{"id":34583,"date":"2012-12-19T14:24:27","date_gmt":"2012-12-19T19:24:27","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=34583"},"modified":"2012-12-19T14:24:27","modified_gmt":"2012-12-19T19:24:27","slug":"review-of-nassim-talebs-antifragile","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/12\/19\/review-of-nassim-talebs-antifragile\/","title":{"rendered":"Review of Nassim Taleb\u2019s Antifragile"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

We all know what \u201cfragile\u201d means.\u00a0 But what is the opposite of fragile? \"\"<\/a>\"\"<\/p>\n

If you are like me, your instinctive response would be \u201crobust\u201d or perhaps \u201cdurable.\u201d\u00a0 But you would be wrong.<\/p>\n

Something that is fragile is damaged by an unexpected shock, whereas something that is robust or durable is able to withstand it.\u00a0 To be robust is to be neutral<\/em> to shocks.<\/p>\n

But what do you call the true opposite of fragile\u2014something that actually benefits <\/em>from shocks?<\/p>\n

As Nassim Taleb points out, there is no word in English (or in any other language, ancient or modern) that conveys this idea.\u00a0 So he invented one\u2014antifragile\u2014and wrote an entertaining and enlightening book around the concept.<\/p>\n

Taleb is at times playful and even self-effacing in his writing and at other times insufferably arrogant and abrasive (\u201cnon-meek\u201d in his words).\u00a0 But he is always\u2014and I mean always<\/em>\u2014thought provoking.<\/p>\n

Years ago, before Taleb become something of a celebrity, I picked up his original Fooled by Randomness<\/em><\/a><\/strong> and had something of a \u201ceureka\u201d moment.\u00a0 Taleb put into words (and numbers) many of the abstract ideas about risk and randomness that I instinctively felt yet couldn\u2019t articulate (he had that effect on a lot of people, it would turn out).\u00a0 In particular, I had always mistrusted the Value-at-Risk metric and its offshoots that had been crammed down my throat as an undergraduate finance student.\u00a0 It registered on my \u201cbulls_t detector\u201d, to borrow one of Taleb\u2019s earthy phrases, and history would vindicate this gut reflex with implosion of the financial system in 2008.<\/p>\n

I still consider Fooled <\/em>to be his best book, and if you have never read Taleb\u2019s work that is where I would recommend you start.\u00a0 But Antifragile: Things That Gain From Disorder<\/a><\/strong>\u00a0<\/em>expands on the concepts in Fooled<\/em> and its follow-up The Black Swan <\/em>and goes far beyond financial markets into a more general theory of randomness and volatility and their importance in life and nature.\u00a0 \u201cLiving things are long volatility,\u201d<\/em><\/strong> he emphasizes often.<\/p>\n

Perhaps Taleb\u2019s greatest gift as a writer is his ability to speak in metaphors, the best of which is his analogy of the Procrustean Bed (see my review of Taleb\u2019s The Bed of Procrustes<\/em><\/a><\/strong>).<\/p>\n

Procrustes was a nasty little fellow from Greek mythology who would invite guests into his home and then either stretch or amputate parts of their legs to make them fit just right in his guest bed.\u00a0 In Taleb\u2019s analogy, much of the modern world is a Procrustean bed of sorts.\u00a0 People, markets, and economic systems are contorted to fit tidy theories.<\/p>\n

But in Antifragile<\/em>, Taleb goes beyond this \u201csquare peg in a round hole\u201d argument to a larger critique of \u201csoccer moms\u201d (both figurative and literal) who naively attempt to make the world safer by \u201csucking randomness out to the last drop.\u201d\u00a0 Doing this provides the illusion of safety while actually making us less resilient and more fragile.\u00a0 In other words, not only are scraped knees and bruises ok, they are an essential part of growth.<\/p>\n

Many readers misunderstand Taleb\u2019s core message.\u00a0 They assume that because Taleb writes about unseen and improperly calculated risks, his objective must be to reduce or eliminate risk.\u00a0 Nothing could be further from the truth.\u00a0 <\/em><\/p>\n

If anything, Antifragile<\/em> is a celebration of risk and randomness and a call to arms to recognize and embrace antifragility.\u00a0 Rather than reduce risk, organize your life, your business or your society in such a way that it benefits from randomness and the occasional Black Swan event.<\/p>\n

Taleb\u2019s own life is a case in point.\u00a0 He had the free time to write Fooled, The Black Swan<\/em> and Antifragile<\/em> because\u2014in his own words\u2014he made \u201cF___ you money\u201d during the greatest Black Swan event of our lifetimes, the 1987 stock market crash.\u00a0\u00a0 And to demonstrate that Taleb\u2019s trading style is antifragile, had the 1987 crash never happened, Taleb would not have been materially hurt.\u00a0 His trading style puts little at risk but allows for outsized returns.<\/p>\n

In what may seem somewhat disturbing to some readers (and Taleb himself is disturbed by it as well), what makes a system antifragile is that its individual pieces are perishable.\u00a0 Natural selection\u2014the survival of the fittest\u2014requires that the unfit are allowed to fail.<\/p>\n

Using the example of restaurants, the restaurant sector is robust<\/em> because the failure of any one restaurant does not affect the others. \u00a0\u00a0And the restaurant sector is antifragile <\/em>because the remaining players actually learn and grow from witnessing the mistakes made by the failed restaurant.<\/p>\n

Now, compare this to the banking system.\u00a0 The world banking system is inherently fragile because the failure of one bank leads to contagion that can cause the failure of other banks and of the system itself.<\/p>\n

The importance of failure<\/strong> to an antifragile system is a recurring theme to the book.\u00a0 As individuals and as a collective, we learn more from mistakes than from successes.\u00a0 In a capitalist system, you need a replenishable \u00a0supply of entrepreneurs willing to take risks.\u00a0 For every failed business idea, our knowledge base expands.<\/p>\n

Taleb goes so far as to advocate we treat ruined entrepreneurs in the same way we honor dead soldiers, \u201cperhaps not with as much honor, but using the same logic.\u201d<\/p>\n

As Taleb explains, just as \u201cthere is no such thing as a failed soldier, dead or alive (unless he acted in a cowardly manner), likewise there is no such thing as a failed entrepreneur \u00a0or failed scientific researcher.\u201d\u00a0\u00a0 Their sacrifice makes the system stronger.<\/p>\n

I commend Taleb on another book well written, and I recommend Antifragile<\/em> along with Fooled by Randomness<\/em> and The Black Swan.<\/em><\/p>\n

SUBSCRIBE <\/a><\/strong>to Sizemore Insights<\/em>\u00a0via e-mail today.<\/p>\n

The post Review of Nassim Taleb’s Antifragile<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

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