Taleb's Antifragility

In Antifragile: Things That Gain from Disorder, Nassim Taleb gives us a handbook on seeing things coming, by spotting the fragile, and conversely advocating in favor of people, organizations and ways of thinking, that are more than merely robust—they are antifragile.

This dossier, built from an analysis of various publicly available papers and talks given in 2011 and 2012 ahead of the book’s release, explores Taleb’s antifragility. Using select examples from Taleb, we unpack the essential elements that define antifragility.

When former New York Times reporter Alex Berenson showed up in Nassim Nicholas Taleb’s office in 2003 with a leaked risk report from Fannie Mae, Taleb recalls having turned pale: an explosive combination of agency problems, moral hazard, and ‘scientism’—the illusion that ostensibly scientific techniques would manage risks—meant the global economy was sitting on dynamite. He was right and yet, few saw it coming.

Predicting the future has always been left to fools and oracles. Tumultuous, random and volatile, life is beyond our taming, beyond our strategizing. While some would agree with Hobbes that life is “nasty, brutish, and short”, it’s an oversimplification to see this rough and messy cycle as negative. Evolution depends on this chaos. Anything with a natural cycle requires stressors to move forward. Our bodies, our governments and our economies all benefit from being pushed beyond the breaking point, so they can be rebuilt, stronger than ever.

But we seem to have become allergic to uncertainty. We plan and curate our experience of the world—cutting out randomness and chance as antiquated concepts—despite the fact that the best discoveries are often stumbled upon. Something is wrong when suing over hot apple pie is more American than the apple pie itself. Banners in factories proudly declaring safety a priority over all else, and warning labels on teddy bears, it seems we’ve gone overboard on eliminating risks at all costs.

For governments and policymakers, the fear of uncertainty translates into ‘interventionism’. Alan Greenspan, once the revered Fed chairman and leading architect of the subprime debacle, thought he could remove cycles from the US economy by over-optimizing it, without proper care for checks-and-balances or the implementation of system redundancies. By supporting a policy of ‘easy money’ (i.e. over leveraging), the Fed and other policymakers thought they could remove the seasons: everyone would be in a state of economic bliss where these inconvenient cycles would have become a figment of the past.

Using interventionism, the US government also bailed out ‘too big to fail’ financial companies and weak automakers, avoiding the shake-up that ultimately proves beneficial to a system.

But the phoenix must rise out of ashes.

This institutionalized fear of randomness and shock has made governments and businesses overly obsessed with the concept of ‘risk management’. But risk itself is a complex concept: it has no static or universal definition, depending mostly on temporary contexts, shifting configurations and mysterious calculations.

Risk, fragility and antifragility

Rather than trying to understand or manage ‘risk’, Taleb argues, we should try to understand ‘fragility’—a much more fertile concept. There is no universal definition for fragility but, luckily, there is a way to understand it. According to Taleb, anything disproportionately harmed by large events is fragile. Generally, anything that malfunctions in response to randomness or variations. The best illustration of this concept is air travel. Introduce one random event in this over-optimized system (think Heathrow)—like a misplaced piece of luggage or a volcanic eruption—and travellers can be delayed hours, if not days or weeks. However, positive randomness—like favorable winds—will never get you more than few minutes in advance. Consequently, randomness is usually more harmful than beneficial to anything fragile.

Exploring the concept of fragility, Taleb also reveals that there is no known antonym of fragility, so he has coined the appellation ‘antifragile’, which applies to anything that benefits from variability.

As it turns out, this provides a great forecasting model, as Taleb uses the allegory of via negativa: “By understanding fragility it becomes easy to look into the future, through subtractive methods: you remove anything fragile. It’s a simple heuristic that works beautifully.” In other words, where traditional forecasting heuristics try to use the present as a baseline and then adds components—flying motorcycles, self-replenishing refrigerators and robots—Taleb proposes looking at the future for what it is not. As a framework, the model Taleb developed is called the “triad” , in which things are classified as either fragile, robust, or antifragile.

Taleb’s view is heavily influenced by ancient Greek mythology. He often uses the mythological Lernaean Hydra as an analogy for ‘antifragility’: for each of its heads that was cut off, two more grew in its place. Therefore, this creature benefitted from shock and can be defined as ‘antifragile’. The Sword of Damocles is the analogy Taleb uses for ‘fragility’: those in power cannot be truly happy when fear constantly looms over them. To explain ‘robust’ Taleb uses the strength and vitality of the Phoenix, that is born out of destruction and chaos.

The beauty of this model is that you can filter almost any concept through it: ways of thinking, finance, political systems, technology etc. For instance, with respect to finance, Taleb classifies ‘debt’ as fragile, ‘equity’ as robust and ‘venture capital’ as antifragile. With respect to government, nation-states are fragile, while city-states are antifragile. More generally, ‘big’ is viewed as fragile, ‘small’ is antifragile, ‘monoculture’ is fragile, ‘polyculture’ is antifragile, etc.

But the model is not fixed: while a city is naturally antifragile, it becomes fragile when it gets too big or lacks industrial diversification. Detroit is a city that grew around the automaking industry and became huge. But when automakers started choking, the city basically went bust. Unveiling another important element of Taleb’s logic: understanding how fragility gets traded off.

How fragility gets traded-off in society

Taleb uses the notion of ‘skin in the game’ or the captain-ship rule, which, unless you are the captain of the Costa Concordia (in which case you can just take the first available life raft), states that the captain must go down with the ship. An earlier version of that rule can be found in the Hammurabi code—the first ever written code of law, developed during the first babylonian dynasty—which contains 282 laws. Law 229 is of particular interest for architects: it states that if a builder builds a house, does not construct it properly, and the house which he built falls in and kills its owner, then that builder shall be put to death.

In Taleb’s view there are three categories of people: those with ‘skin in the game’, those ‘without skin in the game’ and finally, those with ‘soul in the game’ or ‘skin in the game for the sake of others’.

Corporate executives and bankers belong to the second category. They became experts at trading their fragility and eventually made their compensation very antifragile: while investors lost trillions of dollars following the banking collapse, bankers had their best bonus year in 2010. The downside is systematically transferred to somebody else and the notion of moral hazard has, in many cases, been removed. While knights (the medieval kind) had to go to the frontline and risk their lives (skin in the game), the President of the United States can run a war from a distance with massive use of drones and risk very little (no skin in the game).

Who, then, has skin in the game? Merchants, activists, entrepreneurs, artisans... “An artisan selling you his product has his ego in it. He makes sure the inside is as beautiful as the outside. Steve Jobs was the only artisan at an industrial scale, for example”.

At the other side of the spectrum, you find people with ‘soul in the game’. Globally, people who take risks for their ideas: local politicians (who meet the victims on a daily basis), artists, innovators and mavericks. “There’s immense reward for that now. They take the downside of society, voluntarily. Without these, society can’t function.”

The problem we face is that people with no skin in the game currently have more power and generally sit at the top of our social hierarchy and control our institutions. In other words, we’ve transitioned into a world where people who hold high ranks in society don't have any risk. Accountability and virtue has all but been eradicated from the traditional spheres of power (business and politics) and fragility continues to be shoved downstream in the form of massive privatization of profits and democratization of losses, at the expense of society.

Nassim Taleb’s body of work on uncertainty reminds us that we should focus on the non-perishable and avoid some of the pitfalls of modernity, like our constant desire to fetishize the ‘new’. Bicycles, kitchens and cars are all very similar to what they were thirty years ago. “Once in awhile you have a breakthrough like the computer but otherwise, it pretty much stayed the same. If anything, we use technologies to produce old goods in a cheaper manner... If you asked someone fifty years ago to describe the kitchen of 2012, it would have looked like the inside of a flying saucer.” But when you look at today’s kitchen, as Taleb’s observes, it looks relatively similar to a kitchen you would have seen in the ruins of Pompei.

Nothing Succeeds Like Success Itself

Nassim Taleb’s body of work on uncertainty reminds us that we should focus on the non-perishable to avoid some of the pitfalls of modernity, like our constant fetishization of the ‘new’. In reality, most things, from bicycles to kitchens to cars, are all very similar to what they were thirty years ago, save their increased disposability:

Once in awhile you have a breakthrough (like the computer), but otherwise, [things have] pretty much stayed the same. If anything, we use technologies to produce old goods in a cheaper manner... If you asked someone 50 years ago to describe the kitchen of 2012, it would have looked like the inside of a flying saucer. But when you look at today’s kitchen, it [still] looks relatively similar to a kitchen you would have seen in the ruins of Pompeii.

The ‘Lindy Effect’, originating in the June 1964 issue of The New Republic, hinted at the same understanding: “the future career expectations of a television comedian is proportional to his past exposure”. Indeed, ‘nothing succeeds like success itself’ and the idea applies to nearly anything and everything: books, music, technologies, ideas, corporations, economic principles and so on. In other words, that which has survived the longest is most likely to outlast. This comes as stabilizing wisdom in these turbulent times and it becomes all the more important to keep in mind what will remain in the end: the robust and the antifragile. In this context, antifragility, as articulated by Nassim Taleb, establishes a useful framework and guide for understanding and leading insightfully into the future. We’ve gotten distracted, but it's time we start valuing the track record again.

Exploration into the antifragile

1. Countries — Switzerland

"The Swiss have a reputation for protecting valuable things, like money, data and gold. Even the pope."

In the midst of the debt crisis in Europe and sustained economic uncertainty in the USA, Switzerland has proven that not only is it very resilient when others face trouble, it actually benefits from randomness and shocks. Investors shifted massive amounts of money into Switzerland which propelled the swiss franc to appreciate by more than 30% against the Euro before the Swiss National Bank intervened, stating “massive overvaluation”.

2. Food — Wine

Relative to other food products, wine benefits from a certain level of randomness and is therefore antifragile —up to a point. Aroma, flavor, and complexity can improve with age, depending on the storage conditions.

3. Investing — Venture capital

A start-up that relies too much on debt lives in fear of the margin call. It is very intuitive that debt is fragile. Venture capital, on the other hand, leans towards antifragility. Unlike bankers, venture capitalists have ‘skin in the game’ and have an incentive to foster a healthy relationship in which everyone shares the risks and rewards. That is, assuming the entrepreneur did not give up command to the VC, in which case he becomes himself fragile.

4. Product — Jeans

“At the start, unwashed jeans are difficult to love. They are stiff. They feel like wearing a cardboard box. Some people don’t ever get past this stage.

But don’t give up. To those who persevere, there will be a reward. Like a Guinness, it just takes time to reveal its quality.

You and your jeans will go everywhere together. They will be the first thing you reach for in the morning, the last thing you take off at night and along the way, they mould to you.

Every crease, every mark, every rip, every splash of paint is put there by you.

There will be a moment in this Wear-to-Fit process where they become your jeans. You will have broken them in. The pain will have been worth it. Easy doesn’t make great jeans.” — Hiut Denim Co.

5. Government — Cities and neighborhoods

Accountability. For large organizations or nation-states, it always seems to get lost somewhere, in between the multiple layers of bureaucracy. At the local or city level, problems get really visible: potholes, crime and violence, snow removal. The feedback loop operates quickly and for the mayor who meets the victims on a daily basis, its becomes very difficult to hide. Small cities are individually fragile, but collectively antifragile. They have become engines of economic growth for a reason , and that trend will continue.

6. Decision-making — Bottom-up

As many businesses and governments are slowly realizing, top-down is fragile and unless you are running an army, it may not work to your advantage. On the other hand, bottom-up is antifragile. Valve software, maker of the hit videogame ‘Half life’ (10m+ copies sold), brands itself as being ‘flat’. That is, they don’t have any management, and nobody ‘reports to’ anybody else. Valve’s handbook for new employees, titled “A fearless adventure in knowing what to do when no one’s there telling you what to do”, is revealing:

A flat structure removes every organizational barrier between your work and the customer enjoying that work. Every company will tell you that “the customer is boss,” but here that statement has weight. There’s no red tape stopping you from figuring out for yourself what our customers want, and then giving it to them. If you’re thinking to yourself, “Wow, that sounds like a lot of responsibility,” you’re right. And that’s why hiring is the single most important thing you will ever do at Valve. Any time you interview a potential hire, you need to ask yourself not only if they’re talented or collaborative but also if they’re capable of literally running this company, because they will be.

Of course, not every organisation is a gaming company (i.e. highly dependant and young, creative talent), but what’s fascinating about Valve’s philosophy is how ‘structuring’ (as opposed to structured) it can be. Accountability and autonomy become very powerful ingredients that sanitize the system

7. Food production — Polyculture

Iowa, for all its agricultural production, still imports 95 percent of its food from elsewhere because the food industry prefers focusing on soy and corn, which are part of a broader opaque system which is heavily controlled by the hands of a few. Thanks to ‘markets’ and trading in general, monoculture does not necessarily imply the kind of consequences suffered by the Irish during the great potato famine. Still, diversification of food production becomes a pressing issue in a post-oil economy, where the ‘3,000 mile salad’ is bound to come to an end.

8. Business — Makers

Makers and artisans are antifragile because they each put their heart, soul and ego into the product they make. They ensure that the inside is as beautiful as the outside. Making is all about reclaiming control on learning, consumption and communication. As a maker, you get to know who buys your products and why. The feedback loop is immediate and direct. Industry, on the other hand, is obsessed with the growth agenda (fuelled by the M&A enigma), street expectations and the Next Quarter.

If a company is not strong enough all it takes is one shock to be wiped out, like Research in Motion, the embattled smartphone inventor, painfully learned before it was condemned to die a painful death.

In his 2011 budget statement, George Osborne, Chancellor of the Exchequer of the UK, sided with the makers and articulated the need to shift attention from small talk, to expensive talk: “A Budget for making things—not for making things up”.

9. Science and Technology — Rapid prototyping

Taleb refers to “stochastic tinkering” or “convex bricolage”. Stochastic systems and processes are ‘non-deterministic’ which means their subsequent state is determined both by the process's predictable actions and by a random element, which makes them antifragile. Directed research, on the other hand, is fragile, because it removes any element of randomness. The growing criticism towards business strategy also comes from this idea that it rarely bakes-in randomness and tends to assume a certain linearity to customer needs and wants, competition, market shifts, etc.

10. Learning — Real life

It's the coffeeshop vs. the classroom. The only meaningful way to learn now seems to be through having conversations. That’s why events—hackfests, gathering of all sorts, small or big—are becoming so important. It has now become essential to voice what one cares about, is good at, concerned about, has experience with, and so on. As the world is served on a virtual platter—and all your friends, work, education and entertainment is at your fingertips, there are fewer reasons to seek out your neighbour, or so one would think. As everything becomes available to the individual, the individual realises the value of the tribe. Google isn’t going to pour you a glass of wine and explain why your idea is underdeveloped. People are seeking supplemental information, beyond the screen in clusters of face-to-face conversations, where they can expel and absorb stories, experiences and information, challenge and collaborate, and build offline/online networks and communities.

We see industries, countries and culture going through massive shifts one after the other. The sum total of those shifts points to an emerging consensus: the world is rebalancing. The established global order, its institutions and its foundations are being challenged. In this ‘new normal’, innovative frameworks and ways of thinking are needed. Understanding Taleb's explorations of fragility as a framework leads to a new kind of thought process, to a new way of organizing our thinking through these chaotic times. It is for this reason that Antifragility emerged as the focus of our inaugural issue — AR

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