Business and life lessons on how to survive and thrive in the face of uncertain and volatile times.
Fragility can be defined as those things that break easily under pressure or stress. What’s the opposite of fragile? Most of us think of robust — or things that don’t break under such pressure. But in actuality, the opposite is a new term: anti-fragile — or those things that actually get stronger under stress or pressure. Scholar and author Nassim Taleb introduces the triad concept of fragile, robust, and anti-fragile in his book “Antifragile: Things that Gain Disorder”.
Antifragile: Things That Gain from Disorder (Incerto)
Antifragile: Things That Gain from Disorder (Incerto) [Taleb, Nassim Nicholas] on Amazon.com. *FREE* shipping on…
Volatility is Not all Bad
Taleb illustrates the difference between fragile and anti-fragile by discussing the response to a black swan event. A black swan refers to events in economics, politics, or social science that are large in magnitude and unexpected. For example, contrasting a banker and his steady job and predictable income with a taxi-driver who has volatile up-and-down type income. While the banker’s income appears stable, a big shock like a black swan event in the economy such as the 2008 financial crisis could take his otherwise stable income to 0. Whereas for the taxi driver, who has been making subtle adjustments all the time to his small business on where to pick-up fares, how to adjust to local dynamics, can continue adjusting and weather such unpredictable stresses much better than the banker. Perhaps the taxi driver even knows how to take advantage of such a crisis and can find new ways to make money or charge more. While the banker is fragile to such stressors and volatility the taxi driver is anti-fragile.
The attempts to smoothen the variations and volatility in our daily life— smoothing our income, smoothing the economy (e.g. inflation), smoothing political disputes — often worsen the problem and make us fragile to big shocks or black swan events.
Modern human systems are often fragile whereas nature and evolution are constantly stress-testing our systems and making us stronger and anti-fragile. Getting a certain amount of infection or exposure through vaccines are a good example of such natural systems at work — where a small exposure of sickness in our body will generate an antibody response and enable us to be more robust in the face of future bigger events.
Regular small stresses to the system can be good, and it's why small businesses and local municipalities can be fast moving and adjust to changes whereas large corporations and large governments have a harder time acting in such similar ways.
One has the illusion of stability, but is fragile; the other one the illusion of variability, but is robust and even antifragile.
Predictions are Fragile
Black swan events by definition are those events that are unlikely to happen AND are usually not similar to events that have happened before. As a result, using past experience is not helping in predicting them. Experts, fragilistas as Taleb affectionally calls them, can often rationalize a justify an event after the fact — but past experience is not helping in actual predicting the future.
In the wake of the Fukushima disaster, instead of predicting failure and the probabilities of disaster, these intelligent nuclear firms are now aware that they should instead focus on exposure to failure — making the prediction or nonprediction of failure quite irrelevant.
a) Don’t Predict. don’t try to be in the prediction business or worse don’t rely on it.
b) Be Anti-Fragile. Build your business or lead your life in a way that is not only robust to such big shocks to the system (e.g. black swans) but perhaps even anti-fragile — e.g. can benefit and grow stronger from such events.
I enjoyed the references on local governments and decentralization — the perception of uniformity and centralized control may give the feeling of strength, but may actually set up a centralized organization, government, or business to fragility. In contrast, a distributed system (sometimes we think about the free market) may give independent knowledge, faster moving systems and enable the system to be stronger and react stronger to such external volatility or shocks to the system. Even if perceptibly a centralized system looks uniform and more orderly than a distributed system, smaller volatile shocks throughout a larger system on a daily basis can help build in that strength and anti-fragility.
As a former options trader, Taleb goes into good depth on the importance and benefits of being on the right side of the option and of volatility.
Fail-fast & tinkering as opposed to central planning. “The mechanism of option-like trial and error (the fail-fast model), a.k.a. convex tinkering. Low-cost mistakes, with known maximum losses, and large potential payoff (unbounded).”
Option = asymmetry + rationality. “The rationality part lies in keeping what is good and ditching the bad, knowing to take the profits. As we saw, nature has a filter to keep the good baby and get rid of the bad. The difference between the antifragile and the fragile lies there. The fragile has no option. But the antifragile needs to select what’s best — the best option.”
The optional illusion. “The researcher’s free option is in his ability to pick whatever statistics can confirm his belief — or show a good result — and ditch the rest. He has the option to stop once he has the right result.”
Taleb comes down hard on government, academia, and research in general — and some of it is well-founded. But the notion of pure optionality, tinker, and learn evolution style while good for some endeavors does lead to a world of incrementalism. I think certain deep and long term technology — GPS, Internet, Space, etc. do benefit from vision and long-term investments and not the notion of pure incrementalism.
Various Other Thoughts
Strategic Planning: “Corporations are in love with the idea of the strategic plan. They need to pay to figure out where they are going. Yet there is no evidence that strategic planning works — we even seem to have evidence against it.” > better to invest in people, vision and allow for the work to take place rather than trying to drive it all from above, central planner style.
Parenting: “Soccer moms try to eliminate the trial and error, the antifragility, from children’s lives, move them away from the ecological and transform them into nerds working on preexisting (soccer-mom-compatible) maps of reality.” > In an effort to raise and create “good kids” we sometimes, unintentionally do the opposite raising kids who are fragile and unprepared to deal with the stresses of the real world. Small stresses and challenges help kids grow stronger.
The General Notion of Anti-Fragile: “For the fragile, the cumulative effect of small shocks is smaller than the single effect of an equivalent single large shock. For the antifragile, shocks bring more benefits (equivalently, less harm) as their intensity increases (up to a point). Lifting one hundred pounds once brings more benefits than lifting fifty pounds twice, and certainly a lot more than lifting one pound a hundred times.”
Subtractive: The importance of removing and not taking action can be as important or sometimes even more powerful than acting and taking action. From Steve Jobs: “People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things.”
Additionally, physicians are biased to action and rewarded for acting and solving problems — procedures, prescribing medicine, etc. But as a result, we sometimes over-treat and can sometimes cause more problems as a function of those side effects. “Stuart McGill, an evidence-based scientist who specializes in back conditions, describes the self-healing process as follows: the sciatic nerve, when trapped in too narrow a cavity, causing the common back problem that is thought (by doctors) to be curable only by (lucrative) surgery, produces acid substances that cut through the bone and, over time, carves itself a larger passage. The body does a better job than surgeons.”
This is a good and worthwhile read — with several interesting concepts and examples. Beware though, Taleb’s tone is arrogant and a bit off-putting. One of my favorite lines in the book is: “We accept that people who boast are boastful and turn people off.” For someone who claims to be so self-aware, it was a particularly ironic line given the author’s own smugness throughout the book.