Thursday, February 14, 2013

Antifragile

[Vibhor has provided the following post. It makes for interesting reading].

Nassim Nicolus Taleb’s new book “Antifragile: Things that gain from disorder” is an engaging yet complex book to read. It offers an antidote to his previous masterpiece "The Black Swan" by explaining how to build systems that can actually benefit from stress. It divides the world and all that's in it (people, things, institutions, ways of life) into three categories: the fragile, the robust and the antifragile.
Fragile: Can get harmed by volatility
Robust: Holds up and is thus ‘volatility neutral’
Anti Fragile: Benefits from volatility’s presence
You are fragile if you avoid disorder and disruption for fear of the mess they might make of your life: you think you are keeping safe, but really you are making yourself vulnerable to the shock that will tear everything apart.
You are robust if you can stand up to shocks without flinching and without changing who you are.
But you are antifragile if shocks and disruptions make you stronger and more creative, better able to adapt to each new challenge you face. Taleb thinks we should all try to be antifragile.
 Here is a summarization of some of the ideas put forward by Taleb:
  1. The antifragility property only exists up to a point (e.g. modest physical stressors can be good for one’s health via triggering the healing and building response – immodest physical stressors, not so much).
  2. Time is nature's greatest filter, eliminating all but the antifragile, meaning that what is oldest today — be it a canonical book or the game of chess — has stood the test of time and isn't likely to disappear any time soon whereas the books and games released tomorrow may become outdated and irrelevant in a year.
  3. Fragility in the parts often commutes to heightened antifragility for the system as a whole (individual restaurants are fragile, but the restaurant business is not)
  4. The transfer of fragility from one group to another, e.g. banks capturing the upside of speculative activity, then handing taxpayers the bill via bailouts, is morally reprehensible and should be stamped out. The agency problem can be solved by forcing risk takers to have skin in the game. Entrepreneurs, who take serious risks with their own capital, are the true heroes of modern society.
  5. It is not necessarily better to be wealthy than poor. Beyond a certain point, the property of being wealthy (owning “stuff”) morphs from antifragile to fragile (via increased anxiety, expectations / obligations, banal social commitments etc.)
  6. Academia deliberately misinterprets the evidence: Wealth and prosperity beget institutions of higher learning, not the other way round. Countries get rich and then build universities – universities do not help countries get rich. Real world practitioners have embedded knowledge that theorizers wrongly take post-hoc credit for (the “lecturing birds how to fly” effect).
  7. Optionality is the property of asymmetric upside (preferably unlimited) with correspondingly limited downside (preferably tiny). Optionality can be found everywhere if you know how to look. That which benefits from randomness (increased potential for upside in the presence of should be embraced. That which is harmed by randomness should be avoided like the plague.
  8. Absence of evidence should not be mistaken for evidence of absence.

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