I just finished reading Antifragile, by Nassim Nicholas Taleb, which is, without question, the best book I’ve ever read. I am blogging less since I get most of the same benefits from twitter (interesting conversation, thought leadership attribution, etc.) at a much lower cost (it takes considerably less time to tweet, than to blog). That said, I thought I’d share some of my takeaways from Antifragile in long form since they are worth the extra characters.
Below is a summary of the crux of the book, by Dr. Shaiy Pilpel:
Everything gains or loses from volatility. Fragility is what loses from volatility and uncertainty.
To be antifragile, and thus benefit from volatility and uncertainty (norms in today’s macro-environment), one must be able to identify things that “love volatility” and things that “hate volatility”. Taleb says to be antifragile, one must learn to “not be a turkey”. What he means is that turkeys think life is good on average because every day they are usually well-fed and allowed to roam free. That is of course until Thanksgiving, when they are slaughtered. Turkeys are not free, and they are only fed to be slaughtered. Turkeys are in the matrix.
To free oneself of the matrix, one must understand that the fragile breaks with time and thus embrace, and love, volatility. Taleb has a recipe for translating this theory to practice:
(i) Look for optionality; in fact, rank things according to optionality, (ii) preferably with open-ended, not closed-ended, payoffs; (iii) Do not invest in business plans but in people, so look for someone capable of changing six or seven times over his career, or more (an idea that is part of the modus operandi of the venture capitalist Marc Andreessen); one gets immunity from the backfit narratives of the business plan by investing in people. It is simply more robust to do so; (iv) Make sure you are barbelled, whatever that means in your business.
As in the turkey example, the notion of average is of no significance when one is fragile to variability (e.g. Thanksgiving). Taleb suggests one should not spend any energy on mundane events and should only focus on Thanksgiving-type events (not necessarily Thanksgiving itself, since a Turkey could not know about Thanksgiving, but only that something was likely to change significantly - variability). He uses iatrogenesis as an example.
…we need to focus on high-symptom conditions and ignore, I mean really ignore, other situations in which the patient is not very ill.
He also uses what he calls the “tragedy of big data” as an example.
The more variables, the more correlations that can show significance in the hands of a “skilled” researcher. Falsity grows faster than information; it is nonlinear (convex) with respect to data.
Taleb’s solution is to only look at very large changes in data or conditions, never at small ones. Because the commercial world only benefits from addition, not subtraction, one can identify things that hate volatility as things that would be harmed if, as the result of changing conditions, they would no longer exist. For me, I plan to become more vigilant to things in my life that “hate volatility”, and will seek more opportunities to subtract.
Happy new year everyone!
Thanks for the cliff note version! I am waiting to get a copy from the library. I’m like 15th in line.
The author of The Black Swan, Nassim Nicholas Taleb, has a new book out — Antifragile: How to Live in a World We Don’t Understand — in which he argues that the world has three sorts of things in it: the fragile, the robust and the antifragile. He was interviewed about the antifragile in New Scientist:
Antifragile: How to make an unstable world strong - Linda Geddes Interviews Nassim Nicholas Taleb
Linda Geddes: In your new book you talk about things being “antifragile”. What do you mean exactly?
Nassim Nicholas Taleb: When you ask people what is the opposite of fragile, they mostly answer something that is resilient or unbreakable - an unbreakable package would be robust. However, the opposite of fragile is something that actually gains from disorder. In the book, I classify things into fragile, robust or antifragile.
Geddes: Can you give me some examples?
Taleb: Nature builds things that are antifragile. In the case of evolution, nature uses disorder to grow stronger. Occasional starvation or going to the gym also makes you stronger, because you subject your body to stressors and gain from them. Another example is the restaurant industry. It benefits from the fact that individual restaurants are fragile by exploiting their mistakes as it tries to figure out why a particular restaurant went bust. Trial and error is an antifragile activity.
Geddes: How is antifragility different from the saying “what doesn’t kill you makes you stronger”?
Taleb: I look at it in terms of systems: situations where what kills me makes others stronger, how the fragility of some parts of the system brings overall benefits. There are good and bad systems organised in terms of whether the system gets stronger or weaker from errors made by an individual part. Every plane crash makes the next one less likely, but every bank going bust makes the next one more likely.
Geddes: How would you make something antifragile?
Taleb: If antifragility is the property of all these natural complex systems that have survived, then depriving them of volatility, randomness and stressors will harm them. Just as spending a month in bed leads to muscle atrophy, complex systems are weakened or even killed when deprived of stressors.
If you want to move away from fragility, you must avoid centralisation and debt and foster aggressive risk-takers who are willing to fail seven times in a lifetime. The economy of the west was initiated through trial and error. We still have a pocket of that in California, where there are small costs of failure and big gains once in a while. The top-down approach blocks antifragility and growth, whereas everything bottom-up thrives under the right amount of stress and disorder.
Geddes: Are you saying that capitalism is good, but that 21st-century capitalism has gone too far?
Taleb: What we do today has nothing to do with capitalism or socialism. It is a crony type of system that transfers money to the coffers of bureaucrats. The largest “fragiliser” of society is a lack of skin in the game. If you are mayor of a small town, you are penalised for your mistakes because you are made accountable when you go to church. But we are witnessing the rise of a new class of inverse heroes - bureaucrats, bankers, and academics with too much power. They game the system while citizens pay the price. I want the entrepreneur to be respected, not the CEO of a company who has all the upsides and none of the downsides.
Geddes: Does all this connect to your black swans?
Taleb: Those are rare events with extreme impacts that lie outside the realm of regular expectations because nothing in the past can convincingly point to their possibility. The global financial collapse is one example (it was a black swan for those who took risks they didn’t understand). Some people have misconstrued my original idea to think that we have to try to predict these events. We can’t, we’ve just got to get out of their way.
I haven’t read the book, so I can’t comment in depth, but I am a deep believer in the premise that interconnecting large and complex systems makes them more — not less — liable to fail. This is why the interconnectednees of the modern world economic system is so dangerous. And I agree that the solution is to disconnect them, intentionally, to decrease risk. Or, using his term, to make systems antifragile.