Fooled by Randomness by Nassim Nicholas Taleb

Taleb has produced a readable introduction to statistics and probability by writing about their underlying assumptions. This history of ideas is useful, but needs to be followed up with further reading (perhaps a companion "thinking persons starter kit of ideas" ;).

Taleb extends from philosophy into finance; his list of observed trading errors is short, but can be reduced even further:

  1. Overestimation of the accuracy of one's beliefs.
  2. Cognitive dissonance prevents exiting at a loss. "I know I'm right, I chose this position" results in changing reasons for keeping the position.
  3. No exit plan.

Overall, there are notable failings in the book. He talks at length about how error-prone induction is, but not deduction. He makes his money trading when markets jump or decline significantly; in order to do this, you have to deduce whether the volatility is going to increase or decrease. Perhaps this will be covered in his second book.