Antifragile

Antifragile: Things That Gain from Disorder

Hardcover, 1st edition
Author	Nassim Nicholas Taleb
Country	U.S.
Language	English
Subject	Philosophy, mathematics, business, economics
Publisher	Random House (United States) Penguin Books (United Kingdom)
Publication date	November 27, 2012
Pages	519
ISBN	1-400-06782-0
Dewey Decimal	155.24 TA
Preceded by	The Bed of Procrustes

Antifragile: Things That Gain From Disorder is a book by Nassim Nicholas Taleb published on November 27, 2012, by Random House in the United States and Penguin in the United Kingdom. This book builds upon ideas from his previous works including Fooled by Randomness (2001), The Black Swan (2007–2010), and The Bed of Procrustes (2010) and is the fourth book in the four volume philosophical essay on uncertainty titled the Incerto.

Introduction

Taleb introduces the book as follows: "Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better".^[1] Hormesis is an example of mild antifragility, where the stressor is a poisonous substance and the antifragile becomes better overall from a small dose of the stressor. This is different from robustness or resilience in that the Antifragile system improves with, not withstands, stressors, where the stressors are neither too large or small. The larger point, according to Taleb, is that depriving systems of vital stressors is not necessarily a good thing and can be downright harmful.

More technically, Taleb defines antifragility as a nonlinear response: "Simply, antifragility is defined as a convex response to a stressor or source of harm (for some range of variation), leading to a positive sensitivity to increase in volatility (or variability, stress, dispersion of outcomes, or uncertainty, what is grouped under the designation "disorder cluster"). Likewise fragility is defined as a concave sensitivity to stressors, leading a negative sensitivity to increase in volatility. The relation between fragility, convexity and sensitivity to disorder is mathematical, obtained by theorem, not derived from empirical data mining or some historical narrative. It is a priori".^[2]

As the book progresses, Taleb covers in great depth the domain of the fragile and the opposing domain of the antifragile showing how fragility can be detected, measured, and transformed. Recurring themes throughout the book include Skin in the Game, Via Negativa, Lindy Effect, Barbell Strategy and the Green Lumber Fallacy.

Impact

The concept has been applied in risk analysis,^[3][4] physics,^[5] molecular biology,^[6][7] transportation planning,^[8][9] engineering,^[10][11][12] and computer science.^{[11][13][14][15][16]}

Skin in the Game

To have "skin in the game" is to have incurred monetary risk by being involved in achieving a goal. Taleb extends the definition to include any risk so that “Every captain goes down with every ship”. This removes the agency problem or in other words “Situation in which the manager of a business is not the true owner, so he follows a strategy that cosmetically seems to be sound, but in a hidden way benefits him and makes him antifragile at the expense (fragility) of the true owners or society. When he is right, he collects large benefits; when he is wrong, others pay the price. Typically this problem leads to fragility, as it is easy to hide risks. It also affects politicians and academics. A major source of fragility.” ^[17]

To me, every opinion maker needs to have “skin in the game” in the event of harm caused by reliance on his information or opinion (not having such persons as, say, the people who helped cause the criminal Iraq invasion come out of it completely unscathed). Further, anyone producing a forecast or making an economic analysis needs to have something to lose from it, given that others rely on those forecasts (to repeat, forecasts induce risk taking; they are more toxic to us than any other form of human pollution).^[18]

Via Negativa

Via negativa is a type of theological thinking that attempts to describe God by negation or in other words, by what God is not. Taleb expanded this definition to include more generally the focus on what something is not, in action, what to avoid or what not to do. Avoiding the doctor for minor illnesses or removing certain food from one’s diet to improve health are examples.

I would add that, in my own experience, a considerable jump in my personal health has been achieved by removing offensive irritants: the morning newspapers (the mere mention of the names of the fragilista journalists Thomas Friedman or Paul Krugman can lead to explosive bouts of unrequited anger on my part), the boss, the daily commute, air-conditioning (though not heating), television, emails from documentary filmmakers, economic forecasts, news about the stock market, gym “strength training” machines, and many more.^[19]

Lindy Effect

A technology, or anything nonperishable, increases in life expectancy with every day of its life—unlike perishable items (such as humans, cats, dogs, and tomatoes). So a book that has been a hundred years in print is likely to stay in print another hundred years. The opposite is Neomania, a love of change for its own sake, a form of philistinism that does not comply with the Lindy effect and understands fragility. Forecasts the future by adding, not subtracting.^[17]

Barbell Strategy

In finance, a Barbell strategy is formed when a Trader invests in Long and Short duration bonds, but does not invest in the intermediate duration bonds. This strategy is useful when interest rates are rising; as the short term maturities are rolled over they receive a higher interest rate, raising the value. Taleb generalizes the phenomenon and applies it to other domains. Essentially it is the transformation of anything from fragile to antifragile.

A dual strategy, a combination of two extremes, one safe and one speculative, deemed more robust than a “monomodal” strategy; often a necessary condition for antifragility. For instance, in biological systems, the equivalent of marrying an accountant and having an occasional fling with a rock star; for a writer, getting a stable sinecure and writing without the pressures of the market during spare time. Even trial and error are a form of barbell ^[20]

Green Lumber Fallacy

The Green Lumber Fallacy refers to a kind of fallacy where one mistakes one important kind of knowledge for another; in other words, "mistaking the source of important or even necessary knowledge, for another less visible from the outside, less tractable one...how many things we call 'relevant knowledge' aren’t so much so".^[21] Mathematically, it is the use of an incorrect function that, by chance, returns the correct output, such that one conflates g (x) with f (x). The root of the fallacy is that although people may be focusing on the right things, due to complexity of the thing, they are not good enough to figure it out intellectually.

The term green lumber refers to a story by authors Jim Paul and Brendan Moynihan in their book What I Learned Losing A Million Dollars, where a trader made a fortune trading lumber he thought was literally "green" rather than fresh cut.^[22] "This gets at the idea that a supposed understanding of an investment rationale, a narrative or a theoretical model is unhelpful in practical trading."^[23]

The protagonist makes a big discovery. He remarks that a fellow named Joe Siegel, one of the most successful traders in a commodity called "green lumber," actually thought that it was lumber painted green (rather than freshly cut lumber, called green because it had not been dried). And he made it his profession to trade the stuff! Meanwhile the narrator was into grand intellectual theories and narratives of what caused the price of commodities to move, and went bust. It is not just that the successful expert on lumber was ignorant of central matters like the designation "green." He also knew things about lumber that nonexperts think are unimportant. People we call ignorant might not be ignorant. The fact is that predicting the order flow in lumber and the usual narrative had little to do with the details one would assume from the outside are important. People who do things in the field are not subjected to a set exam; they are selected in the most nonnarrative manner—nice arguments don’t make much difference.^[21]

Early occurrences

An early occurrence of this fallacy is found in the ancient story of Thales. Aristotle explains that Thales reserved presses ahead of the olive harvest at a discount only to rent them out at a high price when demand peaked, following his predictions of a particularly good harvest. Aristotle attributes Thales’ success to his ability to correctly forecast the weather. However, it was not his ability to forecast that made Thales successful but that "Thales put himself in a position to take advantage of his lack of knowledge…that he did not need to understand too much the messages from the stars…that was the very first option on record".^[21]

Green Lumber Problem

The Green Lumber Fallacy only becomes a problem (namely, the Green Lumber Problem) when the perpetuation of the fallacy has a high, and opaque, negative impact. For example:

• Green Lumber Fallacy and a Green Lumber Problem: "James Le Fanu showed how our understanding of the biological processes was coupled with a decline of pharmaceutical discoveries, as if rationalistic theories were blinding and somehow a handicap".^[21]
• Green Lumber Fallacy Only: "The same holds for the statement Lifting weights increases your muscle mass. In the past they used to say that weight lifting caused the 'micro-tearing of muscles,' with subsequent healing and increase in size. Today some people discuss hormonal signaling or genetic mechanisms, tomorrow they will discuss something else. But the effect has held forever and will continue to do so."^[21]

The Alan Blinder Problem

Toward the end of the book Taleb provides examples of the problems of agency and cherry-picking calling them The Robert Rubin problem, the Joseph Stiglitz problem, and the Alan Blinder problem. In the last chapter (p. 412), for example, Taleb criticizes Alan Blinder, the former vice chairman of the board of governors of the Federal Reserve System for trying to sell him an investment product at Davos in 2008 which would allow an investor to circumvent the regulations limiting deposit insurance and benefit from coverage for near unlimited amounts. Taleb commented that the scheme "would allow the super-rich to scam taxpayers by getting free government-sponsored insurance". He also criticized Blinder for using ex-regulators to game the system which they built in the first place and for voicing his opposition to policies of bank insurance that would hurt his business, i.e., claiming that what is good for his business is "for the public good". The event has been discussed in the media, but not denied by Blinder.^[24][25]

Critical Reception

Antifragile was a New York Times Bestseller and praised by critics in a litany of notable periodicals including Harvard Business Review,^[26] Fortune,^[27] New Statesman,^[28] The Economist,^[29] and Forbes.^[30] Although Boyd Tonkin of The Independent criticized Taleb’s style as “vulgar, silly, slapdash and infuriating” of the ideas in the book he remarked “Yet time and again I returned to two questions about his core ideas: Is he right, and does it matter? My verdict? Yes, and yes.” ^[31] Michael Shermer gave the book a generally favorable review ^[32] but Taleb responded in Nature Magazine that “Michael Shermer mischaracterizes the concept of ‘antifragility’… The relation of fragility, convexity and sensitivity to disorder is thus mathematical and not derived from empirical data.” ^[33] Less favorable reviews include Michiko Kakutani of The New York Times who described the book as being “maddening, bold, repetitious, judgmental, intemperate, erudite, reductive, shrewd, self-indulgent, self-congratulatory, provocative, pompous, penetrating, perspicacious and pretentious.” ^[34] Taleb responded in turn by noting one of five errors from her review and questioning “Is she crazy enough to engage a technical subject without asking for specialist advice, or even engaging in something as basic as Google search?” ^[35]

Some of the negative reviews focus on Taleb's style and the overall structure of the book, particularly the difficulty to easily summarize on a cursory review. So although the book has a table of contents, chapter summaries and map, a summary of the book is difficult to discern as the content headers and summaries have no noticeable pattern and many of the titles are abstruse (e.g., Hungry Donkeys) which according to the author is by design intended to handicap book reviewers, forcing them to read the book in its entirety.^[36]

Controversy

In late 2013, Taleb publicly accused Rolf Dobelli of plagiarizing sections of Antifragile and the The Black Swan and published, with commentary, side by side quotations from his and Dobelli’s writings stating that “Rolf Dobelli translated and summarized the section on via negativa from the unpublished manuscript of Antifragile (with which he was entrusted) in a German newspaper Zeit, with no sourcing and attribution. And published it before Antifragile. Then he put an English version in his book. Same examples (Michelangelo), same wording, same ideas”. ^[37] Dobelli responded by denying most of the accusations but confirming that "5 unreferenced parts – 4 of them in the notes section of the book" were true and committing to making the necessary changes.^[38]

See also

• Howlers
• Lindy Effect
• Moral hazard

References