The Drunkard's Walk

I just finished Leonard Mlodinow's new book The Drunkard's Walk: How Randomness Rules Our Lives. It was very interesting, though not really what I expected. I expected a sort of Freakonomics for probability and statistics, and to a certain extent it was. But it was very historical. Mlodinow discusses how each of the concepts was originally discovered, and by whom, in some detail. This was a pleasant surprise, because while I didn't learn any new concepts (nor was I expecting to), I didn't know much at all about the history of probability and statistics. Overall, it was highly entertaining, and one of the problems actually tripped me up the first time I read it (the same "girl named Florida" problem that intruiged Alex Tabarrok).

I'm always a little weirded out after I read a book by a probabilist, like Normal Accidents, or Struck by Lightning: The Curious World of Probabilities, or even Fooled by Randomness. I've always been acutely aware of the powerful role played by randomness and chance, but the probabilistic world view assigns an uncomfortably large role to chance. No serious person actually thinks that markets are perfect, but probabilists tend to almost categorically reject that market outcomes are indicative of anything. For example, Mlodinow implicitly takes aim at markets:

The cord that tethers ability to success is both loose and elastic. . . . It is easy to believe that ideas that worked were good ideas, that plans that succeeded were well designed, and that ideas and plans that did not were ill conceived. And it is easy to make heroes out of the most successful and to glance with disdain at the least. But ability does not guarantee achievement, nor is achievement proportional to ability. And so it is important to always keep in mind the other term in the equation — the role of chance.
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It is a tragedy when a belief in the judgment of experts or the marketplace rather than a belief in ourselves causes us to give up.

People routinely make determinations that have market consequences based on way too few data points, and that obviously leads to significant inefficiencies (the less talented employee getting the promotion, the less efficient company winning the contract, etc.). But I think competition does a pretty good job of diminishing the effects of randomness as much as possible. Chance is extremely important, but not overwhelming.