Fooled by Randomness

Fooled by Randomness - The hidden role of chance in the market and in life, is one of the most intresting book I had ever read in my life. This book talks about the unawarness of the randomness in our life.

If you watch a steam engine, you may not know how it works but you can soon get a fairly good idea of its behaviour, and you can predict its future behaviour accurately. Even though you don't understand its workings, you can see it's a pretty simple machine, so you can trust it to behave in a simple way: you have confidence in your predictions based on a short sample of its behaviour.
Most things in life are not like steam engines, but people treat them as if they were. Life in general, and markets in particular, involve large random factors, have complicated stochastic structures, and regularly spring nasty surprises. Their behaviour over short timespans may have so little significance as to be nothing but noise. Extrapolation is impossible or meaningless. Yet try as we might, we continue to see patterns where none exist, misunderstand the role of randomness, seek explanations for chance phenomena, and believe that we know more about the future than we do. And that is the point of this book.

Nassim Nicholas Taleb is a market trader and a professional skeptic. He claims mathematical naivety, but he is clear on one thing: the importance of understanding the structure of random events, their significance and, especially, insignificance. He clearly sees that this understanding is more important than actual calculations: "Mathematics is principally a tool to meditate, rather than to compute". He has seen innumerable traders go to the wall - "blow up", in the picturesque jargon of the trade - when a seemingly successful career is brought to a spectacular end by some "unexpected" market collapse. "No-one could have predicted that", they say, sadly shaking their heads as they leave the trading floor. They have been fooled by randomness.

There are many ways of being the fool of randomness. One, as here, is to fail to predict the rare event. Nothing can be more certain than that the unexpected will happen sooner or later, but lulled into a sense of security by the periods of relative calm between, people forget to allow for it. Another is to see significance in some random pattern. Taleb explains with crystal clarity why the more often you look at some fluctuating quantity (the value of your share portfolio, for example), the less meaning your observations have. Yet he sees traders who watch prices move up and down in real time on screen - the changes are so small as to be completely random - and think they are learning something.


Another, more insidious, is the "survivorship bias": in a random population, some items will be more visible than others. Say we have a collection of traders whose strategies do no better than random: they will have a good year half the time, a bad year the other half. Half of them will have a good year. A quarter will have two good years in a row, and so on. One in 32 will do well five years running. Of course, it never occurs to them that their success is random: they attribute it to their superior strategy, and imagine they are in the top 3% of traders. The rest of us see an advertisement for an investment fund showing a consistent good performance over five years. "They must be good", we think, not stopping to think that there are many, many competing funds and it is ones who are doing well whose advertisements we will see, even if their success is entirely due to chance.

Taleb's examples are by no means restricted to markets. Random fluctuations and the survivorship bias exist in all fields. And by another effect he notes, they can be magnified by a positive feedback loop: he calls the effect "bipolarity". An actor who flukes an audition becomes known to more people (and directors), and as a result gets more parts and becomes even more well-known. A disastrous piece of software makes a fluke distribution deal, and then suddenly everyone wants it so they are compatible with everyone else.

We are built to see patterns, to find causes for things, and to believe in our own rationality. We cannot help doing it. The attraction of Taleb's book is that he is very well aware of this. He knows nothing he says can dispel the illusions created by randomness, and that he is as susceptible to them as anyone. His only advantage is that he is aware of the failing, and can try to play tricks on himself to circumvent it - by denying himself access to junk information, for example. The book's short but excellent final section deals with this Zen-like problem of trying to break oneself out of a mould of thinking that cannot be broken, even though one recognises its shortcomings.

Taleb's prose is racy and readable, even if it occasionally betrays a charmingly non-native command of English; his publisher, one feels, could at least have provided a copy-editor, if only to remove almost all occurrences of the word "such", on the uses of which the author's views are eccentric. But it seems quite possible that his headstrong personality led him to refuse any interference. His style is idiosyncratic and vigorous, but none the worse for that.

Taleb himself, incidentally, whose family were ruined in the Lebanese civil war, is the founder of a firm which thrives on unexpected events. He reckons that whereas other traders, by forgetting the rare, unexpected events, notch up steady profits which are wiped out by occasional catastrophic losses, he can take an opposite strategy, which he calls "crisis hunting". He did very well out of the market crash in 1998. He seems to be at home in several languages, and to have a fine appreciation of high culture. Yet strangely, the one question he does not ask is that of the value of what he is doing. Does anyone, apart from himself (or whoever's money he is investing), gain by the work he does? Does it contribute in any way to the wellbeing of mankind? It is not, of course, a question that one expects a book by a market investor to address, but there is nothing typical about this book. With his sensitivity to questions of what is valuable and important, it would be surprising if he has not considered this question, but he is silent about it in the book.

IPL - India's Virtual Casino

In India, the IPL has become one of the most popular event of the year. The Indian Premier League, is a Twenty20 cricket competition initiated by the Board of Control for Cricket in India (BCCI) and supervised by BCCI Vice President Lalit Modi, Chairman & Commissioner for IPL. It presently includes 10 teams "franchises" consisting of players from different countries. IPL also drew positive reactions from the rest of the world also. Also, there was a huge following for Kolkata Knight Riders. The matches also generated interest in Sri Lanka and Bangladesh.

It’s very interesting to know following things about IPL
1) What is its business model?
2) Will this business model sustain?


Business model:

The business model is a description which says who will earn what, how and when. Let us have a brief look at from where the money is coming from and where it is going.

The money comes from the four major sources.
• Media Rights
• Central Revenues
• Money raised by Franchises
• Franchise bid money

Then the total revenues is distributed in the following pattern
• Out of the media rights, 20% goes to BCCI, 72% goes to Franchises and remaining 8% goes to Players
• Out of the central revenues, 40% goes to BCCI, 54% goes to Franchises and remaining 6% goes to Players
• Out of the money raised by franchises, 20% goes to BCCI and 80% goes to Franchises.
• The total of the franchise bid money goes to BCCI

Risk-Return Portfolio

Can IPL Sustain its Boom:

IPL has been a spectacularly successful start-up, but it now has to manage growth in its years of maturity. The IPL business model will be tested once again. The entry of two new teams will increase the number of games every season from 60 to 94, which means that unless the league is split into divisions the number of teams cannot be increased further. A huge increase in the number of teams will dilute the capital value of existing franchises as well, so their existing owners too are unlikely to be happy about too many new teams in the league.

It is likely that IPL may not keep getting new viewers, but existing viewers may be spread across more matches. Since broadcasting revenues are so critical to profitability, this is a risk the IPL management will have to think on.
Lalit Modi predicts that the IPL will become bigger than America’s two most prominent sporting bodies, the National Football League (NFL) and the National Basketball Association (NBA), and soccer’s English Premier League (EPL).
Currently the IPL has shown that its recession proof but to know its future we need to wait and watch.

Clever Communication

Communication is a process of transferring information from one entity to another. For an organization it is very necessary to communicate well in order to sustain in the highly competitive market.

We all know the Organization has a very high budget for an marketing departement who's job is to communicate with the consumers. According to one research a consumer approximetly comes against 6400 messages everyday and out of that he retains only 10 to 12 informatons. So to come in the list of that 12 the communication pattern should be absolutely innovative and creative.

Amul is one of the best example of it. In all major cities, the Amul hoarding is something of a landmark and almost always brings a smile to faces of viewers. While the magic is in the topical themes and the execution.


I read about the story behind the campaign – and its a shining example of client-agency relationship. The client never gets to see the creatives before they are released! The client gets to see the hoardings just like the man on the street after it is released. The legendary Verghese Kurien, ex-Chairman of GCMMF, decided ages ago that if the hoardings are to be topical and need changing frequently, the typical approval process is a hindranc. He trusted the agency to come up with creatives that capture the attention and the imagination of the country. In fact, the client does not even suggest the topics to the agency. It’s all left to the agency to figure out what might be of interest to the general public and come up with a suitable creative posts. Isn’t that wonderful?

According to the Amul website, the first of such ads was released in 1969, when Mumbai first saw the beginning of the Hare Rama Hare Krishna movement, Sylvester daCunha, Mohammad Khan and Usha Bandarkar, then the creative team working on the Amul account came up with a clincher — ‘Hurry Amul, Hurry Hurry’. Bombay reacted to the ad with a excitement that was almost as devout as the Iskon fever.

That was the first of the many topical ads that were in the offing. From then on Amul began playing the role of a social observer. Over the years the campaign acquired that all important Amul touch.

Some of the best posting of Amul are as follows:

A post after the movie Cheeni Kum of legedary Amitab Bacchan



Idea taken from the highly successful advertisment of Vodafone


Landslide victory of the Congress in the General Election - May '09


Proposal for 90% reservation for SSC students admisssion to colleges in Maharashra - June'09


Growing popularity of Facebook - July'09

Conveying message through all the events taking place in the country, Amul always had a reply to it. It is up to date with current affairs. The first escalator in Mumbai in 1979 was celebrated with a slogan ‘Automatically Amul’. When the city witnessed a power shortage, the Amul girl said ‘Ta ta power?, Amul, Unlimited Supply’. When the Mumbai police were dealing with underworld don Dawood Ibrahim’s sister Haseena Parkar in cases ranging from extortion to cheating and forgery in May this year, the hoarding simply said ‘Haseena Maan Jayegi?’ In the early ‘90s, when the colas were getting popular, the tongue-in-cheek remark was ‘Eat the Real Thing’. When the world feared a collapse on Y2K, Amul girl interpreted the phenomenon as ‘Yes to Khana’.

From the Sixties to the Nineties, the Amul ads have come a long way. While most people agree that the Amul ads were at their peak in the Eighties they still maintain that the Amul ads continue to tease a laughter out of them.

Where does Amul's magic actually lie? Many believe that the charm lies in the catchy lines. That we laugh because the humour is what anybody would enjoy. They don't pander to your nationality or certain sentiments. It is pure and simple, everyday fun.

The success story of Amul says one thing to all the other ad campaigns that did not manage to last too long or had to get a whole new look in order to stay in the market. Its a mixture of keeping with the times, humor and understanding the need of the hour of the people. Amul boardings are a thing of attractions in India.

Who are my competitors?

I as a business student had always been taught in the subject of marketing that in order to survive in the business we should fight against our competitors. We should predict there future strategy and act according to it. We should create a PoD (point of differentiation) to keep away the competitors for the longer time.
But, when I gave this a thought I came across to a very different thing. In order to fight with our competitors we must know who our competitors are. Then I asked myself a question can we find our competitors easily? The answer to this question I got is no. The first thought came to my mind was for the product ‘Video Conferencing’. I attend one insightful session through VC (Video Conferencing) and started thinking with whom it is competing and which are the industries which are getting affected by it. I surprisingly found that the highly effected industry was the Aviation industry. Organizations have started using the facility of the video conferencing through which they are cutting the cost of travelling of their higher level executives.
The next industry which I thought about was of music industry. It was very strange to know that the Airtel is enjoying the highest revenue in the field of music through its caller tunes facility. If we look at the sale of camera, Nokia in India sells the highest numbers of camera through its cell phones than the major players like Canon or Nikon. The organization manufacturing alarm watches became the sick units just with feature of Alarm given in the cell phone. The launch of the iPhone and other mp4 players had just removed the Walkman players of Sony and other major players. The rise on online social media has completely changed the scenario of the gaming industry. Social networking web-sites like hi5 has far more users than the one who purchase games from the physical form of market.
So, did anyone know that Airtel would be having the highest revenue in the field of music? Was Canon ready to fight with the inbuilt camera in the cell phones? Was the Alarm clock industry aware of the alarm feature in the cell phones? Was Sony able to predict that the company like Apple would come with the product like iPhone and change the whole scenario of music industry? Was the gaming industry were able to predict the threat of the rise of the online social networking?
If we give a rational thought to the above question the obvious answer would be no or it might be difficult to identify our competitors. So to survive in this continuously growing market we need to update ourselves every minute. Being a king of industry and ruling the market for the longer time is no more possible. Our competitors are everywhere and to sustain we need to take it as a challenge and come with more innovations.