Fooled by Randomness

A little light holiday reading with BullionVault's director, Paul Tustain...

The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means by George Soros (Amazon: 1586486837)
Fooled by Randomness by Nassim Nicholas Taleb (Amazon: 0141031484)
The Fabric of Reality by David Deutsch (Amazon: 014027541X)

THE FIRST THING you notice from the three arbitrary choices I made for holiday reading this summer is a mutual reverence for Karl Popper.

   Popper was (I now know) a famous philosopher of science whose message was something like "You can never prove a theory; you can only disprove it.

   "Moreover," says Popper's work, "if the theory doesn't attempt to predict results which, if demonstrated untrue, show its falseness, then it wasn't a useful theory in the first place, and might as well be astrology."

   Now let's turn to my three holiday books, and we'll start with George Soros.

   George Soros is very rich. From what he does and writes, I would say he is an exceptionally nice and decent man, too. I have no doubt he has a genuine desire to leave the world a better place.

   Unfortunately, however, his book doesn't really do this.

   The problem here is that Mr. Soros is not happy with his acknowledged status as a great speculator. He yearns – rather touchingly – for recognition as a philosopher, and to this end he devised a theory of "reflexivity" which seems to crop up in everything he writes.

   It is the worst type of theory, claiming to explain what has already happened. But because it offers nothing genuinely analytical it has no predictive power.

   None of that would matter if the book itself were mainly about the subject advertised in the title – the credit crunch – on which Mr Soros writes with typical insight. Regrettably, that insight is contained in the final dozen pages of the book, and you will be well and truly exhausted by the long-winded and earnest attempt at philosophy before you get there.

   The credit crunch content and reference in the title must have been marketing devices recommended by his publishing agent. Too bad.

   Nassim Nicholas Taleb – I would guess – is almost completely opposite to George Soros. He is not as rich, and probably lacks the human qualities which make Soros endearing.

   Taleb writes with over-confidence bordering on arrogance. He doesn't plead with you to take his theories seriously, and he'd probably look down his nose at dissenters.

   Taleb also has an unnecessary habit of dropping in repeated literary references whose objective seems to be to boast his intellectual credentials. This ought to make his book irksome, but strangely it doesn't. Taleb is writing on an original and worthwhile subject (which, thankfully, tallies with his title) and he has taken the time to gather his data and make his case.

   Once you're on his side, the frequent missiles are aimed at everyone but you, and then the book even becomes entertaining.

   Read this book because it will train you quickly to see through the meaningless statistics with which so many products, people and ideas try to sell themselves. It left me with the strangest impression. Could the great man – Soros himself – be at least partially the result of a world which is "Fooled by Randomness".

   Finally, David Deutsch. He's of far higher intellectual standing than either Soros or Taleb, having a raft of important scientific papers to his name. The point of his book – The Fabric of Reality – is to demand that science offers explanations in tandem with the opaque mathematical theories which explain observed results.

   That sounds pretty reasonable to anyone who hasn't had a look under the surface of quantum physics, where experimental results set an enormous challenge to would-be-explainers. And so Deutsch is dragged by his own explanatory mission to an extraordinary description of reality - the "multiverse".

   The general idea is that the universe (which used to mean everything) is actually only things which we can observe. Whereas the multiverse, in contrast, includes all the things that we will never see and which it is physically impossible for us to access or measure.

   Lots of people who have struggled with understanding quantum physics have settled on a multiverse. Few have concluded that the atoms in a zillion parallel universes have arranged themselves as a zillion copies of you and me each in its own rather narrow universe, doing almost exactly the same things as us, but differentiated by random quantized results at the sub-atomic level.

   Frankly this is all rather silly, and Popper – with has reputation for verifiability – would surely have worried about the damage to his blossoming brand upon seeing his name in Deutsch's dedication.

   Nevertheless, there is one repeating aspect of this book which I found intriguing. Deutsch is an acknowledged expert on virtual reality. His book – for all its craziness and complexity – does persuade me that I am a fairly sophisticated virtual reality generator.

   You see, there is nothing "real" about "blue", nor about "wet" or "sweet". The sensation of each is a creation within my consciousness, and it has evolved biologically to keep the genes which make brains being reproduced.

   So what is genuinely real? That is what The Fabric of Reality is about. I don't believe the book approaches the answer, but it does raise questions, and few things are more agreeable to me (and perhaps George Soros, too) than idling away a bit of pool-side time with the book face-down, pondering questions, prompted by what I just read, of how everything actually works. This book produces those moments.

   Surely that's worth £10.99 – or even just $10.88 for US buyers – of anyone's money.