Antifragility – What Does not Bankrupt Us Makes Us Stronger

Nicholas Taleb is back with a new book, ‘Antifragile: Things That Gain From Disorder‘.  Okay the book has been on the market for a few years but I am behind in my reading.

Think of Taleb as that brilliant curmudgeon neighbour/uncle/airplane seat mate who holds views that both connect with you and which make you uncomfortable.  He challenges most of our preconceived notions but also provides an underlying (albeit difficult to implement) life philosophy.

A Table of Taleb Tenants

Taleb is a bit of an enigma.  He made gazillions [1] off of the fiscal crisis of 2008 and is a strong capitalist.  At the same time he has little time for corporate suits and less time for those who would game their way to wealth.  Thus in the very simple Facebook’esque Right versus Left, here are some of his positions and why he is a contradiction – and why this makes him much more of a real person.

Taleb Tenant Score (Left/Right)
Entrepreneurs should be accorded near hero status in our society.  “… Modern society should be treating ruined entrepreneurs in the same way we honor dead soldiers…” (p. 79) Right: Yeah, capitalists finally get their due!
Governments (as well as individuals and corporations) must avoid debt at all costs.  “I have an obsessive stance against government indebtedness… people lend the most to those who need it the least” (p. 53) Right: fiscal conservatism rocks!
The best form of government is small and local.  Nation states and Big Government creates fragile political systems.  As well, the benefits (in addition to the friction, petty fights and local compromises) are not scalable… “(or what is called invariant under scale transformation)… The difference is qualitative: the increase in the number of persons in a given community alters the quality of the relationships between the parties” (p. 88). Switzerland, Sweden and Denmark are all examples of governments with most of the power and decision making local levels. Right: This is consistent with the Libertarian philosophy of avoiding large governments.
The Iraq War was perpetrated by individuals such as Thomas Friedman or George W. Bush who had only upside and no downside to the decision.  “I got nauseous in Davos making eye contact with the fragilista journalist Thomas Friedman who … help cause the Iraq War.  He paid no price for the mistake. … He promoted the “earth is flat” idea of globalization without realizing that globalization brings fragilities, causes more extreme events as a side effect, and requires a great deal of redundancies to operate properly”. (p. 384). Left: the Iraq War was instigated by War Criminals and ultra-conservative lackeys.
Large corporations are in the business of making us either sick (e.g. tobacco, soft drinks)  or are in the business of making us well as result of getting sick (e.g. pharmaceutical companies).  “… small companies and artisans tend to sell us healthy products  … larger ones … are likely to be in the business of producing wholesale iatrogenics [editor’s note, treatment in which the harm exceeds to benefits]” (p. 402).

Bail outs of corporations reward corporate mismanagement and transfer wealth from the taxpayer to a privileged few who were likely directly or indirectly authors of their own misfortune. Taleb’s suggestion to prevent gaming a bailout of a corporation at risk of needing a bailout is to pay everyone according to a civil servant’s salary scale (p. 391).

Left: all large corporations are evil and are out to get our money and ruin our health.

Left: corporate bailouts are part of a conspiracy of the 1%’ers.

Mother nature is our best expert and absence of evidence does not mean evidence of absence.  Thus before a new drug, process or product is introduced – the manufacturer must demonstrate that it will not harm the planet.  “So when the (present) inhabitants of Mother Earth want to do something counter to nature, they are the ones that need to produce the evidence, if they can” (p. 349). Left: Eat vegan, wear raw wool, live in an unheated cave and drink unpasteurized beverages.

Anti-Fragility Defined (with Examples from your Grandmothers China Collection)

The above slightly tongue in cheek Taleb-tenant-table demonstrates that he does not conform to standard left-right narratives (actually he hates that word, narratives).  This makes him considerably more interesting as an author or potential influencer than one who does neatly fit into such categories.  His underlying philosophy can be described as such: ‘arrange your personal, family, community and national activities to be at least robust if not anti-fragile’.  Anti-fragile means that whatever we are talking about (our personal lives, economic systems, organizations, etc.) likes and improves because of small changes or stressors.

Two examples from his book are instructive.  A porcelain tea-cup is a highly fragile entity.  It does very well for the environment it was created to exist in: your grandmother’s china cabinet.  However, it does not weather change particularly well beyond these narrow environmental parameters.  For example it does not survive the four-year grandchildren visiting or even a minor earthquake (both of which can be considered stressors and perhaps even a black swan event – depending on the upbringing of the four year old).

Teacup and saucer (Detail) Designer: Designed by Karl L. H. Müller (ca. 1820–1887). Metropolitan Museum of Art, Accession Number: 69.194.9, .10

Teacup and saucer (Detail) Designer: Designed by Karl L. H. Müller (ca. 1820–1887). Metropolitan Museum of Art, Accession Number: 69.194.9, .10

Compare this with a living entity.  Small changes and stressors benefit living entities.  This is the reason we go to the gym to work out – so as to stress muscles so they respond to change and new ones are created.  Small financial systems work in a similar way.  The middle-eastern souk can more readily absorb small changes in the economy than large corporations.  A souk is closer to a living entity than Wall or Bay Street.  Taleb provides the example of Switzerland in which there is a very limited national government and much of the governing work goes on at the municipal level.  While this makes for many petty squabbles it also makes for an inherently stable form of government in which small disputes are resolved locally and are not allowed to fester or escalate to the national level.

Lessons Learned and Becoming More Taleb

Anti-fragility is an intellectual workout.  Taleb takes us down the roads of classic history (complete with a character called Fat Tony besting Socrates in an intellectual brawl), modern medicine, economics (the charlatan art) and modern science.  Although Taleb asks the reader to consider the book as a complete work he also is a strong proponent of the use of heuristics (rules of thumb) as the basis for knowledge.  So here are the key tenets from anti-fragility that I already/plan-to follow:

  • To a Point: the following are all limited by both external factors and common sense.  Thus none of the following can be taken to an extreme – they can only be taken to the commons-sense grey zone of ‘to a point’.
  • Optionality: in making a decision, attempt to provide yourself with the greatest number of choices possible so that no matter the outcome of an event, you can be a beneficiary (or at least not a loser).
  • Bar-Bell Options: a bar bell option (technically, a bi-modal strategy, p. 161) avoids middle-of-the-road options and hedges the potential downside of one option with the upside of another option.  A currency exchange hedge is one example in which a company may hedge a change in exchange rates.
  • Procrastinate: the longer you not make a decision the greater your optionality – to a point.
  • Avoid Debt: owing money to others reduces your options and gives them to those who have lent you the money.  Freedom from debt (financial and other varieties) gives you the greatest optionality.
  • Tinker and Fail Fast: make your makes mistakes small, early and with the least possible costs.
  • Seek Redundancy: develop fail safes and redundancies so when a minor stressor or a Black Swan event occurs, there are multiple levels you can fall back on.
  • If it is Not Broken – Break It! [2]: Okay, Taleb did not actually use these words (in fact he probably would scorn any business book with such a catchy title) but effectively he subscribes to this concept.  Small stressors make the living entity stronger so it can survive larger unpredictable future stressors.
  • Organic or fractal Survives the Best: Humans tend to build in straight lines whereas nature tends to be fractal or messy.  Thus neat rows and columns that look appeasing to the human eye are also the less robust, resilient or anti-fragile than say the intertwined seeming mess of an ant hill or bird’s nest.  This is an important consideration when designing such mundane things as office layout, organizational structure or dinner party seating arrangements.  Once again, to a point rules the day as the applicability to architecture or bridges may require an engineering degree to fully apply and appreciate.

The Limitations of the Tales of Taleb

There are many things that I agree with Taleb on.  The underlying conservatism (small c variety) and the recognition that nature probably has already figured out the best way of doing things (heck that is the basis of the website that you are reading this blog on).  Nevertheless, there are some holes that the reader should be aware of before adopting Taleb as your current patron Saint or prophet:

What About the Rest of Us?  A number of times, Taleb mentions the benefits of being independently wealthy primarily because of one or two inspired and optionality-based opportunities.  A few million is the minimum and seven to eight digits is preferred.  While we would all like to be men and women of leisure, only 1% of the 1%’ers fall into Taleb’s suggested lifestyle.  This is not particularly useful advice for us poor working stiffs.

Cartoonish Characterizations.  Soccer moms ruin our society by over planning their children’s lives (creating school attuned nerds who cannot survive in the real world, p. 242).  Every corporate employee is an empty suit not even worthy of his scorn and every government bureaucrat pines for private sector exploitation of their experience in the civil service (so much for optionality I guess).  Most of the rich he meets at conferences are globetrotting plastic shells of people – and worse, not even as rich as he.  Okay, perhaps some slight exaggeration both in my portrayals of his portrayals and his need to exaggerate to make his point.  Nevertheless, his caustic contempt is a bit tiresome and sometimes (not always) misplaced.

Let’s Do the Time Warp Now.  Taleb returns again and again to the past for inspiration.  The Greeks, Romans and other pre-modern Mediterranean cultures.  His reason is that they have survived the greatest number of stressors and thus can provide us with antifragile lessons.  Certainly his take on lessons from classical Greco-Roman history is interesting but I am not sure he should be wanting to go back to fast.  To start, these periods were brutal and violent.  Many of the civilizing things that perhaps make us somewhat fragile also have reduced the likelihood we will die a horrible and early death.  Next, these civilizations never developed many of the mental models that Taleb himself admires, such as the scientific process.  Finally, we have an incomplete reading on these cultures because of the massive destruction of writings and knowledge.  His faith may be misplaced on too few surviving artefacts.

Stop Develop… of any Sort… Now! Taleb correctly points out the impact of the law of unintended consequences.  Antibiotics create super bugs when they are over used.  Thalidomide caused birth defects and burning fossil fuels is creating global anthropogenic changes in our climate.  These examples are valid ones and our hurtling towards genetic engineering, nanotechnologies and transferring our consciousness into computers (the singularity) may have their own (greater?) unintended consequences.  The reality is though that a certain amount of risk taking is necessary to if we want to improve our lot.  To take an example to an extreme scenario (well beyond, ‘to a point’), had our ancestors listened to Taleb, we would still be debating the merits of the use of fire or invention of the wheel and their impact on the planet (both good and bad as it turns out).

A Little too Enamoured with the Mafia. Taleb often references the mafia as role models for behaviour and organizational design.  Typically this is because of their loyalty to the organization and personal honour ‘It was said that “a handshake from the famous mobster Meyer Lansky was worth more than the strongest contracts that a battery of lawyers could put together.”‘

While the honour of the Mafia maybe laudable I suspect Taleb’s understanding of it is a bit rose-tinted and ignores the violence and depravity criminal organizations inflict on communities.

Little Regard for Theories or Education. Although Taleb holds an advance degree, he has very little respect for academics in general and finance/economics in particular.  While I would agree with him that there is a lot of fluff in today’s post-secondary curriculum, a point that Taleb misses is the apprenticeship of teaching how to think in post-secondary institutions.  He might see this as weakness but the academic model relies (in theory) on evidence and peer review rather than perpetuating oral traditions and old-wives tales.

The use of theories is similarly held in contempt by Taleb.  For him, the practical day-to-day knowledge and actions are more important than a theoretical framework as to why something works.  While I am a fan of pracademics, I think Taleb is missing the greater value of a theory – providing a mental model that allows the mind to be prepared to incorporate future knowledge.  This is what Louis Pasteur called, ‘chance favours the prepared mind’.

Economies of Scale are Both Fragile and Leviathans

A key theme in this book that size, complexity, growth, etc. create inherently anti-fragile results.  His go to example is the current financial system which had to be rescued with the debt of taxpayers across many different economies.  He is of course correct, over the long-term, size and complexity become increasingly likely to fail.  The flotsam of failed empires, corporations or other human endeavours are all examples.

However these systems worked until they failed.  They provided homes, jobs and other human benefits.  As well, larger complex systems are highly effective and accomplish amazing results.  The relative wealth we have now is a result of fragile systems.  An example closer to Taleb home is his home of Northern Levant, a region roughly corresponding to northern part of Syria and Lebanon (p 94).  This area included a large Christian en clave and has been ruled by various empires (Roman, Byzantine & Ottoman) as well as the French and then the nation of Syria.

The local municipalities of this area largely flourished under each of these rulers – if left alone (assuming taxes were paid).  The point being though is that the area was subject to the economies of scale of larger empires and did not have the ability to dictate their own destiny.  Thus the city states of Levant proved to be anti-fragile but the region as a whole was subject to invasion (and taxation) by larger, albeit fragile, empires that benefit from large economies of scale.

The other side of this localization is of course balkanization of a region in which the inward looking small municipal view trumps larger human concerns.  History in general and the recent history in the Balkans in particular suggests that an anti-fragile provincial view can create enormous human tragedy.

Take Away Taleb To-Dos

Nicholas Taleb has the personal and intellectual horse power to pull off this book.  I believe that he is spot on with the concept of fragile/antifragile systems.  I also think that ultimately, he is only half right.  By dismissing the fragile systems that have contributed to the betterment of the human condition, he is missing the value fragile systems contribute.  In effect, he is downplaying or dismissing the role of Yin while suggesting that Yang is paramount.

Nevertheless, Taleb has described his view of Yang extremely well and as a result, it is possible to apply the concepts to Yin like structures – such as corporations, governments or even – God forbid! – economists.

Notes:

All page references are from the 2014 Random House Paperback Edition.

  • [1] Gazillions is a bit imprecise but likely his net worth is more than one hundred million and less than a billion dollars based on various (dubious) internet sources.
  • [2] If It Ain’t Broke…break It!: And Other Unconventional Wisdom for a Changing Business World; Robert J. Kriegel, Louis Palter, Grand Central Publishing, March 1, 1992.