Antifragile

I finally read Antifragile by Nassim Taleb that was published in 2012. It has much interesting stuff, but the overall concept does not sell. The premise is that the opposite of fragile is not robust, but antifragile. I was not convinced that anything is antifragile except chaos. That hunter gatherer society was probably the most antifragile possible. Of course, Taleb would say it is Beirut. However, as usual, he makes some great points including how smart and well read he is (See post Dancing with Chance for more on Taleb).  I think the antifragile idea was just to give him a big concept for the book. He says rock stars and restaurants are antifragile. Huh?

Fukishima was not a black swan. A bunch of risk calculations were cobbled together and the standard deviations turned out to be off on several dimensions. All of a sudden 1 in 1,000,000 became 1 in 30 and it happened.  This leads to the so called barbell strategy for investing. You place the vast majority of assets in the safest possible places and then take much risk with just a few assets. Taleb believes that the assets of seeming moderate risk tend to be those where risk can be miscalculated the most. I agree with him. It reminds me of my favorite financial planner who tells me that a particular asset mix has a 95% chance of proving adequate to get my wife and I through our lives comfortably. If the 5% chance happens, I need a story to tell my wife or a letter to the file. I need to do better than that even if that means changing how we define comfortable.

He says that you need the people making predictions to have skin in the game, but he also points out that smart people make bets where the downside is small and the upside is huge. Is that skin in the game?

I strongly agree with him that detailed forecasts of the future are a sad joke, but that does not mean to me that we should not do our best to plan for the future. I believe that we can avoid many of the worst alternative futures.

He suggests that David Ricardo’s law of comparative advantage is crazy because governments actually try to implement it and then bad things happen.  So if Portugal puts all its production in wine and none in cloth and demand for wine goes down, that is a problem. It seems to me that he misses the point that trade is advantageous overall and that everyone has something to contribute.  Finally he does admit that Ricardo is right.

Taleb and I agree that the relationship of the USA and Saudia Arabia makes no sense and that has only gotten more true since the book was published. Stability and reducing uncertainty are nice goals, but if you have to sacrifice everything else to achieve them, you will ultimately experience major instability and uncertainty. You need the correct level of stability. When things appear very stable and there seems to be no uncertainty, you can bet that something bad is being papered over.

Taleb also agrees that humans are not that good with nonlinearity (See post Nonlinear). Nonlinearity is either convexity or concavity (or sometimes both). In such situations small changes in one input can result in very large changes in harm or benefit. You do not want to operate in nonlinear ranges where harm can increase geometrically. That goes for building bridges or stockpiling N95 masks.

I agree that modern does not equate with good for humans. The navigators in our navy need to be able figure out where they are with charts and a sextant and not just GPS. Human society would be more robust if we all knew how to cook a little and garden a little and sew a little.

The book really makes one point well. If you want to survive you need backup/redundancy. A longer view has its downsides but if survival is a goal you need to be saving for the future. That is not sufficient for survival since a black swan can get you regardless, but it is necessary. That goes for the Texas power grid or pandemic response or your family finances.

Taleb’s maxim for the book is:

Everthing gains or loses from volatility. Fragility is what loses from volatility and uncertainty.

The glass on the table is short volatility.  In Taleb’s option trader lingo, this means that the glass on the table will survive best if no one even comes into that room. As Taleb notes, time is volatility. Over time things will happen in that room and they could all be bad for that glass.

The glass is dead; living things are long volatility. Taleb states:

The best way to verify that you are alive is by checking if you like variations. Remember that food would not have a taste if it were not for hunger; results are meaningless without effort, joy without sadness, convictions without uncertainty, and an ethical life is not so when stripped of personal risks.

 

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