%.)% 5 '@%;#1.,3%
12% 0$$,3% '*).(, D% E,3,% .(,% ,^5,'. .#)1% )/% .(,% .,$5,3 .03,% ' 33#, %
*#..*,%#$5)3. 1',% ')1',31#1:%.(,%'()#',%) /%'*).(#1:h%#.%# %.(,%B 3# 1',%.( .%
$ ..,3 D% ?)03% 2,'# #)1% .)% 5 '@% # %$ 3@,2*C% 2#//,3,1.% 1);% .( .% C)0% 3,%
.)*2% .( .% .(,% B 3# -#*#.C%;)0*2% -,% 3)012% [H% 2,:3,, D% &); % *,.% 0 %50 (%
.(,% 5)#1.% /03.(,3h% ;( .% #/% C)0% ;,3,% :)#1:% .)% % 5* 1,.% ;(,3,% .(,%
,^5,'. .#)1% # % * )%:)#1:%.)%-,% 3)012% XH% 2,:3,, 8%-0.%5*0 %)3%$#10 % \H H%
2,:3,, a%L( .% ;)0*2% C)0% 5 '@a%
L,% ' 1% ,,%.( .%$C% '.#B#.C%#1%.(,%$ 3@,.% 2,5,12 % / 3%*, %)1%;(,3,%<%
.(#1@% .(,% $ 3@,.% # % :)#1:% )% $0'(% % #.% 2), % )1% .(,% 2,:3,,% )/% ,33)3 % <%
**);% 3)012% 0'(% % ')1/#2,1',% *,B,*D%
C +$ C , B < L L < & +$
L,% '*) ,% .(# %'( 5.,3%;#.(% .(,% /)**);#1:%#1/)3$ .#)1d% <%')1 #2,3% $C ,*/%
%53)1,%.)% /))*# (1, % % 1C)1,%<%@1); 8%#1% 5#.,%)/%$C%53)/, #)1% 12%
.(,% .#$,% 5,1.% -0#*2#1:% $C% ,^5,3.# ,% )1% .(,% 0-i,'.D% J0.% (,3,% # % .(,%
,^',5.#)1h%<%@1);%.( .%<% $%B,3C8%B,3C%;, @%)1%.( .% ')3,D%=C%(0$ 1#.C%
;#**%.3C%.)%/)#*%$,h%<%( B,%.)% . C%)1%$C%:0 32D%<%; %-)31% .)%-,%/))*,2%-C%
3 12)$1, D% +( .%;#**% -,%,^5*)3,2% #1% M 3.% <<<D %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 185/219
-@;E$222$
; ^% # 1% $ C% , 3 % 9
* # B # 1 :% ; # . (% 3 1 - ) $ # . # %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 186/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 187/219
O
2C ,0 8%.(,%E)$,3# 1% (,3)8% ( 2% .(,% 3,50. .#)1% )/%0 #1:%:0#*,% .)%
)B,3')$,% .3)1:,3% )55)1,1. D% < % /#12% .(,%$) .% 5,'. '0* 3% 0 ,% )/%
0'(% :0#*,%; % : #1 .% 1)% ).(,3% )55)1,1.% .( 1% (#$ ,*/D%
<1% -))@% IG% ) /% .(, 91,))#,8% .(,% (,3) % ,1')01.,3 % .(,% #3,1 8% )1 % 1 %
# * 12% 1).% / 3 % /3)$% .(,% 3)'@ % )/% 6 3 #-2, % 12% >'C** D% +(,#3% )1: % 3, %
@1);1% .)% '( 3$% .(,% #*)3 % #1.)% $ 21, 8% ' 0 #1:% .(,$% .)% #33, # .#-*C9
' .% .(,$ ,*B, % #1 .)% .(,% , % ) //% .(,% #3,1 U% ') .8% 12 % 5,3# (D% +(,%
#12, '3#- -*,% -, 0.C% )/% .(,% #3,1 U% )1: % # % ')1.3 .,2% ; #.(% .(,%
$)*2,3#1:% ')35 , % )/ % #*)3 % .( .% .3 C,2% #1.)% .(,% 3, % 3)012% .(,$D%
T2C ,0 8%/)3,; 31,2% -C%6#3',8%')1.3#B, %.(,%/)**);#1:%30 ,D%E,%/#** %.(,%
, 3 % )/% **% (# % $,1% ;#.( % ; ^ 8% .) % .(,% 5)#1.% )/% .). *% 2, /1, 8% 12% ( %
(#$ ,*/%.#,2%.)% .(,%$ .D% +(,% #*)3 % 3,% 012,3% .3#'.%#1 .30'.#)1 % 1).% .)%
3,*, ,%( #$D%K %.(,C% 553) '(%.(,% #3,1 U%# * 128%.(,% , %# %' *$% 12 %)B,3%
.(,% ; .,3% ')$, % .(,% )012 % ) /% % $0 #'% )% 3 B# (#1:% .( .% T2C ,0 %
.30::*, % .)% :,.% *)) ,8% ,^5,12#1:% 1% #1)32#1 .,% $)01.% )/ % ,1,3:C% .)%
013, .3 #1% (#$ ,*/D% E# % $,1% .#,% (#$% ,B,1% /03.(,38% 01.#*% .(,C% 3,% /,*C%
5 .% .(,% 5)# )1,2% )012 D%
+(,% /#3 .% *, )1% <% .))@% /3)$% .(,% .)3C% # % 1).% .)% ,B,1% ..,$5.% .)% -,%
T2C ,0 D% E,% # % %$C.()*):#' *% '( 3 '.,3% 12%<% $% 1).D% E,% ' 1%-,%.#,2%
.)%.(,%$ .h%<%' 1%$,3,*C%3, '(%.(,%3 1@% )/% % #*)3%;()%1,,2 %.)%( B,%(# %
, 3 %/#**,2%; #.(% ; ^D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 188/219
I Q G% LKc% <&% =?% 4KS>%
<$ C B$ + & A $ L &$ < + A . . < / + A$
+(,%,5#5( 1C%<%( 2%#1%$C%' 3,,3%#1%3 12)$1, %' $,%;(,1%<%012,3 .))2%
.( .% <%; %1).%#1.,**#:,1.%,1)0:(8%1)3% .3)1:%,1)0:(8%.)% ,B,1%.3C%.)% /#:(.%
$C%,$).#)1 D%J, #2, 8%<%-,*#,B,%.( .%<%1,,2%$C%,$).#)1 %.)%/)3$0* .,%$C%
#2, % 12%:,.%.(,%,1,3:C% .)% ,^,'0.,% .(,$D%
<% $%i0 .%#1.,**#:,1.%,1)0:(%.)%012,3 . 12% .( .%<%( B,% %53,2# 5) #.#)1%
.)% -,% /))*,2% -C% 3 12)$1, % 9% 12% .)% '',5.% .(,% / '.% .( .% <% $ % 3 .(,3 %
,$).#)1 *D% <% $ % 2)$#1 .,2% -C%$C% ,$).#)1 % 9 % -0.% % 1% , .(,.,8% <% $%
( 55C% -)0.% .( .% / ' .D% <% $% i0 .% *#@,% ,B,3C % #1:*, % '( 3 '.,3% ;()$% <%
3#2#'0*,2% #1%.(# %-))@ D%&).%)1*C%.( .8% -0.%<%$ C% -,%,B,1%;)3 ,%.( 1%.(,$%
-,' 0 ,% .(,3,% $ C% -,% % 1,: .#B,% ') 33,* .#)1% -,.;,,1% -,*#,/ % 12 %
-,( B#)3% O3,' **% M)55,3% .(,% $ 1RD% +(,% 2#//,3,1',% -,.;,,1% $C ,*/% 12%
.() ,%<%3#2#'0*,%# %.( .% <%.3C%.)% -,% ; 3,%)/%#.D%&)%$ ..,3%();% *)1:%<% .02C%
12% .3C % .) % 012,3 . 12 % 53)- -#*#.C 8% $C % ,$).#)1 % ;#**% 3, 5)12% .) % %
2#//,3,1.% ,.%) /% ' *'0* .#)1 8% .() ,% .( .% $C%01#1.,**#:,1.% :,1, %; 1.%$,%
.)% ( 12*,D% </%$C% -3 #1%' 1% .,**% .(,% 2#//,3,1',% -,.;,,1% 1)# ,% 12% #:1 *8%
$C% (, 3.% ' 11).D%
>0'( % 01#1.,**#:,1.% -,( B #)3% 2), % 1).% i0 .% ')B,3% 5 3)- - #*#.C % 12 %
3 12)$1, D% <% 2)% 1).% .(#1@% <% $% 3, )1 -*, % ,1)0:(% .)% B)#2% :,..#1:%
1:3C% ;(,1% % 2# ')03.,)0 % 23#B,3% -*); % (# % ()31% . % $,% /)3% -,#1:% )1,%
1 1) ,')12% * .,% /.,3% % .3 //#'% *#:(.% .031 % :3,,1D% < % $% /0**C% ; 3,% .( .%
0'(% 1:,3% # % ,*/92, .30'.#B,% 12%)//,3 %1)% -,1,/#.8% 12%.( .% #/%<%;,3,%.)%
2,B,*)5% 1:,3% /)3% ,B,3C% #2#).% 3)012%$,% 2)#1:% )$,.(#1:% )/% .(,% )3.8% <%
;)0*2% -,%*)1:%2, 2D%+(, ,% $ **%2 #*C%,$).#)1 % 3,%1).%3 .#)1 *D%J0.%;,%
1,,2%.(,$%.)% /01'.#)1%53)5,3*CD%L,% 3,%2, #:1,2%.)% 3, 5)12%.)% () .#*#.C%
;#.(%() .#*#.CD%<% ( B,%,1)0:(%,1,$#, %.) % 22% )$,% 5#',%.)%$C% *#/,8% -0.%<%
)$,.#$, %;# (%<%( 2 % %/,;%$)3,% O<%3 3,*C%:)%.)%.(,%$)B#, % 12%1,,2%.(,%
,1.,3. #1$,1.RD% 7#/,% ;)0*2% -,% 01-, 3 -*C% -* 12% #/% ;,% ( 2% 1)% ,1,$#, %
)1%;()$% .)%; .,% ,//)3. % 12%,1,3:CD%
+(,% :))2%1,; %# %.( .% .(,3,% 3,%.3#'@ D% T1,% 0'(%.3#'@%# %.)% B)#2%,C,%
')1 . ' .% O.(3)0:( % .(,% 3, 3 9B#,;% $#33)3R% ; #.( % ) .(,3% 5,3 )1 % #1 % 0'( %
,1')01.,3 % %.3 //#'% #.0 .#)1 D%<%.3C%.)%#$ :#1,%.( .%.(,%).(,3%5,3 )1%# % %
= 3.# 18% 3 .(,3%.( 1% %(0$ 1% -,#1:D%<. %;)3@ % )$,.#$, %9% -0.% #. %;)3@ %
-, .%;(,1% .(,%5,3 )1% 53, ,1. % .(,% 55, 3 1',% )/% -,#1:% /3)$% % 2#//,3,1.%
5,'#, D%E);a% <% $% 1% B#2%3) 2%'C'*# .D% S,',1.*C8% %<%; %3#2#1:% *)1:%
;#.(%).(,3%'C'*# . 8% *);#1:%2);1%.3 //#'%#1% %303 *% 3, 8% % $ **% ;)$ 1%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 189/219
LK c% <&% = ?% 4K S>%
IQ[ %
#1% %:# 1.% 5)3. %0.#*#.C%B,(#'*,%)5,1,2%(,3%;#12); % 12%(, 5,2% '03 , % .%
0 D%&).%)1*C%2#2%#.%1).%05 ,.%$,%-0.%<%2#2%1).%,B,1%#1.,3305.%$C%.()0:(. %
.) % 5 C% ..,1.#)1D% L(,1 % <% $% )1 % $C% - #'C'*,8% 5,)5*,% #1 % * 3:,% .30'@ %
-,')$,% % B 3#,.C% )/% 2 1:,3)0 % 1#$ * 8% ' 5 -*,% )/% .(3, .,1#1:% $,% -0.%
#1' 5 -*,% )/%$ @#1:%$,% 1:3CD%
<%( B,8%*#@,% 1C)1,%;#.(% .3)1:%)5#1#)1 8% %')**,'.#)1% )/%'3#.#' % $)1: %
/#1 1',% ' 2,$#' % 12% ,')1)$# . 8% 11)C,2% -C% $C% .. '@ % )1% .(,#3%
$# 0 ,% )/% 53)- -#*#.C% 12% 01( 55C% -)0.% $C% -3 12#1:% .(,$ % %
5 ,02) '#,1.# . D% < % $% #1' 5 -*,% )/% . $#1:% $C%,$).#)1 %;(,1% 3, 2#1:%
.(,#3%')$$,1. D%+(,% -, .%< %' 1% 2)%# % i0 .%1).% 3, 2%.(,$D% 7#@,;# ,%;#.(%
i)031 *# . D%& ).% 3, 2#1:%.(,#3%2# '0 #)1 % )/%$ 3@,. % 5 3, %$,%5*,1.C% )/%
,$).#)1 *% ,^5,12#.03,D% < % ;#** % 2)% .(,% $,% ;#.(% 3,B#,; % )/% .(# % -))@D%
L ^% #1%$C%, 3 D%
4'(& I2C,,()/& +$%(& 0#==)/2&
S,' **%.( .% .(,% '')$5*# ($,1.% /3)$%;(#'(%<%2,3#B,%.(,%$) .%53#2,%# %$C%
;, 1#1:% $C ,*/% /3)$% .,*,B# #)1% 12% .(,% 1,; %$,2# D% < % $% '033,1.*C% )%
;, 1,2%.( .%#.% '.0 **C%') . %$,%$)3,% ,1,3:C%.)%; .'(%.,*,B# #)1%.( 1% .)%
5,3/)3$% 1C%).(,3% '.#B#.C8% *#@,8% C8%;3#.#1:%.(# % -))@ D%J0.% .(# % 2#2%1) .%
')$,%;#.()0.% .3#'@ D% L #.()0.% .3#'@ % <%;)0*2% 1).% , ' 5,% .(,% .)^#'#.C% )/%
.(,% #1/)3$ .#)1% :,D% <1 % .(,% .3 2#1:% 3))$% )/% $C% ')$5 1C% <% '033,1.*C%
( B,%.(,%.,*,B# #)1% ,.%.031,2%)1% **%2 C%;#.(%.(,% /#1 1'# *% 1,; %'( 11,*%
6&J6% . :#1:% ')$$,1. .)3% /.,3% ')$$,1. .)3% 12% 64T% /.,3% 64T%
$032,3#1:% 3#:)3% **% 2 C% *)1:D% L( . % # % .(,% .3 #'@a% <% ( B, % .(,% B)*0$,%
.031,2% ')$5*,.,*C% )//D% L(Ca% J,' 0 ,% ;(,1% .(,% .,*,B# #)1% ,.% # % #*,1.8 %
.(,%- --*#1:%5,3 )1%*))@ %3#2#'0*)0 8%,^ '.*C%.(,%)55) #.,%,//,'.% %;(,1%
.(,% )012%# %)1D%T1,% ,, % %5,3 )1%;#.(%$)B#1:%*#5 % 12%')1.)3.#)1 % #1%
.(,#3% / '# *% $0 '*, 8% . @#1:% .(,$ ,*B, % ,3#)0 *C% 9% -0.% 1)% )012% ')$, %
)0.D% L,% 3, % B# 0 **C % -0.% 1).% 02#.)3#*C % #1 .#$#2 .,28% ;(#'( % ' 0 , % %
2# )1 1',D% +(,% 5, @,3U % / ',% ,^53, , % )$,%,^'#.,$,1.8% -0.% #1',% 1)%
)012% ')$, % )0.8% .(,% ,^ '.% )55) #., % # % ')1B,C,2D% +(# % # % .(,% )3.% )/%
')1.3 .% .(,% 5(#*) )5(,3% E,13#% J,3: )1% ( 2% #1%$#12% #1% (# F$#'(%)# 8-
a'B+A(#$N% ;#.(% (# % / $)0 % 2, '3#5.#)1% )/% .(,% : 5% -,.;,,1% .(,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 190/219
I Q W %
L Kc% <&% = ?% 4K S>%
,3#)0 1, % ) /% % :,1.*,$ 1% -)0.% .) % ; *@ % )1 % % - 1 1 % @#1 % 12 % .(,%
')$#' *% 5,'.% )/% .(,% #.0 .#)1D% +,*,B# #)1% 5012#. % *) ,% .(,#3% #1.#$#2 .9
#1:% ,//,'.h% .(,C% ,B,1% *))@% 3#2#'0*)0 D% +(,C% ,,$% .)% -,% ,^'#.,2% -)0.%
)$,.(#1:% .,33 #-*C% 01#$5)3. 1.D% >022,1*C% 5012#. % -,')$,% ' *);1 8%
;(#'(%# % %3, )1% .(,%;3#.,3%V3 ( $% V3,,1,%3,/0 ,2%.)%:)%)1% .,*,B# #)1D%
< % ( 2% .(# % #2, % )/% .3#55#1:% 5,)5*,% /3)$% * 1:0 :,% ;(#*,8% )1% % .3#58% < %
*# .,1,2% O;(#*,%-30. **C%i,.* ::,2R% .)% % 5,,'(% #1%6 1.)1, ,8% %* 1:0 :,%<%
2)% 1).% 012,3 . 128% ;#.()0.% .(,% -,1,/#. % )/% .3 1 * .#)1D% >#1',% < % ( 2% 1)%
5) #-*,% '*0,% -)0 .%(# % 0-i,'.8% .(,% 1#$ .,2% )3 .)3% *) .% % * 3:,% ( 3,% )/%
(# %2#:1#.CD%+(,% #2, %' $,% .)%$,%.( .%5,3( 5 % <%')0*2%0 ,% %:,1,.#'% -# 8%
(,3,% 53,i02#',8% .)%)// ,.% 1).(,3%:,1,.#'% -# 8%)03%53,2# 5) #.#)1% .)% . @,%
#1/)3$ .#)1% ,3#)0 *CD% <.% ,,$ % .)%;)3@D%
+(# % 5 3.8% .(,%')1'*0 #)1% )/%.(# % -))@8% 53, ,1. % .(,% (0$ 1% 5,'.% )/%
2, *#1:%;#.(%01',3. #1.CD% <%( B,%5,3 )1 **C%/ #*,2%#1% %:,1,3 *% #1 0* .#)1%
/3)$% 3 12)$1, 8% -0.% <%( B,%$ 1 :,2% % /,;% .3#'@ D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 191/219
. ; , * B ,%
g W m %
: $ - * , 3 U% . # ' @ % 1 2%
5 # : , ) 1 % # 1% % - ) ^%
9- +'.Y5#$)R (%/>) /$8?1%-+ B: ., 5%<#e T A, Y'1 ('7%H/'Y
6-+5%)A /'- A#5: ,8B .'># .8-#,e 08? M '. (A# <885 8< '55
<885)N #7/#:( (A'( M '. '?'$# 8< %(e #'5%-+ ?%(A ., +#-#(%/
B-<%(-#))e E8 Y87#) 8< /A8/85'(# B-1#$ ., ($'1%-+ 1#)>e
4)Z.90) & Q/81.,'& )/2& 0)$,)1.%C&
F
#3 .8% % /* (- '@% #1% .#$,%.)%$C%, 3*C% 2 C % % %.3 2,3%#1%&,;% ?) 3@D%
4 3*C% #1 % $C% ' 3,,38% <% ;)3@,2% .% 63,2#.% >0# ,% F#3 .% J) .)18% .(,1%
*)' .,2 % #1 % .(,% $#22*,% ) /% .(,% - *)'@ % -,.;,,1 % \G12% 12 % \[32% > .3,,.8%
-,.;,,1%= 2# )1% 12% M 3@%KB,10,D% <.%; % ' **,2% %L **% >.3,,.% /#3$8%#1%
5#.,%)/%#. %$#2.);1%*)' .#)1%9 I% 0 ,2%.)%'* #$%.)%;)3@% g)1%L **% >.3,,.g%
#1 % 5#.,% ) /% ( B #1: % -,,1 % *0'@C % ,1)0:( % .) % ,.% /)).% )1*C % .; #',% #1 % .(,%
5(C #' *%L **% >.3,,.8% )1,% )/%.(,%$) .% 3,50* #B,% 3, % <%( B,%B# #.,2% , .%
)/%& ,; 3@8%&,;% f,3 ,CD%
+(,1 8%#1%$C% .;,1.#, 8%<%*#B,2%#1% % -))@9'()@,2% O-0.%).(,3;# ,% 3 .(,3%
- 3,R% 5 3.$,1.% #1%= 1( .. 1U % 055,3%, .% #2,D% +(,% - 3,1, % ; % 1).%
#2,)*):#' *h% #.%; % #$5*C% -,' 0 ,% <% 1,B,3%$ 1 :,2% .)% ,1.,3% % /031#.03,%
.)3,8% %<%;)0*2% ,B,1.0 **C% .)5% .% % -))@ .)3,% *)1:%.(,%; C% 12%( 0*%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 192/219
IQX %
L K c% <&% = ?% 4 KS >%
- : % )/% -))@ % #1 ., 2D% K % ' 1% -,% ,^5,'.,28% .(,% @#.'(,1% ; % 2,B)#2% )/%
1C%/)3$% )/%/))2% 12%0.,1 #* 8% B,%/)3% %2,/,'.#B,%,^53, )%$ '(#1,8% %
< % *, 31,2% .)% '))@% )1*C% B,3C% 3,',1.*C% O,B,1% .(,1% D D D R D %
<%;,1.% .)%;)3@%,B,3C%$)31#1:%#1% %C,**);%' -8%;(#'(%23)55,2%$,%) //%
.%.(,%')31,3%)/%M 3@%KB,10,% 12%\[32%>.3,,.D%6 -%23#B,3 %#1%&,;%?)3@%
6#.C% 3,% @1);1% .)% -,% 3 .(,3% 01. $,2% 12% 01#B,3 **C% 01/ $#*# 3% ;#.(%
.(,%:,):3 5(C%) /%.(,% 5* ',8% -0.8% )1% )'' #)18% )1,% ' 1% /#12% %' -% 23#B,3%
;()% ' 1% -).(% -,% 01 '`0 #1.,2% ;#.(% .(,% '#.C% 12% @,5.#'% ) /% .(,%
01#B,3 *#.C% )/%.(,%* ; % )/% 3#.($,.#'D% T1,% 2 C%<%( 2%.(,%$ # /)3.01,% O)3%
5,3( 5 % .(,% /)3.01,8% % ;,%;#** % ,,R% .)% 3#2,% ;#.(% % 23#B,3% ;()% 2#2% 1).%
,,$% ' 5 -*,% )/% ( 12*#1:% 1C% * 1:0 :,% @1);1% .)% $,8% ;(#'(% #1'*02, %
. ^#9' -% 41:*# (D% <%.3#,2%.)% (,*5%(#$%1 B#: .,% )0.(% -,.;,,1% QW.(% >.3,,.%
12% \[32% >.3,,.8% -0.% (,% .0--)31*C% ')1.#10,2% .(,% i)031,C% 1% 22#.#)1 *%
-*)'@% )0.(8% /)3'#1:% $,%.)% 0 ,% .(,% \G12% >.3,,.% ,1.3 1',D% +( .% 2 C8%$C%
.3 2#1:% 5)3./) *#) % $ 2,% ')1 #2,3 -*, % 53)/#. 8% );#1:% .) % ')1 #2,3 -*, %
.03$)#*% #1% '033,1'#, h% #. %; % .(,1%.(,% -, .%2 C%)/%$C%C)01:% ' 3,,3D%
+(,% 1,^.% 2 C8% % 0 0 *8%< % ( #*,2% %' -% /3)$% .(,% ')31,3% )/% QW.(% >.3,,.%
12%+(#32% KB,10,D% +(,% 53,B#)0 % 23#B,3%; % 1);(,3,% #1% #:(.8% 5,3( 5 %
2,5)3.,2% - '@% .) % .(, % ) *2 % ')01.3C D% +))% - 2h% <% ; % :3#55,2% ;#.( % .(,%
01,^5* #1 -*,% 2, #3,%.)%5 C%(#$% - '@% /)3%.(,%/ B)3% (,%( 2%2)1,%$,% 12%
0353# ,% (#$% ;#.(% % :#: 1.#' % . #5D% +(,1% < % ' 0:(.% $C ,*/% #1 .30'.#1:% .(,%
1,;% ' -% 23#B,3% .)% . @,%$,% .)% .(,% 1)3.(9, .% ')31,3% )/% \G12% >.3,,.% 12%
M 3@% KB,10,8% ,^ '.*C% ;(,3,% <% ; % 23)55,2% )// % .(,% 2 C% -,/)3,D% <% ; %
. @,1% - '@% -C%$C%);1%;)32 % D D D% -0.% #.%; % .))% * .,D%
L(,1% <%*))@,2% .%$C%3,/*,'.#)1% #1%.(,%,*,B .)3U %$#33)38%#.%2 ;1,2%)1%
$,% .( .% <% ;)3,% .(,% ,^ '.% $,% .#, % % .(,% 2 C% -,/)3,% 9% ;#.(% .(,% ')//,,%
. #1 % /3)$% .(,% 53,B#)0 % 2 CU % /3 ' % O$C% )1*C% 22#'.#)1% # % .)% ')//,,RD%
+(,3,% ; % )$,)1,% #1%$,%;()% B# #-*C% -,*#,B,2% #1% % .3)1:% ' 0 *% *#1@%
-,.;,,1%$C%0 ,%)/%.(,%,1.3 1',8%$C%'()#',% )/%.#,% 12%.(,%53,B#)0 %2 CU %
$ 3@,.% -,( B#)3D% <% ; % 2# .03-,2% /)3 % '.#1:% *#@,% % / @,8% *#@,% 1% '.)3%
;()% #$5,3 )1 .,2 % )$,% 3)*,% .( .% ; % 1).% (# D% <% /,*.% .( .% <% ; % 1%
#$5) .)3D% T1% .(,% )1,%( 128% <%. *@,2%*#@,% )$,)1,%; #.(% .3)1:% '#,1.#/#'%
. 12 32 8% %53)- -#*# .% /)'0 ,2% )1%(# %'3 /.D% T1% .(,%).(,38%<% ( 2%'*) ,2%
05,3 .#.#)1 % i0 .% *#@,% )1,% )/%.(, ,% -*0,9')** 3% 5#.% .3 2,3 D%L)0*2% <%( B,%
.)% :)% -0C% % ()3) ')5,% 1,^.a%
K% *#..*,% -3))2#1:% 3,B, *,2% .( .% $C% *#/,%01.#*% .(,1% ( 2% -,,1% :)B,31,2%
-C % $#*2 % 05,3 .#.#)1 8% $,% .(,% ,^5,3.% #1 % )5.#)1 % 12 % 2 # 5 #)1 .,%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 193/219
V K = J 7 4 S > U% + < 6 _ >% K&N% M < V 4 T & >% <&% K% J T c% I Q Q%
' *'0* .)3% )/% 53)- -#*#. #, 8% % 3 .#)1 *% .3 2,3b% <. % ; % 1).% .(,% /#3 . % .#$,%
.( .% <% ( 2% '.,2% )1% $#*2% 05,3 .#.#)1 % )/ % % ( 3$*, % 1 .03,8% ;(#'(% <%
-,*#,B,2%;,3,% #1 .#**,2% #1% $,% -C%$C% 4 .,31% =,2#.,33 1, 1% 3)). d% )1,%
2), %1).% :3 -%.(,% *.% ( @,3%/3)$% .(,% ( 12% )/% 1).(,3%5,3 )1%3# @#1:% %
/ **#1:%)0.h%)1,% # %.)%@1)'@% )1%;))2% 05)1% 3,',#B#1:% %')$5*#$,1.h% 5*0 %
$ 1C% ).(,3% 7,B 1.#1,% -,*#,/ % 5 ,2% )1% /)3% % /,;% 2)j,1% ',1.03#, D% J0.%
*#@,%$ 1C% .(#1: % .( .% -3,;% 12% 53, 2% 3)012% .(,% 1'#,1.% 5)128% .(, ,%
-,*#,/ %<%( 2%. @,1%; #.(% %/*0'.0 .#1:%$#^.03,% )/% )*,$1#.C% 12%$# .30 .D%
L,% ')1 #2,3% .(,$%$)3,% *#@,%3#.0 * % .( 1% .30*C% #$5)3. 1.% '.#)1 % $, 1.%
.)% . B,%)//% 012, #3 -*,%.031 %) /%.(,%:)22, %F)3.01 % 9% 05,3 .#.#)1 %' 1%
#1 .#**% )$,% 5),.3C% #1% 2 #*C% *#/,D%
+(,% ;)33C#1:% 5 3.% ; % .( .% #.% ; % .(,% /#3 .% .#$,% .( .% <% 1).#',2 %
05,3 .#.#)1 % '3,,5#1:% #1.)% $C%53)/, #)1 *% *#/,D% =C% 53)/, #)1% # %.)% '.%
*#@,% 1% #1 03 1',% ')$5 1C8% .3#1:,1.*C% ')$50.#1:% .(,% )22 % - ,2% )1%
;,**%2,/#1,2%$,.()2 8% 12%$ @#1:% %53)/#.% -,' 0 ,% ).(,3%5,)5*,% 3,%*, %
3#:)3)0 8%:,.%-*#12,2%-C% )$,% g 1 *C # g8% )3% '.%;#.(%.(,%-,*#,/%.( .% .(,C%
3,%'() ,1% -C%2, .#1CD% J0.%.(,3,%; %.))%$0'(%3 12)$1, % /*))2#1:%$C%
)''05 .#)1D%
<%2,.,'.,2% .(,%3 5#2% ''0$0* .#)1% )/%;( .% # %' **,2% g: $-*,3 U% .#'@ g%
033,5.#.#)0 *C% 2,B,*)5#1:% #1%$C% -,( B#)3% 9% .()0:(% $#10.,% 12% - 3,*C%
2,.,'. -*,D% A1.#*% .(,1 % .(, ,% $ **% .#'@ % ( 2% , ' 5,2 % $,D% =C% $#12%
,,$,2%.)% -,%')1 . 1.*C%.3C#1:%.)% 2,.,'.% % . .# .#' *% ')11,'.#)1% -,.;,,1%
)$,%)/%$C%/ '# *% ,^53, #)1 % 12%)0.')$,% )/%,B,1. D%F)3%,^ $5*,8%$C%
#1')$,% . 3.,2% .)% #1'3, ,% /.,3% <%2# ')B,3,2%$C% *#:(.% 1, 39 #:(.,21, %
12% . 3.,2%;, 3#1:% :* , D%K*.()0:(% :* , %;,3,% 1).%`0#.,% 1,', 3C8%
1)3% ,B,1% 0 ,/0*8 % ,^',5.% /)3% 1#:(.% 23#B#1:8% < %@,5.% .(,$% )1%$C% 1) ,% % <%
01')1 '#)0 *C% '.,2% % #/% <% -,*#,B,2% #1% .(,% )'# .#)1% -,.;,,1%
5,3/)3$ 1',% 12%:* , D% +)% $C% -3 #1% 0'(% . .# .#' *% )'# .#)1% ; %
% 503#)0 % % #.% ' 1 % :,.8% );#1:% .)% .(,% 3,20',2% $5*, % #j,8% C,.% .( # %
1 .#B,% . .# .#' *% #1 .#1'.% 2#2% 1).% ,,$% .)% -,1,/#. % /3)$% $C% ,^5,3.# ,% #1%
(C5).(, # % ., .#1:D%
V $-*,3 % 3, % @1);1% .) % 2,B,*)5% )$,% -,( B#)3 *% 2# .)3.#)1 % % %
3, 0*.% )/% )$,%5 .()*):#' *% )'# .#)1% -,.;,,1% % -,..#1:% )0.')$,% 12%
)$,%5(C #' *%$)B,D% gV $-*,3g% # % -)0.%.(,%$) .%2,3): .)3C%.,3$% .( .%
')0*2%-,% 0 ,2%#1%$C%2,3#B .#B, %53)/, #)1D%K % 1% #2,8%: $-*#1:% .)%$,%
# % -, .% 2,/#1,2% % 1% '.#B#.C% ;(,3,% .(,% :,1.% :,. % % .(3#**% ;(,1%
')1/3)1.#1:% % 3 12)$% )0.')$,8% 3,: 32*, % )/%;(,.(,3% (,% ( % .(,% )22 %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 194/219
I Q Z %
L K c% <&% = ?% 4K S>%
. '@,2% #1 % (# % / B)3% )3% : #1 .% ( #$D% 4B,1 % ;(,1% .(,% )22 % 3, % '*, 3*C %
. '@,2 % : #1 .% .(,% : $-*,38% (,% )$,.#$, % .3 1 ',12 % .(,% )22 % -C %
-,*#,B#1:% .( .% 2, .#1C% ,*,'.,2% (#$% #1% )$,% $ 11,3D% +(# %D (); % #1% .(,%
B,3C% )5(# .#' .,2% 5,)5*,% )1,% $,,. % #1 % ' #1) % ;(,3,% .(,C% 1)3$ **C%
()0*2%1).%-,%/)012D%<%,B,1%3 1%#1.)%;)3*29'* %53)- -#*#.C%,^5,3. %;()%
( 2% %: $-*#1:%( -#.%)1%.(,% #2,8%.(3);#1:% **%)/%.(,#3%@1);*,2:,%.)%.(,%
;#12D% F)3% ,^ $5*,8% % /)3$,3% ')**, :0,% )/% $#1,% 12% )1,% )/% .(,% $) .%
#1.,**#:,1.% 5,)5*,% < % ( B,% ,B,3% $,.8% /3,`0,1.*C% ;,1.% .)% 7 % Y,: 8% 12%
,,$,2% .)% -,% 0'(% % .03@,C% .( .% .(,% ' #1)% 53)B#2,2% (#$ % ;#.(%
')$5*#$,1. 3C% *0^03C% 0#., % 12% .3 1 5)3. .#)1D% E,% ,B,1% ')1 0*.,2% %
/)3.01,% .,**,3% 53#)3% .)% . @#1:% * 3:,% .3 2#1:% 5) #.#)1 % 12% .3#,2% .)% :,.%
3,#$-03 ,2% -C% )03% ,$5*)C,3D%
4'(& <K.//(*& E .8(#/& QZ5(*.=(/%&
K.% G\ 8 % <% ; % .). **C % #:1)3 1.% )/% .(,% -,( B#)3 *% '#,1', D% <% ( 2% -,,1 %
/))*,2% -C%$C%,20' .#)1% 12%'0*.03,%#1.)% -,*#,B#1:%.( . ., )B:#$)(%(%8-)
?#$# /B5(B$'5N
% 12%.( . 8% ')1 ,`0,1.*C8% .(,C% ')0*2% -,% (,2% .(3)0:(% .(,%
,^,3'# ,% ) /% ) 9' **,2% 3, )1D% + @,1% .% .(,% :,1,3 *% *,B,*% ) /% )'#,.C 8%
$)2,31% *#/,% ;)0*2% ,*#$#1 .,% .(,$% % '#,1',% 12% *):#'% ;)0*2% ,1.,3% #.D %
J0.% #1%$C%' ,8%<%; %)B,3%.#$,%:,..#1:%$)3,% )5(# .#' .,2% #1.,**,'.0 **C8%
-0.% .(,% /*))2: ., % )/% 3 12)$1, % ;,3,% -03 .#1:% 12% <% ; % -,')$#1:%
$)3,% 05,3 .#.#)0 D%
+(, ,% 05,3 .#.#)1 % 1,,2,2%.)% -,%-#)*):#' *%9% -0.%<%; % -3)0:(.%05%#1%
1%,3 %;(,1%.(,%2):$ %; % .( .%#.%; %103.03,8% 3 3,*C%1 .03,8% .( .%; %
.(,% '0*53#.D% 6*, 3*C8% .(,3,%; % 1).(#1:% '0*.03 *% -)0.% $C% *#1@% -,.;,,1%
$C%;, 3#1:% :* , % 12% %3 12)$%$ 3@,.% )0.')$,D%+(,3,% ; % 1).(#1:%
'0*.03 *% #1%$C%*#1@%-,.;,,1%$C%0 ,%)/%,1.3 1',% 12%$C%5,3/)3$ 1',% % %
.3 2,3D%+(,3,%; %1).(#1:%'0*.03 *%#1%$C%;, 3#1:%.(,% $,%.#,% %.(,%2 C%
-,/)3, D% >)$,.(#1: % #1 % 0 % ( % 1).% 2,B,*)5,2 % 53)5,3*C % )B,3% .(,% 5 .%
.()0 12% C, 3 % 12%<%; % 2, *#1:%;#.(% .(,% 3,$1 1.% )/% )03% )*2% -3 #1D%
+)% 53)-,% .(,% 5)#1.% /03.(,3 8% ;,% 1,,2% .)% *))@% .% 0'(% /)3$ .#)1 % )/%
' 0 *% )'# .#)1 % #1 % .(,% *);,3% /)3$ % ) /% *#/,D% +(,% / $)0 % E 3B 32 %
5 C'()*):# .% J DF D% >@#11,3% ')1 .30'.,2 % % -)^% /) 3% 3 . % 12 % 5#:,)1 8%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 195/219
V K = J 7 4 S > U% + < 6 _ >% K&N% M < V 4 T & >% <&% K% J T c% I Q P%
,`0#55,2% ;#.( % % ;#.'( % .( .% .(,% 5#:,)1% ' 1% )5,3 ., % -C % 5,'@#1:D% <1 %
22#.#)18% 1% ,*,'.3#' *% $,'( 1# $% 2,*#B,3 % /))2% #1.)% .(,% -)^D% >@#11,3%
2, #:1,2 % .(,% -)^% #1 % )32,3% .) % .02C % $)3,% :,1,3 * % 5 3)5,3.#, % ) /% .(,%
-,( B#)3% )/% % ')**,'.#)1% )/%1)1(0$ 1 8% -0.% #. %; % #1% IPWZ% .( .% (,%( 2%
.(,%-3#**# 1.%#2, % )/%#:1)3#1:%.(,%*,B,3% 12 %/)'0 #1:%)1% .(,%/))2% 2,*#B,3CD%
E,% 53):3 $$,2% #.% .)% 2,*#B,3%/))2% .% 3 12)$% .)% .(,% / $# (,2% -#32 D%
E,% ;% `0#., % .)1# (#1:% -,( B#)3% )1% .(,% 5 3.% )/% .(,% - #32 h% .(,C%
2,B,*)5,2% 1% ,^.3,$,*C% )5(# .#' .,2% 3 #192 1',% .C5,% )/% -,( B#)3% #1%
3, 5)1 ,% .)% .(,#3% #1:3 #1,2% . .# .#' *% $ '(#1,3CD% T1,% -#32% ;01:% #. %
(, 2% 3(C.($#' **C% : #1 .% % 5,'#/#'%')31,3% )/%.(,%-) ^8%).(,3 % 501%.(,#3%
(, 2 % 1.#9'*)'@;# ,h% *#.,3 **C% **% )/% .(,%-#32 %2,B,*)5,2% % 5,'#/#'%3#.0 *%
.( .% 53):3, #B,*C% -,' $,% ( 329;#3,2% #1.)%.(,#3%$#12% % *#1@,2%.)% .(,#3%
/,,2#1:D%
+(# % 53)-*,$% ( % % $)3,% ;)33C#1:% ,^.,1 #)1h% ;,% 3,% 1).% $ 2,% .)%
B#,;% .(#1: % % #12,5,12,1.% /3)$% , '(% ).(,3D%L(,1% B#,;#1:% .;)% ,B,1. %
K% 12%J8 % #. % # %( 32% 1).% .)% 0$,% .( . %K %' 0 , % J8 % J%' 0 , % K8% )3% -).(%
' 0 , % , '( % ).(,3 D% T03% -# % # % #$$,2# .,*C % .) % , . -*# ( % % ' 0 *% *#1@D%
L(#*,%.)% % -022#1:%.3 2,3%.(# %' 0 , %( 32*C% 1C%;)3 ,%') . %.( 1% %/,;%
5,11#, %#1%' -% / 3,8% #.%' 1% 23 ;%.(,% '#,1.# .% #1.)% 503#)0 %#1/,3,1',D% F)3%
#.% # % ( 32,3% .)% '.% % #/ % )1,% ;,3,% #:1)3 1.% .( 1% % # /% )1,% ;,3,% $ 3.h%
'#,1.# . % @1);% .( .% #.% # %,$).#)1 **C% ( 32,3% .)% 3,i,'.% % (C5).(, # % .( 1%
.)% '',5.% #.% O;( .% # %' **,2% .C5,% <% 12% .C5,% <<% ,33)3 R%9% `0#.,% % 2#//#'0*.%
$ ..,3%;(,1%;,%( B,% 0'(% C#1: % <#5%7 CB% :8(B%( /8+-8)/#$# /'B)')
O( 55C% # %(,%;()% 012,3 . 12 %;( .% # % -,(#12%.(#1: RD% <.%# %B,3C%( 32% /)3%
0 % .)% i0 .% (0.% 05D% L,% 3,% 1).% '0.% )0.% /)3 % # .D% M)55,3% )3% 1).8% ;,% . @,%
xg(#1: %.))% ,3#)0 *CD%
E'.1#,%*)%$,& ;(2$Z&
<% )//,3,2% 1)% )*0.#)1% .)% .(,% 53)-*,$% )/% . .# .#' *% #1/,3,1',% .% % *);%
3, )*0.#)1D% < % 2# '0 ,2% #1% 6( 5.,3% [% .(,% .,'(1#' *% 2#//,3,1',% -,.;,,1%
1)# ,% 12%$, 1#1:%9% -0.% #.% # % .#$,%.)% 2# '0 % .(,% ,^,'0.#)1D% +(,% V3,,@%
5(#*) )5(,3% MC33()8% ; ()% 2B)' .,2% % *#/,% )/% ,`0 1#$ #.C% 12%
#12#//,3,1',8% ; % '3#.#'#j,2% /)3% / #*#1:% .)% @,,5% (# % ')$5) 03,% 203#1:% %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 196/219
I Z H %
L K c% <&% = ?% 4K S>%
'3#.#' *%'#3'0$ . 1',% O(,%; %'( ,2%-C% 1% )^RD %E # % 1 ;,3%; %.( .%(,%
/)012% #.% )$,.#$, % 2#//#'0*. % .)% 3#2% (#$ ,*/% )/% (# % (0$ 1#.CD% < /% MC33()%
' 11) .% .)5% -,#1:% (0$ 1 8% <% 2)% 1).% ,,% ;(C% .(,% 3, .% ) /% 0 % ()0*2 %
3, ,$-*, % .(,% 3 .#)1 *% $ 1% ;()% '. % 5,3/,'.*C % 012,3% 01',3. #1.C % %
53)5)012,2% -C% ,')1)$#'% .(,)3CD% <% 2# ')B,3,2% .( .% $0'(% ) /% .(,%
3 .#)1 **C% )-. #1,2 % 3, 0*. % 0 #1:% $C% ')$50. .#)1 % ) /% .(,% B 3#)0 %
53)- - #*#.#, % 2)%1) .% 3,:# .,3% 2,,5*C% ,1)0:(% .)% #$5 '.%$C%);1% ')120'.D%
<1% ).(,3%;)32 8%< % '.,2% *#@,%.(,%2)'.)3% #1%6( 5.,3% II% ;()% @1,;% )/% .(,%
G l% 53)- -#*# .C% )/ % .(,% 2# , ,8% -0.% )$,();% 01;#..#1:*C% .3, .,2% .(,%
5 .#,1.% %#/%.(,% #*$,1.%( 2% %P \l% 53)- -#*#.C% )/%-,#1:%.(,3,D%= C% -3 #1%
12%$C% #1 .#1'.% ;,3,%1).% '.#1:% #1% ')1',3.D %
+(,% 2,. #* % 3,% %/)**); D%K % %3 .#)1 *%.3 2,3% O **%.3 2,3 % -) .% )R%<%
-,*#,B,% %<%2# '0 ,2%-,/)3,% .( .%.(,3,% # % %2#//,3,1',%-,.;,,1%1)# ,% 12%
#:1 *8% 12% .( . % 1)# ,% 1,,2 % .)% -,% #:1)3,2% ;(#*, % % #:1 *% 1,,2 % .)% -,%
. @,1% ,3#)0 *CD%<%0 ,%,*,$,1. 3C% O-0.%3)-0 .R% $,.()2 %.( .% **);%$,%.)%
' *'0 * .,%.(,%,^5,'.,2%1)# ,% 12% #:1 *%')$5) #.#)1%)/% 1C%/*0'.0 .#)1%#1%
$C% .3 2#1:% 5,3/)3$ 1',D% F)3% ,^ $5*, 8% /.,3 % 3,:# .,3#1:% % 53)/#.% )/%
pIHH 8 HHH % )1% % :#B,1 % .3 .,:C8% <% $ C % #:1 % % Gl% 53)- - #*#.C % .) % .(,%
(C5).(, # % )/% .(,% .3 .,:C% -,#1:%53)/#. -*,% 12% P Zl% 53)- -#*#.C% .)% .(,%
(C5).(, # % .( .% .(,%5,3/)3$ 1',% $ C% -,%.(,%3, 0*.%)/%$,3,%1)# ,D%K %: #1%
)/% p I 8H H H 8H H H 8% )1% .(,% ).(,3% ( 128% ',3.#/#, % .( .% .(,% .3 .,:C% # % %
53)/# . -*, % )1,8% ;#.(% % P Pl% 53)- -#*#.CD% K% 3 .#)1 *% 5,3 )1% ;)0*2% '.%
'')32 #1:*C% #1% .(,% ,*,'.#)1% ) /% .3 .,:#, 8% 12 % ,.% (# % ,$).#)1 % #1%
'')32 1',% ;#.(% (# % 3, 0*. D% ?,. % < % ( B,% ,^5,3#,1',2% *, 5 % )/% i)C% )B,3%
3, 0*. % .( .% <% @1,;% ;,3,% $,3,% 1)# ,8% 12% -)0. % )/% 01( 55#1, % )B,3 %
3, 0*. % .( .% 2#2%1).%' 33C% .(,% *#:(., .%2,:3,,%)/% . .# .#' *% #:1#/#' 1',D% <%
' 11).% (,*5% #.r%-0.% < % $ % ,$).#)1 *% 12%2,3#B,%$) .% )/%$C% ,1,3:C% /3)$%
$C%,$).#)1 D% >)%.(,% )*0.#)1% 2), % 1).% 3, #2,%#1%. $#1:%$C% (, 3.D %
>#1',%$C%(, 3.% 2), %1).% ,,$% .)% :3,,%;#.(%$C%-3 #18% < %1,,2%.)% . @,%
,3#)0 % '.#)1% .)% B)#2%$ @#1:% #33 .#)1 *% .3 2#1:% 2,'# #)1 8% 1 $,*C8% -C%
2,1C#1:% $C ,*/% '', % .)% $C% 5,3/)3$ 1',% 3,5)3.% 01*, % #.% (#. % %
53,2,.,3$#1,2% .(3, ()*2D% +(# % # %1)% 2#//,3,1.% /3)$% .(,%2#B)3',% -,.;,,1%
$C% -3 #1% 12% $C% 55,.#.,% ;(,1% #.% ')$, % .)% .(,% ')1 0$5.#)1% )/%
'()')* ., D% <% :,1,3 **C % 2, *% ;#.( % #.% -C % ',3. #1 #1:% .( .% .(,3, % 3, % 1)%
'()')* .,% -)^, % 012,3%$C%.3 2#1:% 2, @D%
T1,% )/% .(,%$) .%#33#. .#1:% ')1B,3 .#)1 % <UB,% ( 2% # %; #.(%5,)5*,%;()%
*,'.03,%$,%)1 A8? M )A8B51% -,( B,D%= ) .% )/%0 %@1);%53,..C%$0'( A8?
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 197/219
V K = J 7 4 S > U% + < 6 _ >% K&N% M < V 4 T & >% <&% K% J T c% I Z I%
?# )A8B51
% -,( B,D% <.% # % .(,% ,^,'0.#)1% .( .% # % .(,% 53)-*,$8% 1) .% .(,%
- ,1',% )/% @1);*,2:,D% < % $% .#3,2% )/% .(,%$)3 *#j#1:% *);9.(#1@,3 % ;()%
5)012%$,%;#.(%5* .#.02, % *#@,%<% ()0*2% /*) % 2 #*C8%, .% $C%3,:0* 3% 55*,%
12%B# #.%.(,%:C$% )0. #2,%)/%.(,%1,;9C, 3% 3, )*0.#)1D% <1%.(,%$ 3@,. % .(,%
3,')$$,12 .#)1% ;)0*2 % -,% .)% #:1)3,% .(,% 1)# ,% ')$5)1,1.% #1% .(,%
5,3/)3$ 1',D%L,% 1,,2%.3#'@ % .)%:,.% 0 %.(,3,% -0.% -,/)3,% .( .%;,% 1,,2%.)%
'',5.%.(,%/ '.%.( .%;,% 3,%$,3,% 1#$ * %#1%1,,2%)/%*);,3%/)3$ %)/%.3#'@ 8%
1).% *,'.03, D%
F#1 **C8%<% ')1 #2,3% $C ,*/% *0'@C% /)3% 1).% ( B#1:% % '#: 3,..,% 22#'.#)1D%
F) 3% .(,% -, .% ; C% .)% 012,3 . 12% (); % ;,% ')0*2% -,% 3 .#)1 *% #1% )03%
5,3',5.#)1%)/%.(,%3# @ % 12%53)- -#*#.#, % 128% .%.(,% $,%.#$,8%-,%/))*# (%
;(#*,% '.#1:% )1% .(,$8%;)0*2% -,%.)%( B,% %')1B,3 .#)1% ;#.(% % '#: 3,..,%
$)@,3D%F)3% /,;%'#: 3,..,% $)@,3 %3,$ #1%01 ; 3,%)/%.(,%/ '.%.( .%*01:%
' 1',3% .3#@, % )1,% #1% .(3,,% )/% .(,#3% 5)50* .#)1D% </% C)0% 3,$ #1% 01')19
B#1',28% . @,% % *))@% .% .(,% (022*#1:% $)@#1:% '3);2% )0. #2,% .(,% ,3B#',%
,1.3 1',% )/%.(,%=,$)3# *9>*) 1% _,..,3#1:% 6 1',3% 6,1.,3% #1%&,;% ?)3@%
6 #.C U % 055,3% 4 .% #2,D% ?)0% ;#**% ,,% 2)j,1 % ) /% ' 1',3% 103 , % O 12 8%
5,3( 5 8%2)'.)3 R% . 12#1:%)0. #2,%.(,%,1.3 1',%;#.(% %'#: 3,..,% #1%( 12%
% ()5,*, % 5 .#,1. % 3,%;(,,*,2% #1%/)3% .(,#3% .3, .$,1. D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 198/219
. ( # 3 . , , 1%
@'(8 (A# /#-)8$ )#-1) @'$-#'1#) :'/>%-+e 38- )%#B$ 1# E8$:8%)
18#) -8( $#.#. Y#$ A%) 851 8:%-%8-)e X#? '$# (A# )/%#-(%)(e
3 '$$,%-+ %1#')e FA# )'.# K8Y#$( 3 #$(8- A#5:%-+ (A# 'B(A8$
)('$( A%) <%$.e */%#-/# #&85&#) <$8. <B-#$'5 (8 <B-#$'5e
@%C)03% *)' *% $ .(,$ .#'# 1% .)% 2,/#1,%53)- -#*#.Ch% (,%;)0*2%$) .%
53)- -*C% ();%C)0%();%.)%')$50.,%#.D%K %;,% ;%#1%6( 5.,3%[% )1%
53)- -#*# .#'% #1.3) 5,'.#)18% 53)- -#*#.C% # %1).% -)0.% .(,%)22 8% -0.% -)0.%
.(,% -,*#,/% #1% .(,%g,^# .,1',% )/% 1% *.,31 .#B,% )0.')$,8% ' 0 ,8% )3% $).#B,D%
S,' **%.( .%$ .(,$ .#' % # % %.))*% .)%$,2#. .,8%1) .%')$50.,D%K: #18%*,.%0 %
:)% - '@%.)% .(,%,*2,3 %/)3%$)3,%:0#2 1',%9% /)3%53)- -#*#.#, %;,3,% *; C %
')1 #2,3,2% -C%.(,$% % 1).(#1:% -,C)12% % 0-i,'.#B,8% 12% /*0#28% $, 03,%
)/% -,*#,/ D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 199/219
6 KS&4 KN 4>% 6 T= 4>% + T% S T= 4d% T&% M ST JK J<7 <+ ?% K&N% > _4 M+ <6 <> =% IZ [%
0)*/()2(,& 0#=(,& %#& ;#=(&
K3)012% I\\% JD6D 8% .(,% V3,,@% 5) .9'* #' *% 5(#*) )5(,3% 6 31, 2, % )/%
6C3,1,% ' $,% .)% S)$,% % )1,% )/% .(,% .(3,,% K.(,1# 1% $- 2)3 % ;()%
' $,% .)% -,:% .(,% S)$ 1% >,1 .,% /)3% % 5)*# .#' *% / B)3D% K% /#1,% ( 2% -,,1%
*,B#,2% : #1 . % .(,% '#.#j,1 % )/% .(,#3% '#.C8% 12% .(,C% ; 1.,2% .)% ')1B#1',%
S)$ ,%.( .% #.%; %01/ #3D%6 31, 2, % 3,53, ,1.,2%.(,%K' 2,$C8%.(,% $,%
3:0$,1. .#B,% )5,19 #3%#1 .#.0.#)1%;(,3,%.(3,,%',1.03#, %-,/)3,% >)'3 ., %
23)B,% (# % #1.,3*)'0.)3 % .)%$032,3%(#$% i0 .% .)% :,.% )$,% 3, 5#.,% /3)$% (# %
3:0$,1. D% <.% ; % 1);% ' **,2% .(,% &,;% K' 2,$C8% ; % 1)% *, %
3:0$,1. .#B,8% 12%( 2%.(,%3,50. .#)1%) /%-,#1:%.(,%().-,2%)/% @,5.#'# $%
#1%.(,% 1'#,1.% ;)3*2D%
T1% .(,% $0'(% 1.#'#5 .,2% 2 C% ) /% (# % )3 .#)18% (,% .))2% 05% 12%
2,*#B,3,2% % -3#**# 1.*C% 3:0,2% ( 3 1:0,% #1 % 53 # ,% )/% i0 .#',% 12% ();%
2,B)*B#1:% #.% ()0*2% -,% .%.(,% .)5% )/% )03%$).#B, D% +(,% S)$ 1% 02#,1',%
; % 5,**-)012D% <.%; % 1).% i0 .%(# %'( 3# $ h% .(,% 02#,1',%; % ; C,2%
-C% .(,% .3,1:.(% )/ % .(,% 3:0$,1. 8% .(,% ,*)`0,1',% )/ % .(,% .()0:(.8% .(,%
503#.C%) /%.(,% * 1:0 :,8% 12%.(,%,1,3:C% )/%.(,% 5, @,3D% J0.%.( .%; % 1).%
.(,% 5)#1.% (,%; 1.,2%.)% 23#**D %
+(,% 1,^.% 2 C8% 6 31, 2, % ' $,% - '@8% .))2% 05% 12% , . -*# (,2% .(,%
2)'.3#1,% )/% 01',3. #1.C% )/% @1);*,2:,% #1% .(,% $) .% 5) #-*C% ')1B#1'#1:%
; CD%E);a% JC%53)',,2#1:%.)%')1.3 2#'.% 12%3,/0.,%;#.(%1)% *, % ; C#1:%
3:0$,1. % ;( .% (,% ( 2% , . -*# (,2% )% ')1B#1'#1:*C% .(,%2 C% -,/)3,D% E,%
$ 1 :,2%.)% 5,3 0 2,% .(,%B,3C% $,% 02#,1',% 12%#1%.(,% $,% 5).% .( .%
i0 .#',% ()0*2 % -,% ; C % 2);1% )1% .(,% *# .% ) /% $).#B .#)1 % /) 3% (0$ 1 %
012,3. @#1: D%
&);% .(,% - 2 % 1,; D% 6 .) % .(,% ,*2,3% O.(,% g ',1 )3g R% ; % $)1:% .(,%
02#,1',8% *3, 2C% `0#., % )*28% 12% 1)% $)3,% .)*,3 1.% .( 1% (,% ( 2% -,,1%
203#1:%(# %)//#',%)/%',1 )3D%413 :,28%(,%5,3 0 2,2%.(,%>,1 .,%.)% ,12%.(,%
.(3,,% $- 2)3 % 5 '@#1:% *, .% .(,#3% 3:0$,1. .#B,% 5#3#. % $022*,% .(,%
5#3#.% )/% .(,% C)0.(% )/% .(,% S,50-*#' % 12% ;, @,1% .(,% $#*#. 3C% '0*.03,D%
O6 .)% ( 2% - 11,2%203#1:%(# %)//#',% )/%',1 )3 (#5% **% V3,,@% 3(,.)3#'# 1 %
/3)$% , . -*# (#1:% 3, #2,1',% #1% S)$,D% E,%; % .))%$0'(% % 1)91)1 ,1 ,%
.C5,% )/% 5,3 )1% .)% '',5.% .(,#3% #1.3) 5,'.#B,% ,^5 1 #)1 DR%
S C ' + C , L$ # C L$ + & A$ A > $ 9 < ' L A$ L ( \ A <=$ < +$ = . C L L < = C .$ A <B L P$ + & '$ # C L$ > $ A > $
9 <' L A$ A &$ A C = > $ 0 L$ A > $ A ' 0 $ + & A < & +$ & 9$ \ ' & T C T < . < A ? ^$ F 0 A $ A > <L$ < + = < , + A$ ' B C < + L$
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 200/219
I Z W %
L K c% <&% = ?% 4 KS >%
.(,% $) .% 5,'. '0* 3% #1% #. % #$5 '.% )1% :,1,3 .#)1 % )/% 3(,.)3#'# 1 % 12%
.(#1@,3 D% 6 31, 2, % ; % 1).% $,3,*C% % @,5.#' h% (,% ; % % 2# *,'.#'# 18%
)$,)1,% ;()% 1,B,3% ')$$#..,2% ( #$ ,*/% .) % 1C% )/% .(,% 53,$# , % /3)$%
;(#'(% (,% 3:0,28% )3% .)% 1C% )/% .(,%')1'*0 #)1 % (,%23,;% /3)$% .(,$D% E,%
.))2% **%(# %*#/,% : #1 .% 33): 1.%2):$ % 12%-,*#,/%#1%)1,% )*,%.30.(D%F,;%
'3,2#-*,%.(#1@,3 %3#B *%6 31, 2, %#1%.(,#3%3#:)3)0 % @,5.#'# $%O %'* %.( .%
;)0*2% #1'*02,% .(,% $,2#,B *% K3 -% 5(#*) )5(,3% KI%V j *# 8% E0$,8% 12%
_ 1.%9% -0.%)1*C%M)55,3%' $,%.)% ,*,B .,% (# % @,5.#'# $% .)% 1% **9,1')$9
5 #1:% '#,1.#/#'%$,.()2)*):CRD%K %.(,% @,5.#' U%$ #1%., '(#1:%; %.( .%
1).(#1:%')0*2%-,% '',5.,2%;#.(%',3. #1.C8%')1'*0 #)1 %) /%B 3#)0 %2,:3,, %
)/%53)- -#*#.C%')0*2% -,%/)3$,28% 12%.(, ,% 055*#,2% % :0#2,%.)% ')120'.D%
>.,55#1:% /03.(,3%- '@% #1%.#$,% 12% , 3'(#1:% /)3%.(,% /#3 .% @1);1% 0 , %
)/% 53)- -#*# .#' % .( #1@#1:% #1 % ( # .)3C 8% ;,% /#12% #.% ( 3@ % - '@% .) % #^ .(9
',1.03C% OJD6DR% V3,,@% >#'#*CD%+(,3, 8%.(,%1).#)1%)/%53)- -#*#.C%; %0 ,2%#1%
% *,: *% /3 $,;)3@% -C% .(,% B,3C% /#3 .% 3(,.)3#'# 1 % ;()8% ;(,1% 3:0#1:% %
' ,8% 1,,2,2%.)% ();% .(,%,^# .,1',% )/% % 2)0-.%')1',31#1:% .(,% ',3. #1.C%
)/%.(,% ''0 .#)1D% +(,% /#3 .%@1);1% 3(,.)3#'# 1%; % %>C3 '0 , 1% 1 $,2%
_) 3 ^%;()% ,1: :,2%#1%., '(#1:% 5,)5*,%();% .)% 3:0,%/3)$% 53)- -#*#.CD%
K.% .(,% ')3,% )/% (# % $,.()2% ; % .(, % 1).#)1% )/% .(, .8)( :$8Y'Y5#e% F)3%
,^ $5*,8% .(,% );1,3 (#5% )/% % 5#,',% )/% * 128% #1 % .(,% - ,1',% )/% /03.(,3 %
#1/)3$ .#)1% 12%5(C #' *% ,B#2,1',8% ()0*2%:)%.)%.(,%5,3 )1% /.,3%;() ,%
1 $,% #.% # % -, .%@1);1D% T1,% )/% (# % #12#3,'.% .02,1. 8% V)3:# 8% .))@% .(# %
$,.()2% ) /% 3:0$,1. .#)1 % .) % K.(,1 8% ;(,3,% #.% /*)03# (,2 D% <.% # % .(,%
, . -*# ($,1.% )/% 0'( .8)( :$8Y'Y5#% 1).#)1 % .( . % . 0:(.%0 %.)%B#,;%.(,%
5) #-*,%')1.#1:,1'#, % %2# .#1'.% 12% ,5 3 -*,%,B,1. %;#.(%53)- -#*#.#, %
.. '(,2%.)%, '(%)1,%)/%.(,$D%
\ ' & T C T < . < A ?$ A > $ = > < . , $ & 9$ L ( \ A < = < L B$
A1.#*% .(,%=,2#.,33 1, 1% - #1%; %2)$#1 .,2%;#.(%$)1).(,# $8%;(#'(%
*,2% .)% .(,% -,*#,/% #1% )$,% /)3$ % ) /% 01#`0,1, % ) /% .(,% .30.(% O.)% -,%
05,3',2,2% * .,3 % -C% ,5# )2, % )/% ')$$01# $R8% @,5.#' # $% ( 2% : #1,2%
'033,1'C% $)1:% $ 1C% $ i)3% .(#1@,3 % 9% 12% ',3. #1*C% 5,3$, .,2% .(,%
;)3*2 D% +(,% S)$ 1 % 2#2 % 1).% ( B,% % 3,*#:#)1 :#$ )#j% .(,C% ;,3,% .))%
.)*,3 1.% .)% '',5.% %:#B,1%.30.(D% +(,#3 %;,3,% % ')**,'.#)1% )/% %B 3#,.C% )/%
/*,^#-*,% 12% C1'3,.#'% 05,3 .#.#)1 D% <%;#**%1).% :,.%.))% .(,)*): #' *8% ,^',5.%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 201/219
6 KS &4 KN 4>% 6 T= 4 >% + T% S T= 4 d% T&% M ST JK J <7 <+ ?% K&N% > _4 M+ <6 <> =% I Z\%
.)% C%.( .%;,%( 2%.)%; #.%/)3% %2)j,1%',1.03#, %#1%.(,%L, .,31%;)3*2% .)%
, 5)0 ,% '3#.#' *% .(#1@#1:% : #1D% <12,,28% /)3% )$,% .3 1:,% 3, )1% 203#1:%
.(,% $#22*,% :, 8% K3 - % ;,3,% '3#.#' *% .( #1@,3 % O.(3)0:( % .(,#3% 5) .9
'* #' *%5(#*) )5(#' *% .3 2#.#)1R%;(,1%6(3# .# 1% .()0:(.%; % 2):$ .#'8%
.(,1% /.,3% .(,%3,1 # 1',8% .(,% 3)*, %$C .,3#)0 *C% 3,B,3 ,2D%
T1,% 0.()3%/3)$ % 1.#`0#.C%;() %53)B#2, %0 %,B#2,1',%)/% 0'(% .(#1@#1:%
# % .(,% : 330*)0 % 6#',3)D% E,% 53,/,33,2% .)% -,%:0#2,2% -C%53)- -#*#.C% .( 1%
**,:,%;#.(%',3. #1.C%9% B,3C%( 12C8% )$,% #28%-,' 0 ,% #.% **);,2%(#$% .)%
')1.3 2#'.% (#$ ,*/D%+(# %$ C% -,% %3, )1% /)3%0 8%;()%( B,%*, 31,2% /3)$%
M)55,3% ();% .)% 3,$ #1% ,*/% '3#.#' *8% .)% 3, 5,'.% (#$% $)3,8% % (,%2#2% 1).%
(,;% .0--)31*C%.)% 1%)5#1#)1%/)3%.(,%$,3,%/ '.%.( .%(,%( 2%B)#',2%#.%#1%
.(,% 5 .D% <12,,2% C)03% B,3 :,% *#.,3 .03,% 53)/, )3% ;)0*2% / 0*.% (#$% /)3%
(# %')1.3 2#'.#)1 % 12%(# %'( 1:,% )/% $#12D%
< .% ; % 1).% 01.#*% $)2,31% .#$, % .( .% 0'(% 2, #3, % .)% -,% /3,,% /3)$% )03%
);1% 5 .% . .,$,1. % ,$,3:,2D% &);(,3,% ; % #. % $ 2,%$)3,% ,*)`0,1.*C%
.( 1% #1%3#).#1:% .02,1.%:3 //#.#%#1%M 3# D%+(,% .02,1.%$)B,$,1.%.( .% .))@%
5* ',% #1 % F3 1',% #1 % IPXZ8 % ;#.(% .(,% C)0.(% 1)% 2)0-.% '()@#1:% 012,3% .(,%
;,#:(.% )/% C, 3 % )/% ( B#1:%.)% )012% #1.,**#:,1.% 12% ')(,3,1.8% 53)20',28%
$)1:% ).(,3% i,;,* 8% .(,% /)**);#1:% 2,$ 12d%
T # 1#.'- 1 (A# $%+A( (8 /8-($'1%/( 8B$)#5&#)k
+#/,.($*& 2(& 3#*5#.,U,& I5./.#/,&
=)2,31% .#$, % 53)B#2,% 0 %;#.(% % 2,53, #1:% .)3CD% >,*/9')1.3 2#'.#)1% # %
$ 2,% '0*.03 **C% .)% -,% ( $,/0*8% % $ ..,3% .( .% ' 1% 53)B,% 2# .3)0 % #1%
'#,1',D% = 3',*% M3)0 .U % 1)B,*
M- *#'$/A 8< F %.# a8)(
% /, .03, % % ,$#9
3,.#3,2% 2#5*)$ .8% = 3`0# % 2,% &)35)# 8% ;()8% * #@,% **% 2#5*)$ . % -,/)3,%
.(,% 2B,1.% )/% .(,% / ^% $ '(#1,8% ; % % )'# *#.,% ;()% 5,1.% ')1 #2,3 -*,%
.#$,% #1 % *)1 D% +(,% 1 33 .)3% )/% .(,% 1)B,*% ,, % =)1 #,03% 2, % &)35)# %
)5,1*C% ')1.3 2#'.#1:% (#$ ,*/% )1% )$,% # 0,% O )$,% 53,; 3% 3 553)'(,9
$,1.% -,.;,,1% F3 1',% 12% V,3$ 1CRD% L(,1% 3,$#12,2% )/% (# % 53,B#)0 %
5) #.#)18% =)1 #,03% 2,%&)35)# % 2#2%1) .% ,,$%.)% 3,' **% #. D% M3)0 .% 3,B#*, %
(#$d%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 202/219
I Z X %
L K c% <&% = ?% 4 KS>%
3 8-)%#B$ 1# E8$:8%) ?') -8( 5,%-+e 0# A'1 gB)( <8$+8((#-e 9-#
<8$+#() $'(A#$ CB%/>5, ?A'( 8-# A') -8( (A8B+A( 'Y8B( ?%(A 1#:(AN
?A'( A') Y##- 1%/('(#1 (8 ,8B Y, %.%('(%8-N Y,` (A# :'))%8-)
)B$$8B-1%-+ ,8Be FA#)# /A'-+#N '-1 ?%(A (A#. )8 18 ,8B$ .#. 8$%#)e
6&#- .8$# (A'- 1%:58.'()N :85%(%/%'-) 18 -8( $#.#.Y#$ 8:%-%8-)
(A#, A'1 '( )8.# :8%-( %- (A#%$ 5%&#) '-1 (A#%$ <%YY%-+) '$# .8$#
'(($%YB('Y5# (8 '- #7/#)) 8< '.Y%(%8- (A'- ' 5'/> 8< .#. 8$,e
=)1 #,03% 2,% &)35)# % # % $ 2,% .)% -,% ( $,2% )/% .(,% / '.% .( .% (,%
,^53, ,2% %2#//,3,1.% )5#1#)1D% M3)0 .%2#2%1).%')1 #2,3% .( .%.(,% 2#5*)$ .%
$#:(.% ( B,% '( 1:,2% (# % $#12D% L,% 3,% 055) ,2% .)% -,% / # .(/0*% .)% )03%
)5#1#)1 D% T1,% -,')$, % % .3 #.)3% ).(,3;# ,D%
&);% <%()*2%.( .%=)1 #,03%2,%&)35)# % ()0*2%-,% %.3 2,3D%T1,% )/%.(,%
-, .%.3 2,3 % <% ( B,% ,B,3% ,1')01.,3,2% #1%$C% *#/,8%&#:,*% J -- :,8% ( % .(,%
3,$ 3@ -*,% ..3#-0.,%)/%-,#1:%')$5*,.,*C%/3,,%)/% 1C%5 .(%2,5,12,1',%#1%
(# % -,*#,/ D% E,% ,^(#-#. % - )*0.,*C% 1)% ,$- 33 $,1.% -0C#1:% % :#B,1%
'033,1'C% )1% % 503,%#$50* ,8%;(,1%)1*C%()03 % :)%(,%$ #:(.%( B,%B)#',2%
% .3)1:% )5#1#)1% %.)% #. % /0.03,%;, @1, D%L( .% '( 1:,2% (# %$#12a%E,%
2), % 1).% /,,*% )-*#: .,2% .)% ,^5* #1% #. D%
+(,% 50-*#'% 5,3 )1%$) .% B# #-*C% ,12);,2% ;#.(% 0'(% % .3 #.% # % V,)3:,%
>)3) D% T1,% )/%(# % .3,1:.( %# %.( .% (,%3,B# , %(# % )5#1#)1% 3 .(,3% 3 5#2*C8%
;#.()0.% .(,% *#:(., .% ,$- 33 $,1.D% +(,% /)**);#1:% 1,'2).,% #**0 .3 ., %
>)3) U % -#*#.C%.)%3,B,3 ,%(# %)5#1#)1%#1% %/* (D%+(,% F3,1'(%5* C-)C% .3 2,3%
f, 19= 10, *% S)j 1% 2# '0 , % .(,% /)**); #1:% ,5# )2,% #1% (# % 0.)9
-#):3 5(C
IG
% O2# :0# ,2% % % 1)B,*% #1 % )32,3% .) % B)#2% *,: *% - #** RD% +(, %
53). :)1# .% OS)j 1R% 0 ,2%.)%5* C%.,11# %#1%.(,%E $5.)1 %)1%7)1:% < * 12%
;#.(%V,)3:#%> 0*) 8% 1% g)*2,3%$ 1%;#.(% %/011C% '',1.g8% 12% )$,.#$, %
,1: :, % #1 % 2# '0 #)1 % -)0.% .(,% $ 3@,.8% 1).% #1 #.# **C % @1);#1:% ();%
#$5)3. 1 .% 12 % #1/*0,1 .# *% > 0*) % .30*C % ; D% T1,% ;,,@9,12 8% > 0*) %
,^(#-#.,2% #1% (# % 2# '0 #)1% % * 3:,% $)01.% )/% -, 3# (1, 8%;#.(% % ')$9
5*#' .,2% ,3#, % )/% 3:0$,1. % .( .%.(,% 1 33 .)3%')0*2% 1).%/)**);D%E,%; %
)-B#)0 *C% ()3.%.(,%$ 3@,.D%K %/,;%2 C %* .,38%.(,%$ 3@,.%3 **#,2%B #)*,1.*C8%
$ @#1:%3,')32 %(#:( D%+(,%53). :)1# .%;)33#,2% -)0.%> 0*) 8% @,2%(#$% .%
.(,#3% 0- ,`0,1.%.,11# % ,1')01.,3% #/% (,%; % (03.D% gL,% $ 2,% % @#**#1:g8%
> 0*) % #2D% g<% '( 1:,2%$C%$#12D%L,%')B,3,2% 12%;,1.%B,3C% *)1:gD%
<.%; %.(# %B,3C%.3 #.%.( .8% %/,;%C, 3 %* .,38% //,'.,2%S)j 1 % 1,: .#B,*C%
12% *$) .% ') .% (#$% % ' 3,,3 D% >)3) % : B, % S)j 1% #1 % .(,% * ., % IPZH % GH %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 203/219
6 KS &4K N4>% 6 T= 4>% + T% S T= 4 d% T&% M ST JK J <7 <+ ?% K&N% > _4 M+ <6 <> =% I ZQ%
$#**#)1%2)** 3 % .)% 5,'0* .,%;#.(% O % #j, -*,% $)01.% .%.(,%.#$,R8%;(#'(%
**);,2%(#$%.)% . 3.% %.3 2#1:%')$5 1C% O<%; % *$) .%23 ::,2%#1.)%#.RD%K%
/,;% 2 C % * .,38% % >)3) % ; % B# #.#1:% M 3# 8%.(,C%2# '0 ,2%$ 3@,. % )B,3%
*01'(D% S)j 1% ;% >)3) % -,')$#1:% 2# . 1.D% E,% .(,1% ')$5*,.,*C% 50**,2%
.(,% $ )1,C8% )//,3#1:% 1)% ,^5* 1 .#)1 D% L( .% '( 3 '.,3#j, % 3, *%
5,'0* .)3 % *#@,% >)3) % /3)$% .(,% 3, . % # % .( .% .(,#3% '.#B#. #, % 3,% 2,B)#2%
)/%5 .(% 2,5,12,1',D%+(,C% 3,%.). **C%/3,,%/3)$% .(,#3%5 .% '.#)1 D% 4B,3C%
2 C%# % %'*, 1% * .,D %
\ C A >$ , \ + , + = $ & 9$ T . < 9 L$
+(,3,% # % % #$5*,%., .%.)%2,/#1,%5 .(%2,5,12,1',%) /%-,*#,/ D% > C%C)0% );1%
%5 #1.#1:%C)0%-)0:(.%/)3%p GH 8H HH 8% 12%);#1:%.)%3) C%')12#.#)1 % #1%.(,%
3.%$ 3@,. 8% #. % # %1);%;)3.(% pW H8H HH D% < /%C)0%);1,2% 1)%5 #1.#1:8% ;)0*2%
C)0% .#**% '`0#3,% #.% .%.(,% '033,1.% 53#',a% </% C)0%;)0*2%1).8 %.(,1% C)0% 3,%
#2%.)%-,%$ 33#,2% .)%C)03%5) #.#)1D%+(,3,% # %1)%3 .#)1 *%3, )1% .)%@,,5% %
5 #1.#1:% C)0% ;)0*2% 1).% -0C% .% #. % '033,1.% $ 3@,.% 3 .,% 9% )1*C% 1%
,$).#)1 *% #1B, .$,1.D% = 1C% 5,)5*,% :,. % $ 33#,2% .)% .(,#3% #2, % ** % .(,%
; C%.)%.(,%:3 B,D%J,*#,/ % 3,% #2%.)%-,%5 .(%2,5,12,1.%#/%.(,% ,`0,1',%)/%
#2, % # % 0'(% .( .% .(,%/#3 .% )1,% 2)$#1 ., D%
+(,3,% 3,%3, )1 % .)% -,*#,B,%.( .8%/) 3%,B)*0.#)1 3C% 5035) , 8%;,%$ C%
-,% 53):3 $$,2% .)% -0#*2% % *)C *.C% .)% #2, % #1% ;(#'(% ;,% ( B,% #1B, .,2%
. #$,D% +(#1@% -)0.% .(,% ')1 ,`0,1', % )/% -,#1:% % :))2% .3 2,3% )0. #2,% )/%
.(,%$ 3@,.% '.#B#.C8% 12% 2,'#2#1:% ,B,3C% $)31#1:% .% Z% D$D% ;(,.(,3% .)%
@,,5%.(,% 5)0 ,% )3%#/%#.%# %1).% -,..,3% .)%5 3.%;#.(%(#$% )3%(,3%/)3% % -,..,3%
,$).#)1 *% #1B, .$,1.% ,* ,;(,3,D% T3 % .( #1@% )/% % 5)*#.#' # 1 % ;()% # % ) %
3 .#)1 *%.( .8%203#1:% %' $5 #:18%(,%'( 1:, %(# %$#12%)1% %:#B,1%$ ..,3%
-,' 0 ,% )/% /3, (% ,B#2,1',% 12% -305.*C% ;#.'(, % 5)*#.#' *% 5 3.#, D% +( .%
;)0*2% $ @,% 3 .#)1 *% #1B, .)3 % ;()% ,B *0 .,% .3 2, % #1% % 53)5,3% ; C% %
:,1,.#'%)22#.C%9% 5,3( 5 % %3 3,%$0 . .#)1D% >)$,%$,2#' *%3, , 3'(,3 % /#12%
.( .%503,*C%3 .#)1 *% -,( B#)3%)1%.(,%5 3.%)/%(0$ 1 % # % % #:1%)/% %2,/,'.%
#1%.(,% $C:2 * 8%.( .%.(,% 0-i,'.% # 8%*#.,3 **C8% %5 C'()5 .(D% 6)0*2% >)3) %
( B,% %:,1,.#'% /* ;% .( .%$ @, % (#$% 3 .#)1 *% % % 2,'# #)1% $ @,3a%
>0'( % .3 #.% ) /% - ,1',% ) /% $ 33# :,% .) % #2, % # % #12,,2 % 3 3,% $)1:%
(0$ 1 D%f0 .% %;,%2)%;#.(%'(#*23,18%;,% 055)3.%.() ,%#1%;()$%;,%( B,%
#%(, BC%#1B, .$,1.%)/%/))2% 12%.#$,%01.#*%.(,C% 3,% -*,%.)%53)5 : .,%)03%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 204/219
I Z Z %
L K c% <&% = ?% 4K S>%
:,1, 8% )% ;,% 2)% ; #.(% #2, D% K1% ' 2,$#'% ;() % -,' $,% / $)0 % /) 3%
, 5)0 #1:% 1% )5#1#)1% # % 1).% :)#1:% .)% B)#',% 1C.(#1:% .( .% ' 1% 5) #-*C%
2,B *0,% (# % );1% 5 .% ;)3@% 12% @#**% C, 3 % )/% #1B, .$,1.D% M,)5*,% ;()%
;#.'(% 5 3.#, % -,')$,% .3 #.)3 8% 3,1,: 2, 8% )3 8% ;)3 .% )/ % * *8% 5) . ., %
O.() ,%;()% - 12)1,2% .(,#3%3,*#:#)1%;,3,%501# ( -*,% -C%2, .(RD%
0#=5$%./8& ?/,%()2& #L& 4'./K./8&
+(,3,% # % 1).(,3% .)3C% )/% 53)- -#*#.C% ).(,3% .( 1% .(,% )1,% < % #1.3)20',2%
;#.( % 6 31, 2, % 12 % 6 #',3) D% M 3)- -#*#.C % ,1.,3,2 % $ .(,$ . #' % ;#.( %
: $-*#1:% .(,)3C8% 12% . C,2% .(,3, % % % $,3, % ')$50. .#)1 *% 2,B#',D%
S,',1.*C8% 1% ,1.#3,%#120 .3C%) /%g3# @%$, 03,3 g% ,$,3:,28% 5,'# *#j#1:%#1%
.(,% 55*#' .#)1% )/%.(, ,%53)- -#*#.C%$,.()2 % .)% , %3# @ % #1%.(,% )'# *%
'#,1', D% 6*, 3*C8% .(,% )22 % #1 % : $, % ;(,3,% .(,% 30*, % 3,% ' *, 3*C% 12%
,^5*#'#.*C% 2,/#1,2% 3,%')$50. -*,% 12%.(,%3# @ %')1 ,`0,1.*C% $, 03,2D%
J0.%1).%#1%.(,%3, *%;)3*2D%F)3%$).(,3%1 .03,%2#2%1).%,12);%0 %;#.(%'*, 3%
30*, D% +(,% : $,% # %1).% % 2,'@%) /%' 32 % O;,%2)%1).%,B,1%@1);%();%$ 1C%
')*)3 % .(,3,% 3,RD% J0.% )$,();% 5,)5*,% g$, 03,g% 3# @ 8% 5 3.#'0* 3*C% #/%
.(,C% 3,% 5 #2% /)3% #.D% <% ( B,% *3, 2C% 2# '0 ,2% E0$,U % 53)-*,$ % ) /%
#120'.#)1% 12% .(,% )''033,1', % )/% - * '@ % ; 1 D% E,3,% <% #1 .3)20', % .(,%
'#,1.#/#'% 5,35,.3 .)3 D%
S,' **% .( .% <% ( B,% ; :,2 % % ; 3 % : #1 .% .(,% '( 3* . 1 # $% )/% )$,%
53)$#1,1.% /#1 1'# *% ,')1)$# . % /)3% % *)1: % .#$, D% +(,% 5)#1. % 3,% %
/)**); D% T1,% E 33C% = 3@);#.j % 3,',#B,2% )$,.(#1:% ' **,2% .(,% &)-,*%
=,$)3# *%M3#j,%#1%4')1)$ #' % O;(#'(%#1%/ '.%# %1).%,B,1% %&)-,*% M3#j,% %
#.% # %:3 1.,2% -C%.(,% >;,2# (% ',1.3 *% - 1@% #1%()1)3% )/%K*/3,2%& )-,*%9% #.%
; % 1,B,3%#1%.(,%;#**%)/% .(,%/ $)0 %$ 1RD%L( .% # %(# % '(#,B,$,1.a% JC%
'3, .#1:% 1% ,* -)3 .,% $,.()2% )/% ')$50.#1:
<B(B$#
% 3# @% #/% )1,% @1); %
<B(B$#% 01',3. #1.Ch% #1%).(,3%;)32 %#/%$ 3@,. % ( 2%'*, 3*C%2,/#1,2%30*, % 9
;(#'(% # %'*, 3*C% 1).%.(,%' ,D%&);% <%,^5* #1,2%.(,%5)#1.%.)% %' -% 23#B,3%
;()% * 0:(,2% .% .(,%/ '.% .( .% )$,)1,% ,B,3%.()0:(.% .( .% .(,3,%; % 1C%
'#,1.#/#'% $,.()2% .)% 012,3 . 12% $ 3@,. % 12% 53,2#'.% .(,#3% ..3#-0., D%
>)$,();%;(,1%)1,%:,. %#1B)*B,2%#1%/#1 1'# *%,')1)$#' 8%);#1:%.)%.(,%
'0*.03,% )/%.(,%/#,*28% )1,% -,')$, % *#@,*C%.)% /)3:,.% .(, ,% - #'% / '. D %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 205/219
6 KS &4 KN 4>% 6 T= 4 >% + T% S T= 4d% T&% M ST JK J <7 <+ ?% K&N% > _4 M+ <6 <> =% I ZP%
K1%#$$,2# .,%3, 0*.%)/%N 3D%= 3@); #.jU % .(,)3C%; %.(,%1, 3%')** 5 ,%
)/%.(,%/#1 1'# *% C .,$%#1%.(,% 0$$,3%) /% IPP Z% O %;,% ;%#1%6( 5.,3 % I%
12% \R% -C % 7)1:% +,3$% 6 5#. *% = 1 :,$,1.% O g7+6= gR 8% % V3,,1;#'( 8%
6)11,'.#'0 .% /012 % .( .% ( 2% /)3% 53#1'#5 * % .;)% ) /% N3D% = 3@);#.jU %
')**, :0, 8% g&)-,*g % % ;,** D% +(,C% 3,%N 3 D% S)-,3.% =,3.)1% O.(,% )1,% #1%
6( 5.,3%[%.3)01'#1:%>(#**,3R% 12%=C3)1%>'()*, D%>)$,();%.(,C%.()0:(.%
.(,C%')0*2% '#,1.#/#' **C% g$, 03,g% .(,#3%3# @ D%+(,C%$ 2,% - )*0.,*C%1)%
**); 1',% #1% .(,% 7+6=% ,5# )2,% /)3% .(,% 5) #-#*#.C% ) /% .(,#3% 1).%
012,3 . 12#1:% $ 3@,. % 12%.(,#3% $,.()2 % -,#1:%; 3)1:D% +( .% ; % 1).%
% (C5).(, # % .)% -,%')1 #2,3,2D% < %( 55,1% .)% 5,'# *#j,% #1% 53)/#.#1:% /3)$%
.(,% -* '@% ; 1 % 12 % .(,% -3, @2);1% ) /% .(,% C .,$8% 12 % $ @,% -,. %
: #1 .% /#1 1'# *% ,')1)$# . D% >022,1*C%<% . 3.,2% :,..#1:% )$,% #33#. .#1:%
/ ;1#1:% 3, 5,'. 8% *)1:% ;#.(% 5 C'(,'@ % /3)$% .(,% $ 3@,.D% N3 D% =,3.)1%
12%>'()*, % (,*5,2%50.% C)03%(0$-*,% 0.()3% )1%.(,%$ 5% 12%' 0 ,2%.(,%
-#3.(% )/% C)03% (0$-*,% '3# # 9(01.,3U % /#3$8% 4$5#3#' % 9% % ' 5#. *% . 3.,2%
/*);#1:% .)% 5,)5*,% ;()% 2#2% .(,% ,^ '. % )55) #., % )/% ;( . % .(,C% 2#2% /)3 % %
*#B#1:D%
T1,%;)0*2%.(#1@% .( .%;(,1% '#,1.# . %$ @,% %$# . @,8%.(,C%2,B,*)5% %
1,;% '#,1', % .( .% #1')35)3 ., % ;( .% ( % -,,1 % *, 31,2% /3)$% #.D% L(,1%
' 2,$#' % -*);% 05% .3 2#1:8% )1,% ;)0*2% ,^5,'.% .(,$% .)% #1.,:3 .,% 0'(%
#1/)3$ .#)1% #1 % .(,#3 % .(,)3#, % 12% $ @,% )$,% (,3)#' % . .,$,1.% .)% .(,%
,//,'.%.( .% .(,C%;,3,%; 3)1:8% -0.%.( .% 1);% .(,C%( B,%*, 31,2% )$,.(#1:%
-)0.% .(,% 3, *%;)3*2D% &).(#1:% )/%.(,% )3.D% <1 ., 2% .(,C%')$5* #1% -)0.%
.(,% -,( B#)3% )/% .(,#3%')01.,35 3. % #1%.(,%$ 3@,.%;()% 5)01',2% )1% .(,$%
*#@,% B0*.03, 8% .(0 % ,^ ',3- . #1:% .(,#3 % 2);1/ ** D% K'',5.#1:% ;( .% ( %
( 55,1,28%'*, 3*C%.(,%')03 :,)0 %.(#1:%.)%2)8%;)0*2%#1B *#2 .,%.(,%#2, %
.(,C% ( B,% -0#*.% .(3)0:()0.% 1% ,1.#3,% ' 2,$#'% ' 3,,3D% K **% )/% .(,%
53#1'#5 * % ;() % ,1: :,2 % #1 % % 2 # '0 #)1 % ) /% .(,% ,B,1. % 5 3.))@ % ) /% %
$ `0,3 2,% )/% '#,1',%-C % 220'#1:
'1 A8/
% ,^5* 1 .#)1 % 12%50..#1:%.(,%
-* $,% )1% %3 3,%,B,1.% O53)-*,$% )/%#120'.#)1d% ();%2#2%.(,C%@1);% #.%; %
% 3 3,%,B,1 .aRD% +(,C% 5,1.%.(,#3%,1,3:C%2,/,12#1:%.(,$ ,*B, %3 .(,3% .( 1%
.3C#1:% .)% $ @,% % -0'@% ;#.(% ;( .% .(,C% *, 31,2D% K: #1% ')$5 3,% .(,$%
;#.( % >)3) % ;()% ; *@ % 3)012% .,**#1:% ;()$,B,3% ( % .(,% 5 .#,1', % .) %
*# .,1% .)% (#$% .( .% (,% # % / **#-*,D% =C% *, )1% /3)$% >)3) % # % .)% . 3. % ,B,3C%
$,,.#1:% .%$C% .3 2#1:% -)0.#`0,% -C%')1B#1'#1:% ,B,3C)1,% .( .%;,% 3,% %
-01'(%) /% #2#). %;()% @1);% 1).(#1:% 12% 3,% $# . @,%53)1,8% -0.% ( 55,1%
.)% -,%,12);,2%; #.(% .(,% 3 3,%53#B#*,:,% )/% @1);#1:% #.D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 206/219
I P H %
L Kc% <&% = ?% 4K S>%
J*#=& J$/(*)1& %# & J$/(*)1&
<% ')1'*02,% ;#.(% .(,% /)**);#1:% 22,1#1:% 3,$ 3@% -)0.% '#,1.# . % #1% .(,%
)/.% '#,1', D% M,)5*,%')1/0 ,% '#,1',% 12% '#,1.# . D% >'#,1',%# %:3, .8% -0.%
#12#B#20 *% '#,1.# . % 3,%2 1:,3)0 D%+(,C% 3,%(0$ 1h%.(,C% 3,%$ 33,2%-C%
.(,%-# , %(0$ 1 %( B,D%M,3( 5 %,B,1%$)3,D%F)3%$) .% '#,1.# . % 3,%( 32%
(, 2,28% ).(,3;# ,% .(,C% ;)0*2% 1).% 2,3#B,% .(,% 5 .#,1',% 12% ,1,3:C% .)%
5,3/)3$% .(,% E,3'0*, 1% . @ % @,2% )/% .(,$8% *#@,% 5,12#1:% IZ% ()03 % %
2 C% 5,3/,'.#1:% .(,#3% 2)'.)3 *% .(, # D%
K% '#,1.# . % $ C% -,% /)3',2% .)% '.% *#@,% % '(, 5% 2,/,1 ,% * ;C,3% 3 .(,3%
.( 1% % 503,% ,,@,3% )/% .(,%.30.(D% K% 2)'.)3 *% .(, # % # % g2,/,12,2g% -C%.(,%
55*#' 1.h%#.%;)0*2%-,% %3 3,% #.0 .#)1% .)% ,,%.(,% .02,1.%'( 1:,%(# %$#12%
05)1% -,#1:% 055*#,2%;#.(% % ')1B#1'#1:% 3:0$,1.D% J0.% '#,1',% # % -,..,3%
.( 1% '#,1.# . D% <.%; % #2%.( .% '#,1',% ,B)*B, % /3)$% /01,3 *% .)% /01,3 *D%
K/.,3% .(,% 7+ 6=% ')** 5 ,8% % 1,;% /#1 1'# *% ,')1)$# .% ;#**%,$,3:,8% ;()%
;#**% #1.,:3 .,% 0'(% @1);*,2:,% #1% (# % '#,1',D% E,% ;#**% -,%3, # .,2% -C%.(,%
)*2,3%)1, %-0 .8% : #18%.(,C%;#**%-,%$0'(%'*) ,3%.)%.(,#3%/01,3 *%2 .,%.( 1%
(,D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 207/219
/ ) 0 3 . , , 1%
- ' ' ( 0 % - 1 2 ) 1 % 1 . ) 1 C%
3 8-(A#$5'-(R) 1#'(Ae *(8%/%).N %) -8( (A# )(%<< B::#$ 5%:N YB( (A#
%55B)%8- 8< &%/(8$, 8< .'- '+'%-)( $'-18.- #))e M( %) )8 #'), (8 Y#
A#$8%/e K'-18.-#)) '-1 :#$)8-'5 #5#+'-/#e
(,1% .(,% ' * #' # .% 3 # .)'3 .#'% F3,1'(% ;3#.,3% E,13C% 2,% =)1.(9
,3* 1.% ; % .)*2% .( .% (,% ; % -)0.% .)% *) ,% (# % ,C, #:(.% .)% %
2,:,1,3 .#B,% 2# , ,8% (,%/)012%#.%$) .% 553)53# .,% .)%. @,% (# % );1% *#/,D%
>0'( % # % .(,% ,12 % .( .% -,')$, % % '* #'# .D% L(Ca% J,' 0 ,% .(,% .) #'U %
53, '3#5.#)1% ; % 53,'# ,*C% .)% ,*,'.% ;( .% )1,% ' 1% 2)% .)% ')1.3)*% )1,U %
2, .#1C% #1 % /3)1.% )/% % 3 12)$% )0.')$,D% K.% .(,% ,128% )1,% # % **);,2% .)%
'()) , % -,.;,,1% 1)% *#/, % .% **% 12% ;( .% )1, % # % :#B,1 % -C% 2, .#1Ch% ;,%
*; C % ( B,% 1% )5.#)1% : #1 .% 01',3. #1.CD% J0.% 0'(% 1% ..#.02,% # % 1).%
*#$#.,2%.)% .)#' h%-).(%')$5,.#1:% ,'. %#1%.(,% 1'#,1.%;)3*28% .)#'# $% 12%
45#'03# 1# $% 3,')$$,12,2% 0'(% ')1.3)*% O.(,% 2#//,3,1',% -,.;,,1% .(,%
.;)% 3, #2, % #1% $#1)3% .,'(1#' *#. #, % 9 % 1,#.(,3% 5(#*) )5(#, % $, 1.% .(,1%
;( .% # %')$$)1*C% '',5.,2% .)2 C% #1%$#22*,-3);% '0*.03,RD%
J,#1:% % (,3)% 2), % 1).% 1,', 3#*C% $, 1% 0'(% 1% ,^.3,$,% ' .% %
:,..#1:% @#**,2% #1 % - . .*,% )3% . @#1:% )1,U % *#/, % 9% .(,% * . .,3% # % )1*C% 3,')$9
$,12,2% #1 % % 1 33);% ,.% )/% ' #3'0$ . 1', % 12% ')1 #2,3,2% '); 32*C %
).(,3;# ,D% E B#1:% ')1.3)*% )B,3 % 3 12)$1, % ' 1% -,% ,^53, ,2% #1 % .(,%
$ 11,3% )1, % ' . % #1 % .(,% $ **% 12% .(,% * 3:, D% S,' **% .( .% ,5#' % (,3), %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 208/219
I P G %
L K c% <&% = ?% 4 KS>%
;,3,% i02:,2% -C% .(,#3% '.#)1 8% 1).% -C% .(,% 3, 0*. D% &)% $ ..,3% (); %
)5(# .#' .,2% )03% '()#', 8% ();% :))2% ;,% 3,% .% 2)$#1 . #1:% .(,% )22 8%
3 12)$1, % ;#**%( B,%.(,% * .%;)32D%L,% 3,% *,/.%)1*C%;#.(% 2#:1#.C% % %
)*0.#)1% 9 % 2#:1#.C% 2,/#1,2% % .(,% ,^,'0.#)1% )/% % 53).)')*% )/ % -,( B#)3%
.( .% 2), %1) .%2,5,12%)1%.(,%#$$,2# .,%'#3'0$ . 1',D% <.%$ C%1) .%-,%.(,%
)5.#$ *% )1,8% -0.% #. %',3. #1*C% # % .(,% )1,% .( . %$ @, % 0 % /,,*% -, . D
S$'/#
B-1#$ :$#))B$#N
% /)3% ,^ $5*,D% T 3% #1% 2,'#2#1:% 1).% .)% .) 2C% 05% .)%
)$,)1,8%;( .,B,3%.(,%3,; 32D%T 3%#1%/#:(.#1:% %20,*%.)% B,%/ ',D%T 3%#1%
#:1 *#1:%.)% %53) 5,'.#B,%$ .,%203#1:%')03. (#5d% g*# .,18% <%( B,% %'30 (%
)1% C)0h% <% $% )- , ,2% ;#.(% C)08% -0.% <% ;#**% 1).% 2)% % .(#1:% .)%
')$53)$# ,% $C% 2#:1#.CD% K'')32#1:*C8% .(,% *#:(., .% 10-% 12% C)0% ;#** %
1,B,3% ,,%$,% : #1gD%
+(# % * . % '( 5.,3% ;#**% 2# '0 % 3 12)$1, % /3)$% % .). **C% 1,;% 1:*,h%
5(#*) )5(#' *% -0.% 1).%.(, A'$1% 5(#*) )5(C% )/% '#,1',% 12% ,5# .,$)*):C%
%;,% ;% #1%M 3.% < %;#.(% .(, Y5'/> )?'- :$8Y5#.e% <.% # % % $)3,% 3'( #'8%
)8<(#$
% .C5,% )/% 5(#*) )5(C8% .(,% B 3#)0 % :0#2,*#1, % .( . % .(,% 1'#,1. % ( 2%
')1',31#1:% .(,% $ 11,3% % $ 1% )/% B#3.0,% 12% 2#:1#.C% 2, * % ;#.(%
3 12)$1, % 9% .(,3,% ; % 1) % 3, * $#5%+%8-% .% .(,% .#$,% O#1 % .(,% $)2,31 %
,1 ,RD% < .% # % ;)3.(C% )/%1).,% .( . % -,/)3,% .(,% 53, 2% )/%;( .%' 1% -,% -, .%
' **,2%=,2#.,33 1, 1% $)1).(,# $8% .(,% 1'#,1. % 2#2%1).% -,*#,B,% ,1)0:(%
#1 % .(,#3 % 53 C,3 % .)% #1/*0,1',% .(,% ')03 ,% )/% 2, .#1CD% +(,#3% ;)3*2% ; %
2 1:,3)0 8%/3 0:(.%; #.(%#1B #)1 % 12%3,B,3 * %) /%/)3.01,D%+(,C%1,,2,2%
0- . 1.# *% 53, '3#5.#)1 % #1% 2, *#1:% ;#.(% 3 12)$1, D% <.% # % 0'(% -,*#,/ %
.( .%;,%;#**%)0.*#1,% 1,^.D%
3#%(,& #/& 6)@K.(& I [U,& J$/(*)1&
</% % .)#'% ;,3,% .)% B# #. % 0 8% (,% ;)0*2% /,,*% 3,53, ,1.,2% -C% .(,% /)**);#1:%
5),$D9%+ )% $ 1C% O )5(# .#' .,2R % *)B,3 % )/% 5),.3C8% )1,% )/% .(,% :3, ., .%
5),. % ;()% ,B,3 % -3, .(,2% # % 6DMD% 6 B /CD% 6 B /C% ; % 1% K*,^ 123# 1%
V3,,@ % '#B#*% ,3B 1.% ; #.( % % +03@ # ( % )3% K3 - #'% * .% 1 $,% ;()% ;3).,%
*$) .% %',1.03C% :)%#1% %')$-#1 .#)1% )/%'* #' *% 12%$)2,31%V3,,@% %
*, 1 % 5),.3C % .( .% ,,$ % .) % ( B,% ,*02,2 % .(,% * .% /#/.,,1 % ',1 .03#, % ) /%
L, .,31% *#.,3 .03,D% V3,,@ % .3, 03,% (#$% *#@,% .(,#3% 1 .#)1 *% $)10$,1.D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 209/219
J K6 6E A>% K JK &N T& >% K & + T& ?%
IP[ %
=) .% )/% (# % 5),$ % . @,% 5* ',% #1% >C3# % O(# % V3,') C3# 1% 5),$ % #1#.# **C%
23,;%$,% .)% (#$R8% K # % = #1)38% 12%K*,^ 123# D% = 1C% 5,)5*,% -,*#,B,% #.%
;)3.( % *, 31#1:% /)3$ *% ,$#9'* #' *% V3,,@% i0 .% .) % B)3% (# % 5),$ D%
>)$,();% .(,#3% '0.,% , .(,.#'# $% .3#55,2% )/% ,1.#$,1. *#.C% 53)B#2, % %
3,*#,/%/3)$% ',1.03#, % )/%$ ;@# (1, % #1%5),.3C% 12% 23 $ D%E,% 53)B#2, %
% '* #' *% 3,*#,/%/)3% .() ,% )/%0 %;()%;,3,% 0-i,'.,2%.)% .(,% $#22*,9'* %
B *0,2%$,*)23 $ % %3,53, ,1.,2% -C%N#'@,1 U % 1)B,* 8%3)$ 1.#'% 5),.3C8%
12%Y,32#U % )5,3 D%
<% ; % 0353# ,2% .) % (, 3% .( .% = 03#',% +,$5,* $ 18% * .% ')1 )3.% )/%
f '@#,% _,11,2C% T1 # 8% 3, 2% 6 B /CU % B *,2#'.)3C =:85#%:#%- 8 FY#8)
=-(8-%8-% O+(,% V)2% K- 12)1 % K1.)1CR% .% (,3% /01,3 *D% +(,% 5),$ %
223, , % = 3'% K1.)1C8% ;()% ( % i0 .% *) .% .(,% - ..*, % : #1 .% T'. B#0 %
12%; %/)3 @,1%-C%J ''(0 %.(,%:)2%;()%01.#*%.(,1%( 2%53).,'.,2%(#$ D%
<.%# %)1,% )/%.(,%$) .%,*,B .#1:%5),$ %<%( B,%,B,3%3, 28% -, 0.#/0*% -,' 0 ,%
#.% ; % .(,% ,5#.)$,% )/% 0'(% 2#:1#/#,2% , .(,.#'# $% 9% 12% -,' 0 ,% )/% .(,%
:,1.*,%-0.%,2#/C#1:%.)1,%)/%.(,%B)#',%)/%.(,%1 33 .)3% 2B# #1:% %$ 1%;()%
( 2% i0 .% 3,',#B,2% % '30 (#1:% 3,B,3 *% )/% /)3.01,D%
+(,% 5),$% 223, , % K1.)1C8% 1);% 2,/, .,2% 12% -,.3 C,2% O '')32#1:%
.)% *,:,128% ,B,1% (# %()3 ,%2, ,3.,2% (#$% .)%:)% .)% (# %,1,$C% T'. B#0 RD% <.%
@ %(#$%.)% i0 .%-#2%(,3%/ 3,;,**8%K *,^ 123# % .(,%'#.C%.( .% # %*, B#1:% (#$D%
<.%.,** %(#$%1).%.)%$)031%(# %*0'@8%1).%.)%,1.,3%2,1# *8%1).%.)%-,*#,B,%.( .%
(# % , 3 % 12% ,C, % 3,% 2,',#B#1:% (#$D% K1.)1C8% 2)% 1).% 2,:3 2,% C)03 ,*/ %
;#.(% ,$5.C% ()5, D%K1.)1C8%
GB)( 5%)(#- ?A%5# )A'>#- Y, #.8(%8- YB( -8( ?%(A (A# /8?'$1R)
%.:58$'(%8- '-1 /8.:5'%-()e
L(#*,% ( @,1%;#.(%,$).#)1D% &)% .#//%055,3%*#5D%+(,3,% # %1).(#1:%;3)1:%
12 % 012#:1#/#,2 % ;#.( % ,$).#)1 % 9% ;,% 3,% '0 .% .) % ( B,% .(,$D% L( . % # %
;3)1:%# %1).%/)**);#1:%.(,%(,3)#'8%)3% .%*, .8%.(,%2#:1#/#,2%5 .(D%+( .%# %
;( . )(8%/%).% .30 *C % $, 1 D% <.% # % .(,% ..,$5.% -C%$ 1% .) % :,.% ,B,1 % ;#.( %
53)- -#*#.CD% < %1,,2% 1).% -,% 1 .C% . % **% 12%-3, @% .(,% 5,** % )/% .(,% 5),$%
12% #. %$, :,8% -0.%<%' 11).% 3, # .% )$,% 'C1#'# $D% K%')05*,% )/% 2,' 2, %
* .,3 8% 6 B /C8% ;(#*, % 2C#1:% )/% .(3) .% ' 1',3% 2#2% 1).% `0#., % /)* *);% .(,%
53, '3#5.#)1D%N,53#B,2%)/%(# %B)#',%-C%.(,% 03:,)1 8%(,%0 ,2%.)% 3 12)$*C%
,1.,3% 012#:1#/#,2% 5,** % )/% '3C#1:% 12% '*#1:% .)% (# % B# #.)3 8% 53,B,1.#1:%
.(,$% /3)$% *, B#1:% (# % 2, .(% 3))$D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 210/219
I P W %
L K c% <&% = ?% 4K S>%
>)$,% (# .)3CD% <% #2%.( .% .)#'# $% ( %3 .(,3% *#..*,%.)% 2)%;#.(%.(,% .#//%
055,3% *#5 % 1).#)1% .( .% ;,% -,*#,B,% #.% $, 1 D% >. 3.,2% % 1% #1.,**,'.0 *%
$)B,$,1.% #1 % 1.#`0#.C % -C% % M(),1#'# 1 % 6C53#).8% ],1)% )/% _#.#0$8% #.%
2,B,*)5,2%-C%S)$ 1% .#$,%#1.)% %*#/,%- ,2%)1% % C .,$%) /%B#3.0, %9% #1%.(,%
1'#,1.% ,1 ,%;(,1%B#3.0,%$, 1. &%$(BN% .(,% )3.% )/% -,*#,/%#1%;(#'(% B#3.0,%
# %#. %);1%3,; 32D%+(,3,%2,B,*)5,2% % )'# *%$)2,*%/)3% % .)#'%5,3 )18%*#@,%
.(,% :,1.*,$,1% #1%Y#'.)3# 1% 41:* 12D% <. % .,1,. % ' 1% .(0 % -,% 0$$ 3#j,2%
% /)**); d% .(,% .)#'% # % %5,3 )1%;()% ')$-#1, % .(,%`0 *#.#, % )/% ;# 2)$8%
053#:(.% 2, *#1:8% 12%')03 :,D% +(,% .)#'%; #**%.(0 %-,% #$$01,% /3)$% *#/,U %
:C3 .#)1 % %(,%;#**%-,% 05,3#)3%.)% .(,%;)012 % /3)$% )$,%) /%*#/,U % 2#3.C%
.3#'@ D% J0.%.(#1: % ' 1% -,%' 33#,2%.)% .(,% ,^.3,$,h% .(,% .,31%6 .)% /)012% #.%
-,1, .(%(#$%.)%( B,%(0$ 1%/,,*#1: D%K%$)3,%(0$ 1%B,3 #)1%' 1% -,%3, 2%
#1% >,1,' U a#((#$) V$8. ' *(8%/N% % )).(#1:% 12% 0353# #1:*C% 3, 2 -*,%
-))@% .( .% <%2# .3#-0.,%.)%$C%.3 2,3%/3#,12 % O>,1,' % * )%.))@ % (# %);1% *#/,%
;(,1% ')31,3,2% -C%2, .#1CRD%
;)/2#=/(,,& )/2& E(*,#/)1& Q1(8)/@(&
+(,%3, 2,3%@1); %$C%)5#1#)1%)1%01 )*#'#.,2% 2B#',% 12 % ,3$)1 %)1%();%
.)% -,( B,% #1% *#/,D% S,' **% .( .% #2, % 2)%1).% .30*C% #1@% #1%;(,1% ,$).#)1 %
')$,% #1.)%5* Ch%;,%2)%1) .%0 ,%)03%3 .#)1 *% -3 #1%)0. #2,%) /%'* 3))$ D%
>,*/9(,*5 % -))@ % O,B,1 % ;(,1% .(,C% 3, % 1).% ;3#..,1 % -C% '( 3* . 1 R% 3, %
* 3:,*C % #1,//,'.0 * D% V))28% ,1*#:(.,1,2 % O 12 % g/3 #,12*CgR% 2B#',% 12 %
,*)`0,1.% ,3$)1 8%2)%1).% 3,:# .,3% /)3% $)3,% .( 1% % /,;%$)$,1. % ;(,1%
.(,C%:)% : #1 .%)03%; #3#1:D%+(,% #1.,3, .#1:%.(#1:% -)0.% .)#'# $% # %.( .%#.%
5* C % )1% 2#:1#.C% 12%5,3 )1 *% , .(,.#' 8% ;(#'(% 3,% 5 3.% )/% )03% :,1, D%
>. 3.% .3, #1:%5,3 )1 *%,*,: 1',% .%C)03%1,^.%$# /)3.01,D%4^(#- #. )':#$#
&%&#$#% Og@1);% ();%.)% *#B,gR% #1% **%'#3'0$ . 1', D%
N3, % .% C)03% -, .% )1% C)03% ,^,'0.#)1% 2 C% O ( B,% ' 3,/0**CRh% .3C% .)%
*, B,% % :))2% #$53, #)1 % )1 % .(,% 2, .( % `0 2% -C % . 12#1: % ,3,'.% 12 %
53)02D%+ 3C%1).%.)% 5* C%B#'.#$%;(,1%2# :1) ,2%;#.(%' 1',3% O(#2,%#.% /3)$%
).(,3 % 12%)1*C% ( 3,%.(,%#1/)3$ .#)1%;#.(%.(,%2)'.)3%9% #.%;#**% B,3.%.(,%
5* .#.02, % 12%1)-)2C%;#**%.3, .%C)0%*#@,% %B#'.#$%;)3.(C%)/%.(,#3%5#.Ch%#1%
22#.#)1% .(,% 2#:1#/#,2% .. #.02,% ;#** % $ @,% -).(% 2,/, . % 12% B#'.)3C% /,,*%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 211/219
J K6 6E A >% K JK &N T& >% K &+ T& ?%
IP\ %
,`0 **C% (,3)#'RD% J,%,^.3,$,*C%')03.,)0 % .)%C)03% # . 1.%;(,1%C)0%*) ,%
$)1,C% O#1 ., 2% )/%. @#1:% #.% )0.% )1% (#$% %$ 1C% )/%.(,% .3 2,3 %;()$% <%
')31% 3)0.#1,*C% 2)RD% +3C% 1).% .)% -* $,% ).(,3 % /)3%C)03%/ .,8% ,B,1% #/%.(,C%
2, ,3B,%- * $,D%&,B,3% ,^(#-#.% 1C% ,*/%5#.C8%,B,1%#/%C)03% #:1#/#' 1.% ).(,3%
-)*. % ;#.(% .(,% ( 12 )$,% @#% #1 .30'.)3% )3% .(,% C)01:,3% 5#3#1:% $)2,*D %
N)% 1).% ')$5* #1D% < /% C)0% 0//,3% /3)$% % -,1#:1% B,3 #)1% )/% .(,% g ..#.02,%
53)-*,$g8% *#@,%$C% '(#*2())2% /3#,12% 6 $#**,% K-)0 *,#$ 18% 2)%1).% . 3.%
5* C#1:%1#',% :0C%#/%C)03% -0 #1, %23#, % 05%O(,% ,1.% %(,3) #'% ,9$ #*%.)% (# %
')**, :0, % #1/)3$#1:%.(,$% g*, % -0 #1, 8%-0.% $,% ..#.02,gRD%+(,% )1*C%
3.#'*,% 7 2C% F)3.01 % ( % 1)% ')1.3)*% )B,3% # % C)03% -,( B#)3D% V))2% *0'@D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 212/219
, 5 # * ) : 0 , % ) * ) 1% . ) * 2% C ) 0% )%
T # C ' $ A > $ . & + , & +$ A ' C 9 9 < =$ ] C B L$
')05*,%)/%C, 3 % /.,3%;,%*,/.%(#$%*))@#1:% .%f)(1 % $)@#1:% % '#: 3,..,%
; #.( % % $)2#'0$% )/ )/A'1#-<$#B1#N% &,3)U % @,5.#'# $ % ,12,2 % 05%
5 C#1:% )//D % >#$0*. 1,)0 *C% % (,% -, .% .(,% GZ l% )22 8% 05% .)% .(,%5)#1.% )/%
')$5*,.,%'03,8%(,%$ 2,% % ,3#, %) /%,^(#* 3 .#1:%5,3 )1 *% 12% 53)/, #)1 *%
B#'.)3#, D%&).% )1*C%2#2%(,%,12%05% $5*#1:%.(,%1,^.%*,B,*%) /%;, *.(% -0.%(,%
:).%.(,%3#'(, % 3#:(.%;(,1%).(,3%L **%>.3,,.%().% (). %:).%5))38%;(#'(%')0*2%
( B,% **);,2% (#$% .)% -0C%.(,%:))2 %.(,C%);1,2% .%B,3C% * 3:,%2# ')01. 8%#/%
(,%; 1.,2% .)D% J0.%(,% '`0#3,2%B,3C%*#..*,8% 12%',3. #1*C% 1)1,%)/%.(,%:))2 %
L **% >.3,,.,3 % 0 0 **C% -0CD%J0.%&,3)% 2#2% ,1: :,% #1% )'' #)1 *% ,^', D%
F3#2 C% /.,31))1% .3 //#'% #1 % 7)12)1% ' 1% -,% 23, 2/0*D% &,3)% . 3.,2%
5,12#1:%$)3,%.#$,% .(,3,D%E,% 2,B,*)5,2% 1% )- , #)1%; #.(% .3 //#'% i $ D%
T1,% 2 C%(,% 5,1.%/#B,%()03 %$)B#1:%L, .%/3)$% (# % )//#',% #1%.(,% 6#.C% )/%
7)12)1% .); 32 % % ') .. :,% #1 % .(,% 6). ;)*2 % ;(,3,% (,% . C,2 % $) .%
;,,@,12 D% +(,% /30 .3 .#)1% 53)$5.,2% &,3)% .)% :,.% % (,*#')5.,3% /*C#1:%
*#',1 ,8%.(3)0:(% % '3 (% ')03 ,% #1%6 $-3#2:, (#3,D% E,% 3, *#j,2%.( .%.(,%
.3 #1% ; % 53)- -*C% 1% , #,3% )*0.#)1% .)% :,.% )0.% ) /% .);1% /)3% .(,%
;,,@,128%-0.%(,%/,*.%.(,%03:,%/)3% %5,.%,^.3 B : 1',D%+ (,% ).(,3%3, 0*.%)/%
(# % /30 .3 .#)1% ; % (# % 1) % *, % 2 1:,3)0 % ')$$0.#1:% )1% % -#'C'*,%
-,.;,,1% (# % /* .% #1%_,1 #1:.)1% 12%(# %)//#',%#1% .(,% 6#.CD%
&,3) U %,^', #B,%53)- -#*#.C%')1 '#)0 1, % #1%(# %53)/, #)1% )$,();%
2#2% 1).% 3,:# .,3% /0**C% #1.)% (# % .3, .$,1.% )/% 5(C #' *% 3 # @D% F)3% &,3)U %
(,*#')5.,3% '3 (,2% %(,%; % * 12#1:%#. %1, 3%J ..,3 , % M 3@%)1% %;#12C%
2 CD% E,%; % *)1,% #1% #.D% <1%.(,% ,12%.(,% -* '@% ; 1%:).% #. % $ 1D %
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 213/219
ID% +(# % # %.(,%N3C2,1%.3 1 * .#)1% )/% M*0. 3'(U a%&#)e
GD% F)3 % 1% ,^ $5*,% )/% 5 ,02) '#,1.#/#' % (# .)3#'# $8% <% 0::, .% F3 1'# %
F0@0C $ 8% IPPG8 FA# 6-1 8< 0%)(8$, '-1 (A# a')( 3'-N% &,;% ?)3@d%
F3,,%M3, D%
[ D% S#'( 32% N ;@#1 8% IPPH% OIPQHR 8 FA# *#5<%)A S#-#N% G12% ,2D8% T^/)32d%
T^/)32 %A1#B,3 #.C% M3, D%
WD% K* 1% >)@ *8% I PP X 8% +3 1 :3, #1:% .(,% J)012 3#, d% +); 32% %
+3 1 /)3$ .#B,% E,3$,1,0.#' % )/% u0 1.0$% V3 B#.C 8 *8/%'5 F#7(
O 53#1:9 0$$,3RD%
\D% ;;;D$)1 (D,20D 0%
XD% J3# 1%= :,,8% IPPQ8 @8-<#))%8-) 8< ' ;A%58)8:A#$N% 7)12)1d%L,#2,1/,*2%
k% &#')* )1D%
Q D% = * '(#% E #$% E ')(,18% GHHI 8 ^'$5 ;8::#$N FA# V8$.'(%&# I#'$)N
DQ_LHDQOW2 ;85%(%/) '-1 ;A%58)8:A, %- M-(#$?'$ 4 %#--'N% &,;% ?)3@d%
6 $-3#2:,% A1#B,3 #.C% M3, D%
Z D% S D% >0**#B 18% KD% +#$$,3$ 1% 12% ED% L(#.,8% IPPP 8% N . 9>1))5#1:8%
+,'(1#' *% +3 2#1:% S0*,% M,3/)3$ 1',% 12% .(,% J))@ .3 58
G8B$-'5 8<
V%-'-/#N% T'.)-,3D%
PD% < % .( 1@% $C% ')33, 5)12,1.% F3 1', ')% 6)3#,**# % /3)$% J)'')1#% /)3% (# %
3,$ 3@% )1%$,. 9 1 *C # D%
IH D% N,-)3 (% f D% J,11,..8% IPPZ8 K'-18.-#))N% 6 $-3#2:,8% =Kd% E 3B 32 %
A1#B,3 #.C% M3, D%
IID% K1.)1#)% N $ #)8% IPP\8
#)/'$(#)R 6$$8$2 6. 8(%8-N K#')8-N '-1 (A#
0B.'- X$'%-N% &,;%?)3@ d%KB)1%J))@ D%>,,% * )%f) ,5(%7,2)0^8% IPPZ 8%
FA# 6. 8(%8-'5 X$'%-2 FA# 3, )(#$%8B) l -1#$:%--%-+ 8< 6. 8(%8-'5
a%<#N% &,;%?)3@d% +)0'( .)1,% J))@ D%
IGD% f, 19= 10,*% S)j 18% IPPP8
a#<$%/N
% M 3# d%= #'(,*% 7 /)1D%
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 214/219
# 1 2 , ^ %
g+m %
@T . L&+ P$ @ . C+ $ Z M $
@T&0 L. <BC+ P$ S CB <. . $ 1 W Z $
C TL 0', <A?$ 1 Z J R Y$
@ =C , B ?$ 1 U h$
C == 0B0. CA &' L$ 1 I N R h$
@ => <.. L$ H ^$ 1 h N $
C , C \A C A< & +$ W U$
@, CB L P$ 6 Q . ?+$ 1 h h $
C,Q 'L $ L . = A< &+ $ 1 h I $
C LA > A <= L$ J M R Y $
C/ $ Z 1 R I P$ Z Z R J$
@ . V C+, '$ A > $ [ ' C A$ h Z $
C . A '+CA <Q $ ><L A&'< L LPHQ
C .A '+ CA <Q $ B , <= <+ $ 1 h Y R W$
C .A '+C A< Q $ L CB\. $ \ C A> L$ M 1 R h$
C +/ ' P$ B C +C /< +/$ 1 Y I R h$
C + &+?B&0 L$ . AA '$ L = CB $ 1 h 1$
@ +A &+ ?P$ H C ' =$ 1 M h P$ 1 W h$
C ' A< 9< = <C .$ A><+(<+/$ J I R M $
@L <C+$ =0 ' ' += < L$ Wh $
@ ' A>0 'P$ F ' <C+$ 1 M Z Pl$ 1 M J $
C 'A <9 <= <C .$ ' C+,&B $ ,C A C$ / + 'C A& ' L$ 1 M N$
@ L<C$ H < + & '$ Z N $
C LL A$ \ ' <= $ < +9 .C A< &+ $ 1 I I R h$
C LA '& .& /?$ 1 N J R Y$
C L?BB A' ?$ U M R W U P $ 1 N I$
@0 L A' C .< C$ 1 N I$
C Q 'C /< +/$ , &#+$ Y I$
F C TTC / P$ < / .$ 1 U J$
T C= (A L A< +/$ 1 h M R J$
F C = & + P$ O 'C + =< L$ 1 N N $
T C' <L >+ LL$ U J R W h $
T > CQ <& '$ I I R h P$ 1 Z I R U $
4(<++ ':L$ \ </ &+ $ V\ ' <B + A$ 1 Y U R W $
T >CQ <& 'C .$ 9 <+ C+= $ C+,$ =&+&B < = L$ 1 Z Y$
T .< 9L$
& Q ' LA <BC A <&+$ & 9$ C = =0 ' C =?$ <+ $ Y W $
\ CA>$ , \ +, += $ C +,$ 1 U J R U $
F ..$ S 0 'Q $ U J$
F '' CP$ % & / <$ 1 N P$ 1 N J$
F '/ L&+P$ K + '<$ 1 Y h m M $
T<CL L$
L 0' Q< Q& 'L ><\$ U N P$ 1 1 Y R M 1 $
<+$ 0+, 'L AC+,<+/ $ \'&TCT< .< A?$
1 Z U R J N $
T <& .&/?$ 1 Z U $
T <' A> ,C ?$ \ C ' C , & V$ 1 h I $
T .C =($ L#C +$ \ '& T. B$ 1 N P$ I U P$ 1 N N P$ 1 N I$
F .& &BT '/$ B C => <+ $ 1 J M R J$
T .&#$ 0 \$ 1 Z P$ M W P$ Y Y$
'<L($ & 9$ I N R 1$
T &+ ,$ B C '( A$ = 'C L>$ & 9$ 1 W W M$ 1 Z P$ 1 h N$
T & &($ ' Q< #L$ 1 h M $
F ' C, ?$ T &+,L$ J W $
T 'C <+$ 1 Z U $
F ' A&+ P$ @+,' $ J Z $
F09 9 A AP$ 7C ' ' +$ 1 I 1 $
F0 .> CP$ @ +, ' # $ S ^$ J I $
T0..$ B C ' ( A$ 1 I I R h$
T0..<L >+ LL$ U J R W h$
F0 '<, C+ P$ ` C+ $ 1 M U$
F0 '< ,C + :L$ , &+( ?$ 1 M Y R U$
T0L <+ LL $ & ' < + AC A <&+$ hN $
S C LC 'P$ ` 0. <0 L$ h Z P$ 1 M h $
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 215/219
< & N 4 c %
IPP%
= C..$ & \ A< & + L$ 1 J N$
= C + = '$ = .0 L A ' L$ 1 M N $
= C+ = '$ = 0' L$ 1 h Y R W $
S C + &Q C P$ @ + A& + <&$ 1 I J$
S C ' . & L$ d B '/ < +/$ BC '( A L$ A ' C, ' e$
J U R Y M $
S C '+ C , L$ & 9$ S ?' + $ 1 U h R M $
S C A > &. <=$ = > 0 ' = >$ J J $
S CA &$ 1 U h P 1 W M $
=C0 LC .< A?$ 1 J Z R J P$ 1 Y Z R W$
S CQ C9 ?P$ S ^- ^$ Z J P$ 1 W I R h $
= > C& L$ A > & '?$ 1 M h$
= >C '.C AC +< L B$ M P$ 1 h 1 P$ 1 h h P$ 1 h Y R W$
= > LL$ V \ ' A< L $ h 1$
S > <= C/ &$ H ' =C +A <. $ 6 V => C + / $ 1 1 P$ 1 h$
=> < 9$ L A 'C A / <L A L$ U U $
S <= '&$ 1 U Z$
= </ C ' AA $ LB&( <+ /$ 1 U 1$
S .C 0, . P$ - C0 .$ 1 N Z $
S . & \ C A' C$ 1 M h$
S F S$ 1 J h$
= & <+ = < , += L$ 1 h 1nM1$
= &B\C + ?$ C '+ <+ / L DUPHJ
= &B \ A += $ 1 I U R W $
= &B\ . V< A?$ A > &' ?$ 1 M Y $
= &B\ &0 + , <+ /$ 99 =A$ 1 Z J $
= &B\0 A C A <& + C .$ 9 <+ C += $ Y J $
= &B\0 A ' L$ M J $
' Q 'L $ E 0 '< +/$ A L A$ J I R h $
S &B A P$ @ 0 /0 LA $ 1 N Y$
= & +, < A< &+ C .$ .<9 $ V \ = A C + = ?$ 1 J M $
= & +, <A <& + C .$ \ ' & TCT <. <A < L$ 1 Z Z$
= &+ 9< , + = $ . Q .L$ 1 J J P$ 1 J U$
= &+ 90 L< &+ P$ AC T. $ & 9$ I R M$
S & + L AC + A< + &\ . $ Z N$
= & + A< +0 <A ?$ U I $
= & +A 'C ' <C + L$ 1 Z I $
=&+A '& . $
& Q '$ , LA<+ ?$ 1 W 1 R I$
L .9 R= &+ A' &.$ 1 Y W R U 1 $
= & ' ' = A + L L $ C +, $ <+ A ..</ <T <. <A?$ h Y R U$
= & 0+ A ' <+ A0 <A <Q $ A '0 A> L$ h M R W $
S ' , < A$ 4 0<LL $ O <' LA$ F & L A& +$ 1 Y Z $
= ' <B<+C .$ A ' <C . L$ 1 Z MnJ $
= '<L <L$ >0+ A ' L$ W J $
= ' <A <= C .$ A > <+( <+/$ M P$ 1 U Z$
C TL + = $ & 9$ U N$
S ' & L 0 L$ W P$ 1 N$
= ' & LL R L =A <& + C .$ \ ' & T . B $ Y M $
S ?' + $ 1 U h$
S ? '0 L P$ 5 <+ /$ 1 N$
X C , C$ 6 +/ <+ $ J I R h$
X C '# < +<L B$ U 1 R I $
, C AC$ B <+ <+ /$ 1 h h $
, C AC$ L +& &\ <+ /$ 1 h Z R J$
X C#( <+ L P$ ; < = > C' ,$ J I P$ U 1$
X T ' 0 P$ [ ' C ',$ 1 M Y$
, ,0 = A< Q $ L AC A B + A L$ J 1$
, BC ' = CA <& + P$ \ ' &T . B$ & 9$ 1 N Y $
, + <C .$ U N $
, + < /' C A< &+$ & 9$ > <L A& '?$ I U P $ M Y R U $
X < C =& + <L P$ - ' = ?$ 1 h h $
, <C . = A< =< C+ L$ 1 U h R M$
, </ +< A?$ 1 W I $
, <\$ T 0? 'L$ Y 1 P$ U N$
, <L =0 LL <& +$ B A< +/$ U J R Y $
, <L A<. . , $ A > <+( <+/$ Z 1 R J$
, <L A' <T 0 A< &+$ & 9$ A> $ BC V <B0 B $ & 9$
' C + , &B$ Q C' <C T. L$ 1 J h $
X & L$ - CL L& LP$ ` & > +$ 1 h M$
X ' &L +< +P$ H < = >C .$ 1 h h$
= &+ &B A' <= L$ W I P$ W Y R U $
= & + &B < =$ C +C .? L< L$ Y W $
= & +&B < = L$
T >CQ <& ' C .$ 9 <+ C + = $ C +,$ =&+&B< = L$
1 Z Y $
B C A > BC A <= C .$ B & , .< +/$ C + ,$ 1 M J R Y$
+ & 'B C A<Q $ L= < += $ 1 Z Y R U $
99 <= < + A$ BC '( A L$ Z M $
6 <+ L A < +P$ @ . T ' A$ h U P$ M Z$
. /C += P$ \ ' L& + C.$ 1 W M R Z$
6 . 0 C' , P$ - C 0 .$ J Z $
B ' / <+ /$ B C ' ( A$ T &+ , L$ A 'C , <+ /$ J U R Y M$
B & A<& +L$ 1 J 1 R I P$ 1 Y I R h $
6 B \ <' <= C$ 1 U W $
B\ <' <= <LB$ 1 N N P$ 1 N 1$
+ = &0 + A ' LP$ ' C + ,&B$ 1 h I R h$
+Q < '& +B + A$ 1 ZhnM$
+ Q < '& +B + A$ B C \ \ <+ /$ 1 Z U$
+ Q?$ 1 W R I 1$
\ <=$ \ & A L$ h Z $
6 \ < =0 ' <C + <LB$ 1 W 1$
\ <L A B& . &/ ?$ 1 N N $
'/ &, <= <A?$ Z N R 1 P$ 1 I W R h 1$
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 216/219
G H H %
< &N4c %
Q <, += $ 1 Z M R J$
C T L + = $ & 9$ Q <, + = $ C +,$ Q <, + = $ & 9$
C TL + = $ 1 J I$
Q &.0 A<& +$ M J R Y $
+ C <Q $ A > & '< L$ U 1 R h $
Q & . 0 A <& + C ' ?$ \ L ? => & . &/ ?$ 1 Z U $
V \ = AC A< &+$ 1 Z N$
& 9$ A > $ B C V <B 0 B$ 1 I U R W $
C +,$ B , <C +$ U M R J$
67CB%)%(# @'1'&#$) PW
9 C. L< 9< =C A< &+ <LB$ 1 N J R U$
9 CB $ 1 M M$
O ? +B C + P$ ; < => C ',$ M Y $
9<. A '<+ /$ B A > & , L$ 1 J J R Y$
9 <+ C+ =<C .$ = &+ &B <L AL$ 1 N Z R J P$ 1 U U R W$
V \ ' A L$ & +$ A . Q <L <& +$ 1 J I R M$
9 <+ C+ =< C.$ +/ <+ ' <+/$ W U $
9 <' >&0 L $ 9 9 =A$ Y h $
9<A+ LL$ Z Z P$ U 1 R h $
9 .& #$ 1 J 1$
9 &' = C LA$ C + ,$ \ ' &\ > = ?$ h J$
O 'C += $ 1 U Z$
/ CBT . ' L :$ A <= ( L$ 1 Y J R U$
[ C A L P$ F <..$ 1 M Z$
/ ' & +A &= ' C= ?$ Z Z R J $
/ .& TC .$ # C 'B < + /$ W 1$
[ & ,$ 1 N W$
[ & '/ <C L$ 1 U M $
[ & 0., P$ 4 A Q +$ ` C ?$ U 1 P$ U M R Z$
/ 'C BB C'$ M M $
' =0 'L <Q $ / ' C BB C '$ J I R h $
[ ' C +A P$ ` <B$ Z M $
[ ' ($ 8 ' A > & , & V$ = >0 ' =>$ J J$
[ ' + P$ [ ' C> C B$ I Y R U P$ 1 Y M$
> C T <A CA P$ + C A0 ' C.$ 1 Z h R M$
K C + + <T C .$ h Z$
K C ? ( P$ O '< ,' <= >$ Q & +$ 1 N U$
> ,/ $ 90 +, L$ Z M P$ Y 1 P$ 1 U W$
K / .P$ [ & '/ $ 7 ^ O ^$ J M$
> '& L$ h Z P$ 1 Z h P$ 1 W 1 R I$
> </ >R? < .,$ T & +, L$ A 'C , <+ /$ 1 Y R I 1 P$ Y M R U $
> < LA & '< = C.$ , A 'B <+ <LB $ M W$
> <L A& '?$ h Z P$ W h$
C .A ' + C A< Q $ > <L A& '< L$ I J R W$
, + </ 'C A< &+$ & 9$ I U P$ M Y R U $
9 <+ C+ =< C.$ +/< + ' <+/$ C +, $ W U $
B C A> B C A< =L$ C +,$ M N R Z W$
K < A. ' P$ @ , & .9$ h Z $
K &B ' < =$ > '& L$ 1 Z h$
K 0B P$ X CQ <,$ 1 N N$
M5%'1 $hZ$
<+ , \ +, += $ 1 M J $
<+ ,0 =A<& +P$ \ ' &T . B $ & 9$ 1 N P$ I U P$ W W R 1 1 N $
< +,0 = A< Q $ L A CA B + A L$ J 1 $
< + 9& 'BC A< & +$ 1 Z M$
C + ,$ <+ =' CL $ & 9$ ( + &# . , / $ 1 N Y $
+ #L$ Z 1 R h P$ Z M P$ Z W$
C +,$ + &<L $ Z 1 R h P$ Z J R W $
< +A . .< /< T< .< A? $ C+, $ = & ' ' = A+ LL$ h Y R U$
< +A ' L A$ ' C A $ , <9 9 ' + A< C.$ Y Z P$ Y J $
2 + A ' + CA <& + C.$ H&+ A C ' ? $ O 0+,$ Y M $
<+ A' &L \ = A<& +$ I W R h N P$ M N R Z W$
<+ Q 'L $ ' C ' $ Q + AL$ W J $
< +Q LAB +A$ = C A /& ' < L P$ L . = A <&+ $ & 9$
1 h Y $
<+ Q L AB + A$ > &0 L L$ 1 h R 1 M$
, <L =0 LL <& +$ B A <+ /$ U J R Y $
<+ Q L AB +A$ B C + C / ' L$ 1 I Y R h 1 $
` C +R- C A' <= $ h h R M $
` & > +$ d> </ >R? < .,$ A 'C , ' e$ 1 Y R I 1 P$ Y M R U $
] &<+ A$ \ ' &T C T< .< A?$ 1 Z Z R J $
]& 0'+ C.<LB$ h Z R J P$ Z 1 P$ Z M R Z P$ 1 J I R M $
5 C 9 (C P$ O ' C+ G$ 1 Z J $
5 C >+ B C + P$ X C+ < .$ I N P$ M U P$ 1 Z Y R U$
5 C . A L( ? P$ @ + C A &. $ Z M $
5 + +?$ h I R h$
5 ?+ LP$ ` & >+$ H C ? + C ' ,$ M Z P$ 1 N Y $
( +& # . , / $ 1 N Y$
5 & ' CV$ 1 U M$
.C +/ 0C / $ J Z R J $
)## '5)8 $ / ' C BB C '$
. C '+ <+ /$ 9 '&B$ B < LA C( L$ M U R W P$ 1 U W $
* <T+ <G P$ [& A A 9' < , $ U I $
. Q 'C/ $ Y J P$ Y Y $
.<9 $ V \ =A C+ = ?$ 1 J h R M$
. <+ C '$ = &BT < + C A< & +$ 1 Z N$
* < ++ C 0 L P$ S C ' .$ U I $
. <A ' C' ?$ < + A . . = A0 C .L$ J N R M$
. &+/ R> C0 .$ < + Q L AB + A$ Y W$
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 217/219
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 218/219
G H G %
< &N4c %
\ > <.& L& \> ?$ 1 I R 1 h P$ M Z P$ J M$
&9$L=< += $ hP QQHDD_
L A& <= <L B$ 1 W 1 R Z$
-> < .& L A' C A0 L$ Z J $
\ > ?L <= <L AL$ h 1 R I $
\ >? L<=L$ 1 N J R Y$
-<$ M h R M $
\ </ &+$ V \ '< B +A$ 1 Y U R W$
\ . C+ + <+ / P$ . C= ($ & 9$ U N $
\ & A' ?$ I P$ J M R Y $
- & .? C$ \ '& = L L$ 1 M J $
- &\ \ ' P$ 5 C' .$ J 1 P$ 1 N h R W$
\ & \ 0. CA <& +$ L<G $ 1 I M P$ 1 h N $
\ & ' A9 & .< &L$ W M $
\ & L< A< &+ L P$ . &? C .A ?$ A &$ Y W P$ 1 U Y$
\ & L< A< Q $ L = < += L$ 1 Z U$
\ &L <A <Q <LB$ 1 N Y R U$
\ &L L<T . $ & 0 A= &B L P$ ' C+ / $ & 9$ I M R Z $
\ ' B<0B $ T0? ' Lk L . . ' L$ 1 J 1 $
\ ' &T C T <. <A ?$ I P$ h Y $
T .<+ ,+ LL$ 1 M W R J U $
= > <. ,$ & 9$ L ( \ A< =< LB $ 1 U M R Z $
< +A '& L\ =A <& +$ M N R Z W$
C +,$ L \ = 0.C A<& +$ 1 U I R W N $
\ ' &\ > = ?$ C + ,$ 9 &' = C LA$ h J $
\ ' &\ ' < AC '?$ A 'C , <+ /$ 1 M R 1 Y$
- ' &0 L AP$ H C ' = .$ 1 Z h$
M- *#'$/A 8< F%.# a8)($ 1WP$ 1UZRJ$
\ L 0,&A >< + ( 'L$ J M $
\ L? => &. &/ ?$ 1 Z I R U$
- ?' '> &$ 1 Y W R U N$
CB'-()$MMP$ YZRJ$
o7 6 ; E %$ ( ?T &C ',$ 1 M M R Z$
; ^ P$ * C 0' +$ h N$
; C T <+ P$ 2 AG > C($ 1 h h$
' C + , &B $ L CB\ . $ \ C A> L$ d 'C + , &B$ ' 0+ Le$
M I R h $
' C+ , &B+ L L$ 9 && .P$ A ' C< A L$ & 9$ Y U R U N$
' C' $ Q +AL$ U W R W N P$ W 1$
= CL $ LA0 ,< L$ J U R Y U$
Q &. 0A <& +$ C +,$ U I R h $
9 C. . C= ?$ W h R U $
+ &+ R , A = A < & +$ T?$ L AC A< LA <= <C + L$ W J $
'C A < &+C . < A ? Q[
C+, $ T <C L L$ < +$ 0+, ' L A C +, < +/$
\ '& T CT <. <A?$ 1 Z U R J I $
' C .< A?$ I U R W$
' =0 'L <Q $ / ' C BB C '$ J I R h $
' 9 ' + = $ = CL $ \ '& T . B$ 1 h W R M N $
' / <B $ L# <A => <+ /$ Z Z P$ U I ^$
' . </ <& +$ J J $
' Q 'L $ E 0 '< +/$ A LA$ J I R h $
' > A& ' <= <C + L$ 1 U M$
' <= >$ \ & \ . $ 1 I N R h $
; < BT C0 , P$ @ ' A> 0 '$ I$
' <L($ h h R M $
C Q 'L <& +$ 1 Z R 1 J $
& 9$ T .& #$ 0 \$ I N R 1 $
'<L ($ B C + C / ' L$ h U R W $
'<L ($ B CL 0 ' ' L$ 1 U U R W$
; & TT R[ ' <. . AP$ @ . C< +$ M Y$
; & T ' A L& + P$ ` 0 .< C+$ Y W $
: ; &T < +$ K & & , :$ < +Q L AB + A$ \ &. <= ?$ 1 I M $
; & / ' LP$ ` < B$ W N$
; & B C +$ 4 +CA $ 1 U h$
; & G C+ P$ ` C + RH C + 0 .$ 1 U J$
; 0 LL <C +$ T &+ , L$ Y 1 R M $
; 0 LL <C +$ ' &0 . AA $ I Y R U $
;0L L < C+$ '0T . QW
;0 L L< C+$ L =< + A <L AL$ h 1 R I $
4 C/ C+ P$ S C ' .$ 1 h W $
L CB \ . $ \ CA> L$ M 1 R h $
4 CB0 . L& + P$ - C 0.$ 1 M Y$
LC +, \<. $ 99 =A$ 1 M I R J$
4 C + AC$ O $ 2 +L A< A0 A $ 1 M Y$
L =C .< +/$ \ ' & \ ' A?$ & 9$ ' C + , &B+ L L$ Z Y R W$
*/A'1#-<$#B1#
%GI9G%
4 => &. L P$ H ? ' & + $ 1 U W $
L =< += $ I P$ Z$
\ > <.& L& \> ?$ & 9$ L =< += $ h P$ W W R 1 1 N$
\ &L <A <Q $ C + ,$ + & 'B C A< Q $ 1 Z Y R U$
C +,$ L =< + A< LA L$ 1 W N$
L 0 'Q <Q &' L> <\$ T <C L L$ 1 M N R 1 $
L ?BB A '?$ C + ,$ W N R h $
L = < + A <9 <=$ < + A . . = A0C . L$ J N R M $
L = < + A <LB $ W U $
L =< + A< LA L$ Z P$ 1 W N$
' <L ($ B C L 0 ' ' L$ C + ,$ B . A , &#+ $ & 9$
1 W W U$ 1 U U R W$
<+$ A ' C, <+ /$ I W R h I$
L .9 R= & +A 'C , <= A< &+$ 1 U Z R U $
L . 9R =& +A' &.$ 1 Y W R U 1 $
4 + CA P$ ; &B C + $ 1 U h$
8/11/2019 Fooled by Randomness Role of Chance in Markets and Life PROPER1
http://slidepdf.com/reader/full/fooled-by-randomness-role-of-chance-in-markets-and-life-proper1 219/219
< &N4c %
GH[ %
4 + = C$ 1 W M$
L '& A& +<+$ I I R h P $ U h$
4 ><.. 'P$ ; & T ' A$ h Z R J P $ Z h R M $
L > &' A< +/$ Y N $
L </+ C.$ C + ,$ + &<L $ 1 J J R Y P$ 1 U N R 1$
L </ +C .<+ /P$ > & 'B & + L$ C + ,$ I I R h P$ U h$
4 <B\ L& +$ d 8 ^` ^ e$ A ' <C .$ 1 Z M R J$
L <' + LP$ A > $ 1 Y 1 $
L ( \ A<= <LB$ 1 U h R Z$
L( # + LL$ 1 N P$ U M R W U P$ 1 M J$
4 (<+ + 'P$ F ^O ^$ 1 Y U R W$
L B && A> <+ /$ ( '+ .$ 1 J J R Y$
4 & =' CA L$ 1 U h $
\ '$ ' . CA <& + L$ h 1 R I $
C + ,$ Q &< =<+ /$ B C ' ( A$ = C..L$ U U R W $
A . Q<L<& +$ 1 J h R M P$ 1 Y h R M$
E B\ . LB C + P$ H C 0 ' <= $ 1 W h$
A LAC T. $ L AC A B + AL$ 1 N 1 R I$
A <B $ L '< L$ W 1 R h P $ W Y $
A ' C= ($ ' = &' ,$ 1 I J P$ 1 I Y R h 1$
A ' C, ' L k A 'C , < +/$ M$
C \ \ C ' C + = $ C +,$ <+ A .. =A$ Y N$
T & , ?$ . C+ / 0C / $ I h $
T &LL L$ h I R M $
B ' / <+ /$ B C '( A$ T &+ ,L$ J U R Y M$
top related