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Taleb’s Antifragile or How to Love Chaos and Learn From It – Part 2

In the first part of our article about Nicholas Nassim Taleb’s theories about antifragile, we briefly introduced what he means by Black Swans. These are inevitable and unpredictable stressors or chaotic events that destabilize us, either in a public or a private sense. Then, we turned to his idea of antifragile as being the desired characteristic of organisms and structures that allows them to grow stronger in the midst of this stress and chaos.

In part two of two, we will take a closer look at Taleb’s theory of antifragile from different standpoints, while also illustrating with some examples.

The Self-Regulating Organism

alarm-clock-clock-macro-100733Taleb raises a strong argument when saying that we need to make different aspects of our private and public life ‘anti-fragile’, in the sense that they benefit from stress, chaos, and unpredictable challenges by growing exponentially stronger.

The general approach we tend to subscribe to is the Post-Enlightenment one that dictates that we view the world like a sophisticated machine, and when this machine breaks down, we have a ready-made solution for every problem.

On the contrary, Taleb views the world as an organic system such as the human body, with its own self-healing properties. And in order to enhance these same properties, they need a certain amount of disorder to grow more effective. Something that’s antifragile thrives on randomness and uncertainty in that it learns from error. As a metaphor, he compares this endeavor to the mythological beast known as the Hydra. Every time one of this fantastical beast’s heads is cut off, it grows another two.

A success story in the corporate world is that of Toyota. Between 2010 and 2013, the Japanese car manufacturer increased its fiscal profits by four times, and by three times when compared to 2012. This placed it back in the leading position amongst car makers. While we can by no means summarize Toyota’s entire business model here, suffice it to say that individual employees had been trained extensively day in day out to be quick problem solvers. The result was that no matter the magnitude of an impending crisis, team members were never swept off their feet due to their Phalanx-like preparation and teamwork.

The Hobbyist Tinkerer and the Margin of Failure

repair-891422_1280Improvement through trial and error was traditionally the approach of choice in the West before directed approach took over. And yet, even nowadays, most technological innovation is brought about by entrepreneurs, tinkerers, inventors, engineers, and the lot. Taleb advocates the idea of the hobbyist, who derives pleasure from this iterative process. He supports this by saying that several pivotal historical episodes such as the Industrial Revolution were mainly driven by the hobbyist tinkerers.

The success of the American model is mainly attributable to its implementation of this principle. Most of the results American industries have garnered were gained through trial and error, while keeping an eye on their impact on reality for effective feedback. However, for this constructive failure principle to contribute successfully to improvement, there has to be an imbalance between the cost of each error and the potential gain. That is, gains must largely outdo the error cost margin.

Interestingly, Taleb compares financial investment to weight lifting, or more specifically, the barbell technique. Here, he warns against investing in the safe middle ground. Instead, he stands behind the idea of putting 90% of your funds in what he calls “boring cash” and 10% in “very risky, maximally risky, securities”. Putting all your eggs in the basket known in this case as the safe middle ground, sets you up for total failure when unpredictable and destabilizing events strike.

Is Our View of Growth The One We Really Need?

adult-blur-bokeh-712786Denying organisms and institutions the opportunity to grow through contact with unpredictable stressors is a costly mistake prevalent in today’s society. Preempting natural fluctuations results in the tendency to mask problems, that only grow more under the surface until the explosion metes out even bigger repercussions.

Taleb’s idea of “growth”, then, is different from the widespread understanding of financial and informational growth generally prevalent nowadays. For instance, he is critical of the phenomenon of cellphone users’ tendency to switch to new phones merely for cosmetic upgrades. He calls this “treadmilling techno-dissatisfaction” and ties it to the human condition of neomania – the love of the new for its own sake. On a note that initially seems unconnected, he relegates television, air-conditioning, newspapers, and economic forecasts to the bracket of “offensive irritants”. His main gripe with this is that the more data you collect, the less you know what’s going on. This is why he suggests “rationing the supply of information”. Where these two phenomena connect is that buying the latest tech fad and collecting more data can be both attributable to neomania and our delusion of bracing ourselves by being up to speed with the latest.

Shifting perspective to a collective view of things, business and government leaders tend to favor economies of scale, saying that increasing the size of operations leads to cost saving. Despite increase in size implying certain benefits, it also brings with it certain hidden risks, such as liability to bigger losses. When a certain size threshold is surpassed, the potential losses will outweigh gains in case of crisis. It’s like comparing elephants with mice. If an elephant falls, it is likely to break a leg. On the other hand, a mice falling from many times its own height will likely leave it unscathed. (We may be safe to conjecture that considering Toyota’s current size, now, it’s at risk more than before).

The Bottom-Up Decentralized Dispersal Model

blocks-blur-business-353641One proposition that would help mitigate large-scale failure is to distribute shares of responsibilities and projects across a wide range of sources. For instance, decentralizing the government and adopting a bottom-up model with a widespread distribution of decision-making could help avoid oversight of the actual costs implied in projects.

The collective enterprise that allows industries, or even governments, to not only survive stress but also grow more antifragile does this by virtue of the failures of its own individual parts. This is comparable to evolution in the natural world.

It deserves mentioning, however, that antifragility doesn’t equate to governments not intervening at all. Such intervention should only be limited to truly dire situations. In Taleb’s own words, “[t]he state should be there for emergency-room surgery, not nanny-style maintenance and overmedication of the patient—and it should get better at the former.”

Social policy must assure that safety nets are created for entrepreneurial risks to be taken, and not to create dependency. Taleb is simply saying that the system should minimize its forced intervention to bail them out, despite the implicit moral hazard.

In our times, we see power being wielded mainly by people who don’t take personal risks, or as Taleb would have it, they have no “skin in the game”. In the case of failure, they have nothing to lose. As a counter-measure to this, any incentive should be accompanied by a dis-incentive. This is especially the case because our system is so complex now that nobody understands the works of a system more than the person designing it, who also usually knows how to hide risk and make sure he steers away from the repercussions when things break. Such an approach would have probably saved us from the banking crisis.

Rooting Taleb’s Theories in Reality

close-up-daylight-environment-762679A close look at Taleb’s portfolio in different professional and personal areas reveals that, perhaps, his theories are rooted in the autobiographical. He emphasizes that he practices what he preaches several times in articles, videos, interviews, and more. He’s made it poignantly clear that he is not one for simply theoretical knowledge if it doesn’t have an actual application on different planes in personal and public life. What’s equally fascinating is that he presents his findings in an interdisciplinary way through several different mediums or fields.

This is a primary educational goal we strive to attain here at AUM. We believe that students need to develop the ability to see the underlying thread connecting different areas in their studies and in life in general. Knowledge attained at AUM must be transferable to every individual student’s career after graduation as well as other areas in life.

Topics: #AUM, education, learning, Taleb, antifragile, black swan

Written by Adrian