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Decision Making Book Summaries

Antifragile Summary (9/10)

Antifragile is about how we should measure risk. Taleb starts by providing a basic definition that will be the focus of the entire book. Some events or objects are anti-fragile. Others are fragile. Something that is fragile is vulnerable to stress. Ex: A porcelain coffee cup. A robust object can withstand shocks. Ex: A steel door. When something is anti-fragile, it benefits from shocks. Ex: Your muscles.

Our perception of risk is wrong. You can measure fragility, but not uncertainty. In a casino, there’s no uncertainty. You can control bet sizing – how much you lose. But in the natural environment, you can’t assess risk; there’s too much uncertainty. You can measure fragility, but you can’t predict which event will happen in the future. 


Beware The Fragilista


People should worry about abundance and safety, not scarcity and challenge. It’s easy to manage scarcity, it’s a lot more difficult to manage wealth. When you’re wealthy and comfortable, you become complacent and less likely to perform to your fullest potential. Comfort leads to decadence while scarcity and stressors lead to overcompensation. A busy person is better at handling an additional job than someone who’s idle.

Complex systems need stressors. Trying to apply definite, rigid structure to them is dangerous.

For example, overprotective parents trying to add too much structure and safety to their children’s lives. Making sure their children don’t experience any kind of stressors. But their children need stressors to grow. Without any hardship, children never develop the critical skills they need to overcome future problems.

Procrustes was a pathological but well-meaning inn-keeper in Greek Mythology who cut the limbs of his guests to make them fit his bed perfectly. He’d cut their limbs if they were too tall and stretched those that were too short. 

“we are pressured to “fix” things, so we often blow them up with our fear of randomness and love of smoothness.” 

Seneca purposefully started his day by carrying only the bare necessities to survive. Getting in touch with the worst possible circumstance allowed him to be better prepared for shocks to his wealth in this case. Taleb suggests usuing this practical philosophy in our lives.

While Taleb was a trader, he imagined the worst case scenario happening every day. The anti-stoic would start his day by imagining the best possible scenario, to double his money or achieve improbable success. Seneca wasn’t just robust, at the stage past fragility (robustness), he was anti-fragile. He didn’t relinquish his wealth but instead sought to control it.

“Wealth is the slave of the wise man and master of the fool. – Seneca 


Precursor to Innovation


Planning and bureaucratic systems are the anti-thesis to innovation. Sophistication and innovation are born out of necessity and difficulty.

Silicon Valley works because of trial and error – from many people taking small to medium-sized risks and benefitting from volatility or unexpected events. Governments can’t spur innovation by implementing top-down policies. Allowing a decentralized system to organically self-correct is the only effective precursor to innovation.

The same logic can be applied to your psyche. If you try to control your thoughts, they end up controlling you.

If you try to ban a creative product, it gains in popularity.

It’s not just that the entrepreneurial economy (as an organism) is random while small businesses themselves are trying to plan perfectly and it so happens that some of those perfect plans work out. It’s that they’re both random. The economic organism is random (unpredictable), and its components (businesses) act randomly.

Many companies who end up becoming household names started off with a different plan.

“Coca-Cola began as a pharmaceutical product. Tiffany & Co., the fancy jewelry store company, started life as a stationery store. Raytheon, which made the first missile guidance system, was a refrigerator maker. Nokia, who used to be the top mobile phone maker, began as a paper mill.”


Types of Stressors 


This might be a little confusing. Taleb talks about stressors as a good thing, but the stressors can’t be too small or too big.

  • A stressor (to the economy) that’s too big and bad would be a financial crash. The damage from this kind of event is too devastating.
  • A stressor that’s good sized would be losing a client at a business venture you haven’t invested much money in. The shock is considered big enough, but you’ll have a chance to recover and learn.
  • A stressor that’s small but damaging, in the long run, is the constant stress you get from having a boss micro-manage you.

Entrepreneurship 


Restaurants are fragile, they are likely to fail. But the entire ecosystem of restaurants is anti-fragile. The human being is fragile. Restaurants and failing businesses are the necessary sacrifices to be made for the survival of the economy. The mistakes restaurants make helps the restaurant business get better.

The caveat is that not everyone is taking risks, but that it is localized to a certain extent.

Stressors that are too big don’t necessarily make you stronger. People who survive harsh events such as wars do not emerge stronger as a result, necessarily. If you meet someone who’s made it through a traumatic event heroicly, it could be their toughness that got them through it.


Jensen’s Inequality


The idea here is that you don’t have to be a very smart entrepreneur to succeed. If you’re constantly creating new revenue streams for yourself (more optionality) then you’re more likely to outperform someone who makes one big bet on what he believes to be a safe prediction. An employee who’s developed one set of skills for many decades is a more risky option than an entrepreneur who’s started multiple businesses and made many investments.


Reverse Causality 


Association does not imply causation. 

It’s possible that the people who survive are tough, and that’s why they survived in the first place. What doesn’t kill you doesn’t always make you stronger.

Employment is fragile because you steady income can stop at any moment. You’re exposed to the dark side of fragility. Entrepreneurship is anti-fragile because you benefit massively from shocks and volatility. Another advantage is that entrepreneurs benefit from their mistakes while employees get reprimanded for them.

Another example of reverse causality comes from the widely held assumption that education creates wealth. But is the opposite more accurate, namely that wealth creates education? South Korea had much lower literacy rate than Argentina but is wealthier today. Switzerland is another example of a decentralized, rich country that isn’t known for higher education.

If one were to make the association that wealthy nations all have a good education system, and thus they must have generated wealth from education, then one can equally attribute decadence in wealthy societies as precursors for economic growth by the same logic. 


The Fragilista


The conventional way of managing risk is to take the worst case scenarios into consideration, never considering that the worst case scenario may not have happened yet – a Black Swan event.

A naive rationalist believes that top-down systems work in complex environments. He is what Nassim calls a “fragilista”, someone who well-meaning, but oblivious to the damage he is causing. The fragilista applies complex solutions to solve human beings’ or societies’ problems.

  • The medical fragilista denies your body to heal by giving you medicine with potentially harmful side effects.
  • The policy fragilista designs systems that require constant intervention.
  • The financial fragilista creates risk models that blow up the banking system.
  • The military fragilista tries to restructure complex societies.
  • The predictor fragilista convinces people to invest in future illusions.

The Turkey Problem is described in a previous post summarizing what I learned from The Black Swan. The problem of assuming that past results are a good basis for future predictions is discussed again in Anti-Fragile. The absence of evidence is not evidence of absence.  Our goal should be to figure out how to not be a turkey and confuse fake stability with real stability. Even more, our goal should be to be the anti-turkey, or anti-fragile and learn to benefit from disorder and instability. Taleb’s point isn’t that the future is always uncertain, it’s that it’s much more uncertain than we think. (or seem to behave like)


Calm Down Socrates 


A dialogue takes place between Socrates and Taleb’s horizontal (fat) friend, Fat Tony. However, the Socratic method doesn’t work here. Fat Tony, a street-smart millionaire who looks for opportunities in people’s overconfidence (that’s how he became a millionaire) is keenly aware of the danger of disrupting a complex organism (culture or tradition) by applying artificial order to it.

Socrates requires ‘reasons’ and ‘definitions’ and ‘justifications’ for things, and once he destroys his opponent’s argument by showing that none of his requirements are met. After his opponent realizes how flimsy his presumptions, Socrates wins. Or rather, his opponent loses.

Socrates creates a void he can’t fill. This is similar to how atheists try to question religious tradition by abstractly poking holes in it. But the religious organism is too complex, it’s function is deeper than we can understand, and it’s wiser to not question things that last so long and serve a positive social function so consistently.

“As Fat Tony said, Socrates was put to death because he disrupted something that, in the eyes of the Athenian establishment, was working just fine. Things are too complicated to be expressed in words; by doing so, you kill humans.”


Heuristics


Heuristics are rules of thumb. They make decisions simpler and faster. They’re better than complex models because heuristics practitioners understand the limitations of their strategy. A heuristic isn’t meant to yield perfect results. It’s meant to give you results that are good enough in the long run. A complex model promises much more, but it doesn’t deliver.

Too much interventionism is counter-productive. The remedy is to limit how much information we expose to ourselves. The answer isn’t Big Data, or more complex information. It’s to understand where the crucial pieces of information are and putting more faith there.


Via Negativa


Chess grand-masters win because they didn’t make a mistake. Poker players win because they didn’t lose their stack. People get rich because they didn’t go broke when others did. Athletes become stars because they didn’t get injured. 

It’s wiser to follow advice that warns you of what not to do rather than tells you what to do. A prescription or a “how to” book is telling you one way of doing something. It’s very likely that this one way doesn’t work. Imagine you bought a book that wants to teach you how to be a successful entrepreneur.

The book’s prescription would only need to fail once (it will fail many times even if the advice was sound due to the infinite number of variables that play into the success or failure of a business). Whereas learning via negative knowledge is actually constructive. You only need to know that your theory fails once to know that it isn’t perfect.

If you had a theory that said that “lying is good”, it would only take one instance of getting punished for a lie you told to be able to say that “lying is not always good”. And if lying could cause you severe harm, you might overcompensate and say something like “Never Lie”.

Less can be More.

The point of the book is to identify things that are susceptible to fragility and things that are antifragile. Once your fragility categorization skills are properly honed, you can use them to better understand everything from financial models, to people. You’ll know what to avoid, and what to embrace. You will change your perception of risk. Hard not to read Antifragile without giving conventional, modern day agents of  wisdom a suspicious, sideways look. 

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