Antifragile

The core thesis of “Antifragile”, a book from Nicholas Taleb, is that some things suffer from volatility – but some other things gain from volatility. We should avoid making things fragile, but instead antifragile.

Antifragile goes beyond robustness or resilience in the sense that things that are antifragile not only tolerate volatility, but benefit from it. Taleb claims there is no word for this, hence the neologism “antifragile”.

One recurring and intuitive example of an antifragile system is nature itself. Through volatility (mutation of species, random natural events, etc.) the system becomes better. Other examples in the book include: entrepreneurship, health, education, city-state, artisanship.

Behind the idea of antifragility is the idea of optionality. To be antifragile, you should have many options that you can use (but are not obliged to), depending on how the situation changes. If options are cheap, you can have many of them and reduce your risk exposure, or better, reverse it to benefit from volatility. With the right options, you can be robust against small volatility, but also rare events (“fat tails” / “Black Swan”).

That’s how Taleb made its fortune, he was an option trader. While many operations don’t turn a profit, some have occasionally large payoffs. The book is an generalisation of the concept of optionality to other areas of life.

Nature is antifragile, because it has many options due to the diversity of species, and the diversity of random mutations. Many natural events are inconsequential, but once in a while, a natural event arises that leads to change in the ecosystem. Entrepreneurship is antifragile, because of the diversity of companies. Many fail, but once in a while a new idea work on (as venture capitalists surely know). Your body is antifragile, because a small occasional stress on some function (muscle, nutrition) makes you stronger.

Antifragility and optionality both relate to diversity. Nature is diverse, hence anti fragile. Entrepreneurship is diverse, hence anti fragile. More generally, trial-and-error is antifragile, since it increases diversity. Being an artisan as opposed to have a very special role in BigCorp makes you more diversely employable, hence antifragile. A small stress on a system with diversity will force new pathways that exercise and reinforce diversity even more.

My main critique of the book is that this link is obvious but not really explored. Diversity is a simple and well established concept. It’s risk management 101. I understand that Taleb brings another perspective to the topic with optionality and antifragility (and rare events), but it’s also not completely different. Just another angle. The same can be said about the study of complex adaptive system. These systems are the class of systems of interest to Taleb. Yet he completely ignores this field of research.

Taleb warns in the book about interventionism. Many interventions fragilise systems by removing diversity. The education system tends for instance to format the way we think, but we need people that think out-of-the-box to progress. Big companies, of course, are all about standardisation and economies of scale. They are fragile to disruption.

Interventionism also focus on what we know, but ignore what what we don’t. This unknown hides events deemed improbable but with disastrous consequences. Only time will reveal them. Vivid examples are instant catastrophes like Chernobyl, but also catastrophe building up with time, like climate change.

Interventions with good intentions but negative effects are easy to find (medecine, foreign policy). There’s an existing word for it: iatrogenics. If the unknown is big and the reward small, sometimes doing nothing is better.

The subtitle of the German version of the book is « a guide for a world we don’t understand ». In a way, I prefer it to the English subtitle « things that gain from disorder ». The German subtitle emphasis this view of the world, where we don’t know things, or can’t understand them. We believe everything is quantifiable (especially risk) and explainable, but it’s not. It’s also not needed to live well in this world. You don’t need to know how your body works to realize that exercising is good (also referred as: Green lumber fallacy). You don’t need to know what bad could happen, just err on the side of precaution with optionality/diversity.

Taleb warns of modernism, too. Stick to the classics, since they have better chance to pass the test of time rather than to jump to latest bandwagon (also referred as: Lindy effect). Interestingly, this goes against the former praise for optionality and trial-and-error. Unfortunately, this tension is not really addressed in the book.

There’s a tension, because the line of reasoning that Taleb proposes works at two levels: the level of the system and the level of the individual actor in the system. For instance, your cells are fragile, but you body as a whole is antifragile. Companies are fragile, but a diverse economic system as a whole is antifragile. While he briefly mentions both levels, most of the book does not really distinguish between the two.

In the latter chapters, Taleb introduces ethics around antifragility. Simply put: you shouldn’t exploit the fragility of others to make yourself more antifragile. Risks should align with rewards (referred as the agency problem). It is ethical for an entrepreneur with “skin in the game” by taking risks himself to be rewarded with large payoffs if he succeeds. A middle manager taking no risk personally, but risking the pension funds of other citizens, doesn’t act ethically. The opposite of this behavior is a hero. A hero is someone taking risk not only in his interests, but in the interests of others.

Taleb sees himself as a philosopher, whose special brand of heroism is enlightening people about fragility, and calling out people that fragilize the system at the expense of others (if you see fraud, you should call fraud). The book is thus mixed with references to philosophy, discussion about fragility, and stories of Fat Tony and Nero Tulip. Both are two kinds of alter ego of Taleb. Fat Tony makes money without “understanding too much about the world” while Nero Tulip is erudite. At the end of the book, Fat Tony dies and leaves Nero with 20 millions. I suspect that Fat Tony represents here the first career of Taleb as a trader, and Nero Tulip his second career as a book writer / philosopher.

Taleb is arrogant as expected, but the book is enjoyable to read and I liked many of the ideas presented.