Antifragile: Things That Gain From Disorder (Incerto, #4)

by Nassim Nicholas Taleb

Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.

The antifragile loves randomness and uncertainty, which also means—crucially—a love of errors, a certain class of errors. Antifragility has a singular property of allowing us to deal with the unknown, to do things without understanding them—and do them well. Let me be more aggressive: we are largely better at doing than we are at thinking, thanks to antifragility. I’d rather be dumb and antifragile than extremely smart and fragile, any time.

Sensitivity to harm from volatility is tractable, more so than forecasting the event that would cause the harm.

anything that has more upside than downside from random events (or certain shocks) is antifragile; the reverse is fragile.

Which brings us to the largest fragilizer of society, and greatest generator of crises, absence of “skin in the game.” Some become antifragile at the expense of others by getting the upside (or gains) from volatility, variations, and disorder and exposing others to the downside risks of losses or harm.

At no point in history have so many non-risk-takers, that is, those with no personal exposure, exerted so much control. The chief ethical rule is the following: Thou shalt not have antifragility at the expense of the fragility of others.

In short, the fragilista (medical, economic, social planning) is one who makes you engage in policies and actions, all artificial, in which the benefits are small and visible, and the side effects potentially severe and invisible

First ethical rule: If you see fraud and do not say fraud, you are a fraud.

The excess energy released from overreaction to setbacks is what innovates!

risk management professionals look in the past for information on the so-called worst-case scenario and use it to estimate future risks—this method is called “stress testing.” They take the worst historical recession, the worst war, the worst historical move in interest rates, or the worst point in unemployment as an exact estimate for the worst future outcome. But they never notice the following inconsistency: this so-called worst-case event, when it happened, exceeded the worst case at the time.

Information is antifragile; it feeds more on attempts to harm it than it does on efforts to promote it.

So here is a simple rule of thumb (a heuristic): to estimate the quality of research, take the caliber of the highest detractor, or the caliber of the lowest detractor whom the author answers in print—whichever is lower.

With few exceptions, those who dress outrageously are robust or even antifragile in reputation; those clean-shaven types who dress in suits and ties are fragile to information about them.

When you don’t have debt you don’t care about your reputation in economics circles—and somehow it is only when you don’t care about your reputation that you tend to have a good one.

In the complex world, the notion of “cause” itself is suspect; it is either nearly impossible to detect or not really defined—another reason to ignore newspapers, with their constant supply of causes for things.

Further, my characterization of a loser is someone who, after making a mistake, doesn’t introspect, doesn’t exploit it, feels embarrassed and defensive rather than enriched with a new piece of information, and tries to explain why he made the mistake rather than moving on. These types often consider themselves the “victims” of some large plot, a bad boss, or bad weather.

Procrustes was an inn-keeper in Greek mythology who, in order to make the travelers fit in his bed, cut the limbs of those who were too tall and stretched those who were too short. But he had the bed fitting the visitor with total perfection.

Where simplifications fail, causing the most damage, is when something nonlinear is simplified with the linear as a substitute. That is the most common Procrustean bed.

This is the central illusion in life: that randomness is risky, that it is a bad thing—and that eliminating randomness is done by eliminating randomness.

One of life’s packages: no stability without volatility.

Modernity is a Procrustean bed, good or bad—a reduction of humans to what appears to be efficient and useful.

Modernity starts with the state monopoly on violence, and ends with the state’s monopoly on fiscal irresponsibility.

It is easy to assess iatrogenics when the surgeon amputates the wrong leg or operates on the wrong kidney, or when the patient dies of a drug reaction. But when you medicate a child for an imagined or invented psychiatric disease, say, ADHD or depression, instead of letting him out of the cage, the long-term harm is largely unaccounted for.

Iatrogenics is compounded by the “agency problem” or “principal-agent problem,” which emerges when one party (the agent) has personal interests that are divorced from those of the one using his services (the principal).

anything in which there is naive interventionism, nay, even just intervention, will have iatrogenics.

Perhaps the idea behind capitalism is an inverse-iatrogenic effect, the unintended-but-not-so-unintended consequences: the system facilitates the conversion of selfish aims (or, to be correct, not necessarily benevolent ones) at the individual level into beneficial results for the collective.

Few understand that procrastination is our natural defense, letting things take care of themselves and exercise their antifragility; it results from some ecological or naturalistic wisdom, and is not always bad—at an existential level, it is my body rebelling against its entrapment.

Using my ecological reasoning, someone who procrastinates is not irrational; it is his environment that is irrational.

The more frequently you look at data, the more noise you are disproportionally likely to get (rather than the valuable part, called the signal); hence the higher the noise-to-signal ratio. And there is a confusion which is not psychological at all, but inherent in the data itself. Say you look at information on a yearly basis, for stock prices, or the fertilizer sales of your father-in-law’s factory, or inflation numbers in Vladivostok. Assume further that for what you are observing, at a yearly frequency, the ratio of signal to noise is about one to one (half noise, half signal)—this means that about half the changes are real improvements or degradations, the other half come from randomness. This ratio is what you get from yearly observations. But if you look at the very same data on a daily basis, the composition would change to 95 percent noise, 5 percent signal. And if you observe data on an hourly basis, as people immersed in the news and market price variations do, the split becomes 99.5 percent noise to 0.5 percent signal. That is two hundred times more noise than signal—which is why anyone who listens to news (except when very, very significant events take place) is one step below sucker.

Just as we are not likely to mistake a bear for a stone (but likely to mistake a stone for a bear), it is almost impossible for someone rational, with a clear, uninfected mind, someone who is not drowning in data, to mistake a vital signal, one that matters for his survival, for noise—unless he is overanxious, oversensitive, and neurotic, hence distracted and confused by other messages. Significant signals have a way to reach you.

In a thick and captivating book, La rebellion française, the historian Jean Nicolas shows how the culture of rioting was extremely sophisticated—historically, it counts as the true French national sport.

Further, after the occurrence of an event, we need to switch the blame from the inability to see an event coming (say a tsunami, an Arabo-Semitic spring or similar riots, an earthquake, a war, or a financial crisis) to the failure to understand (anti)fragility, namely, “why did we build something so fragile to these types of events?” Not seeing a tsunami or an economic event coming is excusable; building something fragile to them is not.

So my work is about where one should be skeptical, and where one should not be so. In other words, focus on getting out of the f*** Fourth Quadrant—the Fourth Quadrant is the scientific name I gave to the Black Swan domain, the one in which we have a high exposure to rare, “tail” events and these events are incomputable.

Now, what is worse, because of modernity, the share of Extremistan is increasing. Winner-take-all effects are worsening: success for an author, a company, an idea, a musician, an athlete is planetary, or nothing. These worsen predictability since almost everything in socioeconomic life now is dominated by Black Swans.

A related idea is expressed in a (perhaps apocryphal) statement by the financier Warren Buffett that he tries to invest in businesses that are “so wonderful that an idiot can run them. Because sooner or later, one will.”

the worst thing one can do to feel one knows things a bit deeper is to try to go into them a bit deeper. The sea gets deeper as you go further into it, according to a Venetian proverb.

Excess wealth, if you don’t need it, is a heavy burden. Nothing was more hideous in his eyes than excessive refinement—in clothes, food, lifestyle, manners—and wealth was nonlinear. Beyond some level it forces people into endless complications of their lives,

You can’t predict in general, but you can predict that those who rely on predictions are taking more risks, will have some trouble, perhaps even go bust. Why? Someone who predicts will be fragile to prediction errors. An overconfident pilot will eventually crash the plane. And numerical prediction leads people to take more risks.

Seneca fathomed that possessions make us worry about downside, thus acting as a punishment as we depend on them. All downside, no upside. Even more: dependence on circumstances—rather, the emotions that arise from circumstances—induces a form of slavery.

My idea of the modern Stoic sage is someone who transforms fear into prudence, pain into information, mistakes into initiation, and desire into undertaking.

invest in good actions. Things can be taken away from us—not good deeds and acts of virtue.

So he played a trick on fate: kept the good and ditched the bad; cut the downside and kept the upside. Self-servingly, that is, by eliminating the harm from fate and un-philosophically keeping the upside.

You are antifragile for a source of volatility if potential gains exceed potential losses (and vice versa). Further, if you have more upside than downside, then you may be harmed by lack of volatility and stressors.

For those readers who wonder about the difference between Buddhism and Stoicism, I have a simple answer. A Stoic is a Buddhist with attitude, one who says “f*** you” to fate.

if something is fragile, its risk of breaking makes anything you do to improve it or make it “efficient” inconsequential unless you first reduce that risk of breaking.

I initially used the image of the barbell to describe a dual attitude of playing it safe in some areas (robust to negative Black Swans) and taking a lot of small risks in others (open to positive Black Swans), hence achieving antifragility. That is extreme risk aversion on one side and extreme risk loving on the other,

For antifragility is the combination aggressiveness plus paranoia—clip your downside, protect yourself from extreme harm, and let the upside, the positive Black Swans, take care of itself. We saw Seneca’s asymmetry: more upside than downside can come simply from the reduction of extreme downside (emotional harm) rather than improving things in the middle.

if I have to work, I find it preferable (and less painful) to work intensely for very short hours, then do nothing for the rest of the time (assuming doing nothing is really doing nothing), until I recover completely and look forward to a repetition,

a barbell strategy with respect to randomness results in achieving antifragility thanks to the mitigation of fragility, the clipping of downside risks of harm—reduced pain from adverse events, while keeping the benefits of potential gains.

The legendary investor Ray Dalio has a rule for someone making speculative bets: “Make sure that the probability of the unacceptable (i.e., the risk of ruin) is nil.” Such a rule gets one straight to the barbell.