Antifragile: Things That Gain from Disorder

by Taleb, Nassim Nicholas

  And professions can be serial: something very safe, then something speculative. A friend of mine built himself a very secure profession as a book editor, in which he was known to be very good. Then, after a decade or so, he left completely for something speculative and highly risky. This is a true barbell in every sense of the word: he can fall back on his previous profession should the speculation fail, or fail to bring the expected satisfaction. This is what Seneca elected to do: he initially had a very active, adventurous life, followed by a philosophical withdrawal to write and meditate, rather than a “middle” combination of both. Many of the “doers” turned “thinkers” like Montaigne have done a serial barbell: pure action, then pure reflection.

  Or, if I have to work, I find it preferable (and less painful) to work intensely for very short hours, then do nothing for the rest of the time (assuming doing nothing is really doing nothing), until I recover completely and look forward to a repetition, rather than being subjected to the tedium of Japanese style low-intensity interminable office hours with sleep deprivation. Main course and dessert are separate.

  Indeed, Georges Simenon, one of the most prolific writers of the twentieth century, only wrote sixty days a year, with three hundred days spent “doing nothing.” He published more than two hundred novels.

  The Domestication of Uncertainty

  We will see many barbells in the rest of this book that share exactly the same asymmetry and somehow, when it comes to risk, produce the same type of protection and help in the harnessing of antifragility. They all look remarkably similar.

  Let us take a peek at a few domains. With personal risks, you can easily barbell yourself by removing the chances of ruin in any area. I am personally completely paranoid about certain risks, then very aggressive with others. The rules are: no smoking, no sugar (particularly fructose), no motorcycles, no bicycles in town or more generally outside a traffic-free area such as the Sahara desert, no mixing with the Eastern European mafias, and no getting on a plane not flown by a professional pilot (unless there is a co-pilot). Outside of these I can take all manner of professional and personal risks, particularly those in which there is no risk of terminal injury.

  In social policy, it consists in protecting the very weak and letting the strong do their job, rather than helping the middle class to consolidate its privileges, thus blocking evolution and bringing all manner of economic problems that tend to hurt the poor the most.

  Before the United Kingdom became a bureaucratic state, it was barbelled into adventurers (both economically and physically) and an aristocracy. The aristocracy didn’t really have a major role except to help keep some sense of caution while the adventurers roamed the planet in search of trading opportunities, or stayed home and tinkered with machinery. Now the City of London is composed of bourgeois bohemian bonus earners.

  My writing approach is as follows: on one hand a literary essay that can be grasped by anyone and on the other technical papers, nothing in between—such as interviews with journalists or newspaper articles or op-ed pieces, outside of the requirements of publishers.

  The reader may remember the exercise regimen of Chapter 2, which consists in going for the maximum weight one can lift, then nothing, compared to other alternatives that entail less intense but very long hours in the gym. This, supplemented with effortless long walks, constitutes an exercise barbell.

  More barbells. Do crazy things (break furniture once in a while), like the Greeks during the later stages of a drinking symposium, and stay “rational” in larger decisions. Trashy gossip magazines and classics or sophisticated works; never middlebrow stuff. Talk to either undergraduate students, cab drivers, and gardeners or the highest caliber scholars; never to middling-but-career-conscious academics. If you dislike someone, leave him alone or eliminate him; don’t attack him verbally.2

  So take for now that a barbell strategy with respect to randomness results in achieving antifragility thanks to the mitigation of fragility, the clipping of downside risks of harm—reduced pain from adverse events, while keeping the benefits of potential gains.

  To return to finance, the barbell does not need to be in the form of investment in inflation-protected cash and the rest in speculative securities. Anything that removes the risk of ruin will get us to such a barbell. The legendary investor Ray Dalio has a rule for someone making speculative bets: “Make sure that the probability of the unacceptable (i.e., the risk of ruin) is nil.” Such a rule gets one straight to the barbell.3

  Another idea from Rory Sutherland: the U.K. guidelines for patients with mild problems coming from alcohol are to reduce the daily consumption to under a certain number of grams of alcohol per day. But the optimal policy is to avoid alcohol three times a week (hence give the liver a lengthy vacation) then drink liberally the remaining four. The mathematics behind this and other barbell ideas are outlined with the later discussion of Jensen’s inequality.

  Most items on the right of the Triad have a barbell component, necessary, but not sufficient.

  So just as Stoicism is the domestication, not the elimination, of emotions, so is the barbell a domestication, not the elimination, of uncertainty.

  1 There is evidence of such a barbell strategy but no clarity about the theory behind it—evolutionary theorists enjoy narratives but I prefer evidence. We are not sure if the strategy of extrapair copulation in the animal domain actually enhances fitness. So the barbell—accountant plus cheating—while it exists, might not be aiming at the improvement of the species; it can be just be for “fun” at low risk.

  2 In finance, I stood in 2008 for banks to be nationalized rather than bailed out, and other forms of speculation not entailing taxpayers left free. Nobody was getting my barbell idea—some hated the libertarian aspect, others hated the nationalization part. Why? Because the halfway—here, the regulation of both—doesn’t work, as it can be gamed by a good lawyer. Hedge funds need to be unregulated and banks nationalized, as a barbell, rather than the horror we now have.

  3 Domain dependence again. People find insuring their house a necessity, not something to be judged against a financial strategy, but when it comes to their portfolios, because of the way things are framed in the press, they don’t look at them in the same way. They think that my barbell idea is a strategy that needs to be examined for its potential return as an investment. That’s not the point. The barbell is simply an idea of insurance of survival; it is a necessity, not an option.

  BOOK IV

  Optionality, Technology, and the Intelligence of Antifragility

  Now we get into innovation, the concept of options and optionality. How to enter the impenetrable and completely dominate it, conquer it.

  DO YOU REALLY KNOW WHERE YOU ARE GOING?

  Summa Theologiae by Saint Thomas Aquinas is the kind of book that no longer exists, the book-as-monument, a summa being the comprehensive treatment of a given discipline, while freeing it from the structure the authorities had given it before—the antitextbook. In this case its subject matter is theology, meaning everything philosophical, and it comments on every body of knowledge as it relates to his arguments. And it reflects—and largely directs—the thought of the Middle Ages.

  Quite a departure from the book with a simple closed-end subject matter.

  The erudite mind’s denigration of antifragility is best seen in a sentence that dominates the Summa, being repeated in many places, one variant of which is as follows: “An agent does not move except out of intention for an end,” agen autem non movet nisi ex intentione finis. In other words, agents are supposed to know where they are going, a teleological argument (from telos, “based on the end”) that originates with Aristotle. Everyone, including the Stoics, but excluding the skeptics, fell for such teleological arguments intellectually, but certainly not in action. Incidentally, it is not Aristotle whom Aquinas is quoting—he calls him the Philosopher—but the Arab synthesizer of Aristotle’s thinking, Ibn Rushd, also known as Averroes, whom Aquinas calls the Commentator. A
nd the Commentator has caused a great deal of damage. For Western thought is vastly more Arabian than is recognized, while post-Medieval Arabs have managed to escape medieval rationalism.

  This entire heritage of thinking, grounded in the sentence “An agent does not move except out of intention for an end,” is where the most pervasive human error lies, compounded by two or more centuries of the illusion of unconditional scientific understanding. This error is also the most fragilizing one.

  The Teleological Fallacy

  So let us call here the teleological fallacy the illusion that you know exactly where you are going, and that you knew exactly where you were going in the past, and that others have succeeded in the past by knowing where they were going.

  The rational flâneur is someone who, unlike a tourist, makes a decision at every step to revise his schedule, so he can imbibe things based on new information, what Nero was trying to practice in his travels, often guided by his sense of smell. The flâneur is not a prisoner of a plan. Tourism, actual or figurative, is imbued with the teleological illusion; it assumes completeness of vision and gets one locked into a hard-to-revise program, while the flâneur continuously—and, what is crucial, rationally—modifies his targets as he acquires information.

  Now a warning: the opportunism of the flâneur is great in life and business—but not in personal life and matters that involve others. The opposite of opportunism in human relations is loyalty, a noble sentiment—but one that needs to be invested in the right places, that is, in human relations and moral commitments.

  The error of thinking you know exactly where you are going and assuming that you know today what your preferences will be tomorrow has an associated one. It is the illusion of thinking that others, too, know where they are going, and that they would tell you what they want if you just asked them.

  Never ask people what they want, or where they want to go, or where they think they should go, or, worse, what they think they will desire tomorrow. The strength of the computer entrepreneur Steve Jobs was precisely in distrusting market research and focus groups—those based on asking people what they want—and following his own imagination. His modus was that people don’t know what they want until you provide them with it.

  This ability to switch from a course of action is an option to change. Options—and optionality, the character of the option—are the topic of Book IV. Optionality will take us many places, but at the core, an option is what makes you antifragile and allows you to benefit from the positive side of uncertainty, without a corresponding serious harm from the negative side.

  America’s Principal Asset

  And it is optionality that makes things work and grow—but it takes a certain type of person for that. Many people keep deploring the low level of formal education in the United States (as defined by, say, math grades). Yet these fail to realize that the new comes from here and gets imitated elsewhere. And it is not thanks to universities, which obviously claim a lot more credit than their accomplishments warrant.

  Like Britain in the Industrial Revolution, America’s asset is, simply, risk taking and the use of optionality, this remarkable ability to engage in rational forms of trial and error, with no comparative shame in failing, starting again, and repeating failure. In modern Japan, by contrast, shame comes with failure, which causes people to hide risks under the rug, financial or nuclear, making small benefits while sitting on dynamite, an attitude that strangely contrasts with their traditional respect for fallen heroes and the so-called nobility of failure.

  Book IV will take this idea to its natural conclusion and will show evidence (ranging from medieval architecture to medicine, engineering, and innovation) that, perhaps, our greatest asset is the one we distrust the most: the built-in antifragility of certain risk-taking systems.

  CHAPTER 12

  Thales’ Sweet Grapes

  Where we discuss the idea of doing instead of walking the Great Walk—The idea of a free option—Can a philosopher be called nouveau riche?

  An anecdote appears in Aristotle’s Politics concerning the pre-Socratic philosopher and mathematician Thales of Miletus. This story, barely covering half a page, expresses both antifragility and its denigration and introduces us to optionality. The remarkable aspect of this story is that Aristotle, arguably the most influential thinker of all time, got the central point of his own anecdote exactly backward. So did his followers, particularly after the Enlightenment and the scientific revolution. I am not saying this to denigrate the great Aristotle, but to show that intelligence makes you discount antifragility and ignore the power of optionality.

  Thales was a philosopher, a Greek-speaking Ionian of Phoenician stock from the coastal town of Miletus in Asia Minor, and like some philosophers, he enjoyed what he was doing. Miletus was a trading post and had the mercantile spirit usually attributed to Phoenician settlements. But Thales, as a philosopher, was characteristically impecunious. He got tired of his buddies with more transactional lives hinting at him that “those who can, do, and others philosophize.” He performed the following prowess: he put a down payment on the seasonal use of every olive press in the vicinity of Miletus and Chios, which he got at low rent. The harvest turned out to be extremely bountiful and there was demand for olive presses, so he released the owners of olive presses on his own terms, building a substantial fortune in the process. Then he went back to philosophizing.

  What he collected was large, perhaps not enough to make him massively wealthy, but enough to make the point—to others but also, I suspect, to himself—that he talked the talk and was truly above, not below, wealth. This kind of sum I’ve called in my vernacular “f*** you money”—a sum large enough to get most, if not all, of the advantages of wealth (the most important one being independence and the ability to only occupy your mind with matters that interest you) but not its side effects, such as having to attend a black-tie charity event and being forced to listen to a polite exposition of the details of a marble-rich house renovation. The worst side effect of wealth is the social associations it forces on its victims, as people with big houses tend to end up socializing with other people with big houses. Beyond a certain level of opulence and independence, gents tend to be less and less personable and their conversation less and less interesting.

  The story of Thales has many morals, all of them linked to asymmetry (and the construction of an antifragile payoff). The central one is related to the following account by Aristotle: “But from his knowledge of astronomy he had observed while it was still winter that there was going to be a large crop of olives …” So for Aristotle, clearly, the stated reason was Thales’ superior knowledge.

  Superior knowledge?

  Thales put himself in a position to take advantage of his lack of knowledge—and the secret property of the asymmetry. The key to our message about this upside-downside asymmetry is that he did not need to understand too much the messages from the stars.

  Simply, he had a contract that is the archetype of what an asymmetry is, perhaps the only explicit asymmetry you can find in its purest form. It is an option, “the right but not the obligation” for the buyer and, of course, “the obligation but not the right” for the other party, called the seller. Thales had the right—but not the obligation—to use the olive presses in case there would be a surge in demand; the other party had the obligation, not the right. Thales paid a small price for that privilege, with a limited loss and large possible outcome. That was the very first option on record.

  The option is an agent of antifragility.

  OPTION AND ASYMMETRY

  The olive press episode took place about six hundred years before Seneca’s writings on his tables with ivory legs, and three hundred years before Aristotle.

  The formula in Chapter 10 was: antifragility equals more to gain than to lose equals more upside than downside equals asymmetry (unfavorable) equals likes volatility. And if you make more when you are right than you are hurt when you are wrong, then you will benefit, in the long
run, from volatility (and the reverse). You are only harmed if you repeatedly pay too much for the option. But in this case Thales patently got a good deal—and we will see in the rest of Book IV that we don’t pay for the options given to us by nature and technological innovation. Financial options may be expensive because people know they are options and someone is selling them and charging a price—but most interesting options are free, or at the worst, cheap.

  Centrally, we just don’t need to know what’s going on when we buy cheaply—when we have the asymmetry working for us. But this property goes beyond buying cheaply: we do not need to understand things when we have some edge. And the edge from optionality is in the larger payoff when you are right, which makes it unnecessary to be right too often.

  The Options of Sweet Grapes

  The option I am talking about is no different from what we call options in daily life—the vacation resort with the most options is more likely to provide you with the activity that satisfies your tastes, and the one with the narrowest choices is likely to fail. So you need less information, that is, less knowledge, about the resort with broader options.