I have just finished reading
“Antifragile” the latest book by Nassim Taleb. Antifragile is possibly his
magnum opus in which he shows us a key notion of life so far uncovered. I say
‘life’ and not ‘economy’ because truly Taleb talks about all aspects of life
where fragility and antifragility play their role, often hidden from the
untrained observer or participant.
Let me
first explain this new word ‘Antifragile’ that he coined. It is the opposite of
fragile. O, that’s simple you say? Well, let me put it upside down. If you
would ask someone to tell you the opposite of fragile, chances are that the
answer would be robust. Aha! Wrong! Fragility is when something is prone to
error/breaking, something that does not benefit from volatility. Think of a
porcelain cup. The cup is ok until you drop it from the table. Suddenly this
volatility to its steady state shatters it to pieces. Robust is something that
is strong and can withstand volatility (up to a certain level). Say the Golden Gate
Bridge. Sure it is robust and yes it can deal with some volatility (thousands
of cars driving over it inducing vibration and stress on the structure).
However one massive earthquake could be the end of the bridge (don’t tell me
that it is calculated to withstand earthquakes, it is but not for the
earthquake that will ultimately take it down). Antifragile would be a Golden
Gate Bridge that becomes STRONGER with every car running over it or indeed with
every earthquake. It would benefit from volatility. Hard to imagine for a
structure like a bridge yes. But antifragility is all around us. In fact we are
part of the biggest and strongest antifragile ‘being’ around: Mother Nature.
Throughout hundreds of millions of years, no matter what was thrown at planet Earth,
nature always resurfaced. How it did that? By keeping its options open. By
allowing for mutations (errors whilst copying DNA). By having many options open,
there are bound to be some life forms that survive a meteor impact that would
otherwise kill life on earth. So nature is antifragile, but a single human
being obviously is not. We die (thank god J! - euh… in case someone up there is
reading this, no pun intended, really…), but our DNA lives on, possibly with a
small mutation that will prove to be useful x generations further down the
line. ‘Antifragile’ links this new concept with ‘Fooled by Randomness’ (coincidence
has a much bigger effect on our lives than we give it credit for) and ‘The
Black Swan’ (an event that is impossible to predict, only explainable
afterwards and has a massive effect). A Black Swan can be positive (ie Fifty
Shades of Grey counts for an enormous share of the book profits over the past
year, dwarfing all other publications), or negative (the 2008 financial crisis
wiped out all of the profits made by all the banks up until 2008). So the art
of living is to try and expose yourself to positive black swans and not to
negative ones. ‘Antifragile’ explains how to do this. And no, not by predicting
black swan events. Remember: a black swan CAN NOT be predicted. However, the
book gives some tools to look at the exposure one has to black swans by looking
at the effect these would have IF they would occur. It gets all a bit technical
(2nd order effects so yes mathematics) and I won’t get into it here.
I am just going to add that one solution to lower exposure against negative
black swans is not to protect against them but by way of the ‘via negativa’:
remove what is harmful.
The above
just scratches the surface of this masterpiece. There is lots more in it and
many very useful heuristics (a simple rule that when used within its scope of
remit, gives you excellent guidance on what to do). Other concepts like ‘skin
in the game’ are referred to throughout the book. Hammurabi’s law is a
wonderful and simple heuristic rarely used today but that, if applied to say
financial managers, would protect us from a lot of harm. The picture below comes from Wikipedia and is a bust of the
Babylonian king on display at the Louvre. About 3800 years ago, Hammurabi’s code specified
that if a builder builds a house and the house collapses and causes the death
of the owner of the house, that builder shall be put to death. Think about it:
if today’s financial managers would jeopardise their own capital when they bet
their clients money, would they still come up with financial products filled
with hidden risks? Antifragile is also full of references to the old Greek, Latin and other
philosophers. Some of them got it right, many got it wrong. Taleb speaks about
important misconceptions in economics but also in medicine and political
structures. Why is it that Switzerland is much more stable than a nationstate?
Well Antifragile gives you the answer. He also references aviation a couple of
times. Aviation as a whole is antifragile as every accident (investigation)
helps improving the safety of the whole system.
So if you
are looking for a good book to take with you on your Summer holiday, there’s
only one recommendation: ‘Antifragile’. Read it twice. I will.
All the fun
was at the Paris Airshow this week. Forget about the 350, 380, 787,E-Jet, … (and
the avalanche of orders) they were not the stars of the show. The only one and
truly was the Sukhoi Su-35 flying display. Watch in awe how it defies the laws
of physics (so it seems). Have your eyes open at 0:30; 1:00; 1:40 and 2:45,
your mouth will drop open as well: http://www.youtube.com/watch?v=9ITjIyS7nJQ
As it is June
21 and the start of my Summer holiday (thank you weather gods for making it
rain today L),
let’s tempt fate with this song: http://www.youtube.com/watch?v=lUvXw8cWDi4
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