Antifragile

How to live in a world we dont

understand

By Nassim Nicholas Taleb

Presented By Prof. Eon Smit
Inspiring thought leadership
across Africa

Date: September 2014

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Likewise, the government-sponsored institution Fanny

Mae, when I Look at their risks, seems to be setting on
a barrel of dynamite, vulnerable to the slightest hiccup.
But do not worry: their large staff of scientists deemed
these event unlikely

The Author
Education
Schooling in Lebanon (exiled at 15)
PhD (University of Paris)
MBA (Wharton)
Career
Independent pit trader (Chicago Mercantile Exchange)
Owned derivatives firm for six years
Senior derivatives trader in Credit Suisse, UBS, BNP-Paribas,
Indo Suez, Deutsche Bank
Taught derivatives at New York University
Deans professor at University of Massachusetts
Professor of Risk-Engineering at NYU-Polytechnic

The Author..continued

Visiting Professor, London Business School

Advisor on security, model risk, risk management
Principal of hedge fund and director of companies
Author and speaker

Interest
Scholar of applied probability and risk management
Role of high-impact of events
Establishing roles for decision making under incomplete
information
Shielding individuals and society from Black Swans
Philosophy, medicine, classical literature, economics
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The Book
Follow - up to The Black Swan
Book consist of seven essays opposite of a textbook
contains autobiographical musings mixed with
parables and philosophical and scientific
investigations
Multidisciplinary (history, economics, philosophy,
sociology, methodology of science, psychology,
finance, forecasting, mathematics, linguistics,
comparative culture, storytelling, autobiographical)
Brilliant in intellectual sweep, but opaque in places
Rich in intellectual gems and quotes
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The Bookcontinued
Rich in newly-developed vocabulary
Rich in barbed-wire side-slaps, invective, dismissive of
business schools, academics, bureaucrats
Judges people by name with uncompromising
sincerity
Degree of self-indulgence/regards himself as a man of
great erudition
Leaves the reader with the uncomfortable feeling that
his examples have been selected purposefully to
support his thesis.

The arguments
Black Swan is an extremely rare event/severe
impact/retrospective predictability
Positive examples: Internet/Google/JK Rawlings/Taleb
Negative examples: Market crash 1987/Bank failures
2008/pandemics/Demise of the Soviet block/ 9/11
At epistemological level it illustrates a severe
limitation to our learning from observations and
experience and hence the fragility of knowledge
Unpredictable Absence of evidence is not evidence
of absence/Falsification

The arguments..continued
The family of disorder: uncertainty, variability,
imperfect knowledge, change, chaos, volatility,
entropy, time, the unknown, randomness, turmoil,
stressor, error, dispersion of outcomes, unknowledge
The antifragile thrives when exposed to members of
this family of disorder/the fragile is harmed by it/the
resilient resists shocks and stays the same
Aim is to build a guide to non-predictive decision
making/measure fragility then reduce fragility or
harness fragility
Simple test of asymmetry anything with more
upside than downside from random events (shocks) is
antifragile

The argumentscontinued
Depriving antifragile systems from volatility/stress/
randomness will harm them examples muscle
atrophy/top-down policies/neurotically
overprotective parents/absence of skin-in-the
game/ bureaucrats/ bankers/academics or
consultants with no real downside/ accountability
Bottom-up processes thrive under stress and disorder
discovery, innovation, progress depends on
antifragile tinkering, aggressive risk bearing rather
than formal education
Mother Nature is antifragile and best manager of
Black Swans
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The argumentscontinued
Debunks the illusion that world functions due to
programmed design, university research and
bureaucratic funding /evidence that this is an
illusion/lecturing birds how to fly
Fragilista causes fragility because of mistakenly
thinking they understand what is going on / they
deprive antifragile systems of errors / mistaking
organisms for machines / engaging in policies and
actions where benefits are small and visible, side
effects potentially severe and invisible/medical
overprescribing/interventionist social planners/
soccer mums/financial experts using risks models
that destroy banking systems

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Examples of exposure in the Triad

Class

Fragile

Robust

Antifragile

Greek Mythology

Sword of Damocles

Phoenix

Hydra

Errors

Hates mistakes

Mistakes just information Loves mistakes

Financial
dependence

Corporate employment

Dentist, dermatologist

Political systems

Nation-state, centralised

Knowledge

Academic

Economic

Bureaucrats

Reputation

Middle Class

Medicine

Additive treatment

Stress

Chronic stressors

Medicine

Absence of poison
Automated flying

Aeronautics

Taxi driver, artisan

Collection of city states,
decentralised

Expertise

Erudition
Entrepreneurs

Minimum-wage earners Bohemian, aristocracy,

old money
Subtractive treatment
Acute stressors
with recovery
Hormesis
Hand-on experience
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Antifragilitycontinued
Post-traumatic growth building character
Inverse hormesis/absence of stressors/ horseracing/
busy humans/soft speaking/white noise
Redundancy/over insurance of nature/two kidneys
Risk management focuses on worst outcome in
past/Fukushima/Greenspan
Nature assumes worse harm is possible
Weightlifting examples
Antifragility of riots/love/book banning

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Benefiting from mild stressors

Mechanic and organic
Non-complex
Complex
Needs continuous repair and
maintenance
Hates randomness

Self-healing

No need for recovery

Needs recovery between

stressors
High degree of independence

No or little independence

Loves variation in small doses

Stressors cause fatigue

Absence of stressors cause

atrophy
Age with use
Age with disuse
Undercompensates from shocks Overcompensates from shocks
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Benefiting from mild stressors.cont.

Stressors are information/stay in space/pain is risk
management information/weightlifting also
strengthening bones
Crimes against children eliminating mood swings
Learning a new language
The thirst for chance/adventure sucking out
randomness by touristification of life/opposite of
ancestral life
Antifragility by layers/natural organisms/restaurants
Parts may be fragile to make organism antifragile/
evolution/tension between nature and individual
organisms

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Benefiting from mild stressors.cont.

Organisms have one lifespan/next generation learns
from errors arising from external randomness/also
applies to historical systems e.g. single empire
dominance
Antibiotic resistance
Learning from others mistakes/Titanic/Fukushima
Plane crashes/learning through errors may cause
reliability in yourself or in others
Bailouts transfer fragility from the collective to the
unfit
Entrepreneurs are at the source of our antifrigility
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The denial of Antifragility

Hurting systems by playing conductor
Procrustean bed/cushy and comfortable/harmful
modernity
The bank clerk and taxi driver
Switzerland/does not have large central government
or Central Bank
Stability in Switzerland due to decentralised
administration/local efficiencies vs. bureaucracies/
lobbyists
Mediocristan and extremistan/caloric intake vs. novel
sales/bell curve vs. fat tails
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The denial of Antifragility.cont.

Turkey problem/mission how not to be a turkey/
antifragile
Risks in substituting large nation states for small statelings and city-states in constant tension and shifting
alliances

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Loving some randomness

The governors of Maxwell leading to machine
breakdown the dangers of control
The folly of fixing prices and eliminating noise traders
in praise of volatility
The punctual husband/small forest fires/weakness
caused by long periods of prosperity/absence of
fluctuations in markets will worsen fragility
Buridans donkey adding randomness/stochastic
resonance/annealing in metallurgy/tapping the
barometer/stabilising chaotic systems/in praise of
regicide/the ancients use of random draws
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Loving some randomness..cont.

In praise of small wars/the Great War/Egypt before
2011 riots/the risk in Saudi Arabia/US Middle East
policy since 9/11
Introduces Modernity large scale domination of
environment, smoothing of jaggedness, stifling of
stressors/nanny-state/lion in zoo/violence and
financial indiscipline transferred from individual to
state
Introduces iatrogenic- hidden or delayed damage of
treatment in excess of benefits/ tonsillectomies/
bloodletting/hospital fever/agency problem/first do
no harm
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Loving some randomness..cont.

The errors of theory/in praise of phenomenology/
the observation of empirical regularity without a
visible theory/true in social science not in physics
where errors get smaller
The iatrogenics of Greenspan and Brown
Overzealous editor
Emphasizes the natural fragility of systems and their
ability to take care of themselves/looking for a
systematic protocol to determine when and where
not to intervene

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Loving some randomness..cont.

In praise of procrastination/doctors refraining from
operations/preventing massive losses/preventing
calamities/heroes not rewarded
Difference between signal and noise/the neurotic and
imperturbable/data frequency and signal to noise

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Prediction as child modernity

Prediction is impossible and harmful/causes
iatrogenics to risk-takers
Leads to central idea
- Detecting fragility is easier than prediction
- First make things robust to defects and forecasting
errors/making lemonade from lemons
- Antifragility is how things move forward under
stressors, also time
Focus on exposure to failure making prediction
irrelevant/make world greed proof/disasterproof/economic crisis proof
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Prediction as child modernity.cont.

Remember, in Black Swan terrain events are
unpredictable and consequential
What can be predicted/someone who predicts will be
fragile to prediction errors, take more risks, perhaps
fail

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Solving Antifragility
Seneca the Stoic philosopher advanced a certain
indifference to fate
Mental exercises to write off possessions/
psychological insurance/ planning for
shipwreck/resignation letter/mental exercise of worst
thing happening
Seneca showed preference for wealth without being
harmed by poverty/upside-downside asymmetry
Fragility implies more to lose than to gain, equals
more downside than upside/equals unfavourable
asymmetry
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Solving Antifragility..cont.

Proposes barbell strategy/extreme risk aversion

coupled with extreme risk loving on other side
Examples: Investing/Cheating with rock star/Writers
being civil servants/Staff on plane/personal
risks/social policy protecting the weak, the strong
do the job
The barbell is the domestication of uncertainty
Thales rental of oil presses and Aristotles mistake
the absence of knowledge
The option the right and the obligation
Life is about options/lunch in London/tenant of a
rent-controlled apartment/all you need is the wisdom
to recognise favourable outcomes

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Solving Antifragility..cont.
Nature understands optionality/spontaneous
abortion/trial and error tinkering
Option = asymmetry + rationality/Fragile has no
option/antifragile needs to select best/banks vs.
technology
Life is long gamma
Wheeled-suitcase demonstrates that technology is
only trivial retrospectively/demonstrates lack of
imagination
Randomness plays a role at two levels the inventor
and the implementation
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Solving Antifragility..cont.
Investigates role of academia in technological knowhow and practise/learning birds to fly/questions
causality/ illusions of cause and effect/educations
relation with wealth and economic growth

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Lecturing birds how-to-fly-effects

Field

Origination and development Real origination and developments

(textbook version)

Jet engine

Physicists

Tinkering engineers with no

theoretical insight

Architecture

Euclidean geometry

Heuristic
and secret guild recipes

Cybernetics

Norbert Wiener

Programmers "wiki-style"

Derivative formulas

Black, Sholes, Merton

Traders and practitioners

Medicine

Biological understanding

Luck, trial and error, side affects of

other medicines

Industrial Revolution

Growth in knowledge,
scientific revolution

Adventurers, hobbyists

Technology

Formal science

Technology/business

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Remaining fragilities via negativa

Describing God and sculpturing David
Charlatans will only offer positive advice/ten steps for
/success depends on avoiding the negatives
Knowledge comes from a subtractive epistemology
/one small observation can disprove/millions can
hardly confirm/what you know is robust, the opposite
is fragile and speculative
Simple forecasting models better than the
complicated/fast and frugal heuristics good for
decisions/less is more

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Remaining fragilities cont.

Extension of Pareto principle/1% modification of
systems can lower fragility by 99%/small number of
homeless, customers, disgruntled employees, ill, cost
overruns account for most problems or largest costs
More data lead to missing the main point/more than
one reason for doing something, dont do it/French
army/long bio
Antifragility co-exists with passing time
Try to forecast future surroundings in twenty
years/intuition is to add/test is to take away
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Remaining fragilities cont.

Consider Verne/Wells/Orwell almost everything
imagined never tool place/todays new tools were not
foreseen
Amongst the antifragile: cooking utensils,
restaurants, wine, glasses, chairs, bicycles, literature
Difference between perishable and non-perishable
technologies that age are already dead
Fragility in handling information books, scientific
papers, conferences proceedings/what to read

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Remaining fragilities cont.

The role of prophets
Subtraction of medical expenses bound to extend
lives/same holds for abstention from food (in
general), some products in particular

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Addressing ethics
Skin in the game mitigates fragility
Hammurabis code/Getting on a plane without a
pilot/voting for and sending a son to war/talkers have
a free option no opinion without risk
Privilege used to come with obligations
Predicting free option
Friedman and Stiglitz/Stiglitz syndrome = fragilista +
ex-post cherry picking
Never ask anyone for their opinion, forecast or
recommendation ask after their portfolio/ same
with doctors/Tareks armies/Lawrence of Arabia vs
Meyer Lansky
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