Posts Tagged ‘Fragile Robust Antifragile’

How to be antifragile

April 18, 2017

Nassin Nicholas Taleb explains antifragility

March 24, 2013

Nassim Nicholas Taleb spoke about his book, Antifragile, to the RSA (Royal Society for the Encouragement of the Arts, Manufactures and Commerce) in Britain.   He summarized the core ideas in his book in a little over six minutes and spent another 12 or so minutes talking with a couple of young Britishers.  One is Rohan Silva, senior policy adviser to Prime Minister David Cameron, and the other is Fraser Nelson, editor of The Spectator magazine and columnist for the Daily Telegraph.

Silva spoke of tax breaks for “angel” investors.  These are people who provide money for start-up businesses, similar to the “angels” for Broadway shows, usually in return for a share of the stock.  They come in at an earlier stage of the business than venture capitalists, and they almost always risk their own money, unlike the administers of venture capital funds.   Since most angel investors are doomed to lose their money, it is right that the few who are successful should get rich.   If you’re going to give tax breaks to investors, they’re the ones who should get them.

Equity investing fits Taleb’s ideas of optionality and “skin in the game.”  An equity investor risks his or her money, but only the amount invested.  The potential gains have no fixed limit, but the equity investor only gains if the business gains.  This is different from a leveraged buyout, in which a company is loaded with debt and the financier gains even if the business fails.

I find Nassim Nicholas Taleb’s ideas always interesting, mostly plausible and valuable not because he provides the key to every problem, which nobody can, but because he sees things that other people don’t notice.


The necessity for error, stress and risk

March 23, 2013

Nassim Nicholas Taleb, a successful options trader on Wall Street, is one of the most interesting and original writers of our time.  In Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, he wrote of how luck is mistaken for skill.  In The Black Swan: The Impact of the Highly Improbable, he wrote about how frequently people are blindsided by the unpredictable, which is important precisely because people don’t prepare for it.

antifragile-book-coverHow do you prepare for the unpredictable?  In his newest book, Antifragile: Things That Gain From Disorder, he tells how.   Antifragile sparkles with wit and is a delight to read.  Taleb invents dialogues about life and high finance between two fictional characters, the intellectual Nero Tulip and the street-smart Fat Tony.  He tells fascinating anecdotes about his personal life, starting with his boyhood in the Christian community in Lebanon and continuing to the present day.  He insults his enemies and boasts of his accomplishments with readable gusto.

In his philosophy, everything falls into one of three categories—fragile, robust and anti-fragile.  A delicate wine glass is fragile.  In mythology, the fragile is symbolized by the Sword of Damocles.  Nobody knows when it is going to fall, but it can fall at any time.  The robust is symbolized by the Phoenix.  No matter what you do to the Phoenix, it keeps being reborn.  The anti-fragile is Taleb’s original idea.  It is symbolized by the Hydra.  When you whack off its head or limbs, it grows more.  Attacking the Hydra makes it stronger.

A delicate wine glass is fragile.  You don’t know if it will break tomorrow or last a thousand years, but you do know that any little thing can break it.  A granite block is robust.  Few things can damage it, but over time it is going to be ground down.  A roaring fire is antifragile.  Whatever you throw into it or do to it (within limits), it is going to grow stronger.

The reputation of writers is antifragile.  Any attack on a writer’s book will stimulate interest in the book.  It doesn’t matter how many people dislike a writer, only how many are admirers.  Taleb noted that few people saw any merit in the work of the young Ludwig Wittgenstein, but it didn’t matter, because two who did were Bertrand Russell and John Maynard Keynes.

Living things are antifragile (up to a point).  Exposing yourself to error, stress and risk can make you smarter, stronger and safer.  If you spend a month in bed, you grow weaker.  If you spend a month doing hard physical work in the out of doors, you grow stronger.

Taleb tells of twin Greek Cypriot brothers who settled in London at the same time.  One became a taxi driver, the other went to work for a bank.  The taxi driver’s income varied quite a bit from day to day, week to week and month to month, while the bank employee’s income was completely predictable.  Although over time, they earned roughly the same amount of money, it would have seemed that the taxi driver was less secure—that is, until the current banking crisis, which has left the bank employee in jeopardy of being laid off and having to start over in middle age.


Click to enlarge.

The banker brother is an example of what Taleb calls the turkey problem—inspired by the empirical chicken in Bertrand Russell’s The Problems of Philosophy.  The turkey, noting that it is fed every day at 9 a.m., decides this is a law of nature, right up until the day before Thanksgiving.

The problem with the modern world, according to Taleb, is the illusion that life can be planned and controlled.  The result is fewer minor setbacks and more big crises.  Putting out every little forest fire allows flammable material to accumulate until there is enough for a really big fire that goes out of control.  The illusion by “fragilista” Alan Greenspan and others that they could eliminate the boom-and-bust economic cycle resulted in problems building up into a major economic crisis.

The alternative is trial and error, provided the errors are small and the potential gains are great.  Taleb, an immigrant said the greatness of the United States is that it encourages people to attempt new enterprises, with little penalty and no disgrace for failure, but big rewards for success.

Intellectuals put too much stress on the ability to articulate knowledge, Taleb says.  He wrote a Platonic dialogue between Socrates and Fat Tony, in which Fat Tony refutes Socrates’ contention that he lacks understanding unless his actions are based on clearly-defined terms and theory.  Taleb says the fact is that practice is seldom based on theory, but rather theory is an attempt to explain practice after the fact.  Theorists want to “teach birds how to fly.”