Embrace Optionality and Don’t Drink Orange Juice: “Antifragile” Review

January 10, 2013
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Nassim Taleb’s “Antifragile” is one of the most engaging books I’ve read in years. You should almost certainly make time for it. But if you can’t, here is a top-of-mind recap (summarizations asterisked, with further impressions to follow).

*Like the porcelain teacup, that which is fragile is harmed by volatility. That which is robust holds up and is thus ‘volatility neutral’. That which is ‘antifragile’ actually benefits from volatility’s presence.

*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).

*Time is the ultimate tester (and breaker) of all things – as such, time equates to volatility. Mother Nature is the master of incremental advancement (biological and societal evolution) through multi-dimensional long run trial and error (serendipitous random tinkering).

*Fragility in the parts often commutes to heightened antifragility for the system as a whole (e.g. individual humans are fragile, but the gene pool is not; individual restaurants are fragile, but the restaurant business is not).

*True sophistication is shunning attempts to predict or “know” in favor of respect for the limits of knowledge, coupled with wariness of hidden risks and a habit of enlightened tinkering.

*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).

*Many “Soviet-Harvard” type errors come via disregard of time gaps – the delayed distribution of hidden costs and consequences (mistaking absence of evidence for evidence of absence). Those who suffer from neomania – love of the new – arrogantly assume we can improve on designs we don’t truly understand, even when nature has taken centuries, or even millennia, to perfect what clearly works.

*The barbell strategy, in which a small percentage of assets are concentrated in high risk, high reward investments, with a majority of assets in ultra-conservative safe harbor cash equivalents, is vastly superior to the higher-than-acceptable risk, lower-than-acceptable reward proposition of the muddled middle. (If you load up on a “respectable” multi-billion market cap blue chip stock, you might get badly harmed by an asbestos lawsuit or market crash, but your odds of substantial upside are zero).

*Because existence is such a non-linear phenomenon – e.g. our hunter gatherer ancestors did not get an “average” or “balanced” nutritional intake each day, but rather feasted on some occasions and fasted on others – it bears out that Mother Nature (and thus our ancient biological systems) have intrinsically adapted to this nonlinearity, and even found ways to benefit from it (moderate level stressors strengthen the bones and muscles, random fluctuations in air pressure intake can benefit the lungs etc.).

*Key directives: 1) Don’t be a sucker; 2) Don’t be a turkey.

*Iatrogenics, literally interpreted “from a physician,” refers to the unintended harm (bad side effects) resulting from ill-conceived attempts to heal, e.g. recommending marginal back surgery with greater likely downside than upside. Due to the presence of iatrogenics, low level treatments should generally be avoided (too much risk of downside relative to a small problem), while greater intervention risks should be taken in the event of serious illness (via higher likelihood benefits will outweigh costs).

*The principle of “via negativa” suggests that, in terms of taking action, subtraction often trumps addition because it is so hard to improve on nature’s time-tested original (without dilutive side effects). Infant mortality and life-saving surgery aside, the simple exhortation to stop smoking (give up cigarettes) has had more positive health impact than virtually all “modern medicine” advances of the 20th century.

*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 fluctuations) is convex. That which is harmed by randomness, concave. Convexity propositions should be embraced – concave ones, avoided like the plague.

*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.

*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).

*Reconsider eating apples and oranges, let alone drinking their concentrated juice, as the sweetness of such is man made – the high sugar content of modern fruit is the result of intensive breeding, with no thought as to what natural (much lower) sugar content ratios our ancient biological systems are adapted to.

There is more, but that’s the stuff that stuck with me…

Re, gestalt impressions of the book, I will risk offending Taleb (not a hard thing to do) by drawing parallels to two other books much enjoyed: “How to Get Rich” by Felix Dennis and “Montaigne: A Life” by Sarah Bakewell.

“How to Get Rich” – an excellent read with an awful title – is a funny, biting, brutally honest account of how one real world Brit made his pile. Felix Dennis is a self made entrepreneur (net worth upwards of half a billion) who built his publishing empire with guts and street smarts (rather than the more prosaic higher education, technical genius, pedigree connections etc).

Antifragile reminded me of HTGR in that Taleb’s book is a sort of field guide for approaching the entrepreneurial world, with the noble goal of getting one’s share of “f- you money” to be set for life and thus free. Roughly speaking, the entrepreneur should behave as follows: Be humble, tenacious, and doggedly experimental; don’t trust in experts or academic theory; don’t think you know more than you do; and aggressively seek asymmetric payoffs with unlimited potential upside.

Antifragile further reminded me of “Montaigne: A Life” – another wonderful, wonderful book – in that Taleb, like Montaigne centuries before him, articulates an attractively wide-ranging philosophy encompassing “how to live” almost in total. This is a notable accomplishment.

Taleb’s message resonates deeply with yours truly for three reasons: First, I was already well exposed to, and predisposed to, the benefits of optionality and asymmetric payoffs; second, I have access to older role models and relatives who have well exploited these (more than one to the tune of $100MM+); and third, because my own business and entrepreneurial life is built around optionality to an extreme degree. (As traders and poker players, we constantly seek out asymmetric upside with defined and limited downside; to give an example, Taleb’s discussion of concavity, the undesirable inverse of convexity, is the rough poker equivalent of negative implied odds.)

One can clearly see, however, why there would be a large contingent of “sour grapes” individuals who would take Antifragile as a bitter pill, given the preponderance of fragile career paths where upside is capped and volatility only introduces downside (standard journalism one of these?). When one has traded in one’s freedom, and possibly one’s moral and intellectual integrity, for life in a cage with a trap door, it can be maddening to read about the unfortunate realities of such!

I do not mean to sound like a Taleb fanboy, though it feels contrarian to praise him at this point – given how popular it is for the snarky literary mainstream to dogpile on NNT’s quirks and “cut down the tall poppy” as the Aussies say.

Unjustified spray hose arrogance – the type that assumes “I have X credential or pedigree, so I know everything” – is one thing, and certainly deserves light ridicule. Expert-level confidence with defined limits, expressed in a particular domain and earned through excellence, is another. This helps explain why, though I generally detest pomposity, Taleb’s prickliness and high-mindedness do not grate. Unlike charlatans and snobbish academics, he is arrogant for acceptable reasons (within a clearly defined domain), with an admirable willingness to make enemies.

In conclusion, just as the runaway success of “Black Swan” was something of a black swan, “Antifragile” is, all in all, an antifragile tour de force.

JS (jack@mercenarytrader.com)

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2 Responses to Embrace Optionality and Don’t Drink Orange Juice: “Antifragile” Review

  1. Alex Simonelis on January 11, 2013 at 12:13 am

    “*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.”

    Wrong because it’s incomplete. It’s a circle. Wealth creates universities which create higher education which creates more wealth. “We shape our buildings; thereafter they shape us.
    Winston Churchill

  2. M on January 11, 2013 at 2:39 am

    Much of this sounds like Hayek. And much of it sounds like the redundancy/efficiency trade-off in information theory. Common sense stuff, really. Too bad Taleb’s is not a more widely held viewpoint.

    Good catch on Montaigne. In one of his essays he recommends periodically changing one’s habits – breaking old ones and forming new ones – simply to make oneself more robust and able to handle change.

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