Wednesday, June 19, 2013

A Review of Antifragile: Things That Gain from Disorder by Nassim N. Taleb

Probably every book authored by Nassim Taleb should include a warning label. It should state something like the following: 

Warning: The following book may be hazardous to your health. Exposure to this material may cause irritation, anger, outrage, or other severe emotional disturbances. In addition, it may change your mind.

To those who aren’t acquainted with the Taleb, you should know that he is a native of Lebanon, where he grew up in a prominent and Christian family during the civil war. He came to the US and attended Wharton business school. After completion of his MBA, he went to work in the banking and investment industry. After having made sufficient money (“f--- you” money, as he terms it), he became an independent scholar and writer. He is at once innovative and very cantankerous. While at times I can find I find his style abrasive, as he liberally hands out insults and putdowns, he nevertheless always seems to provide mind (and practice) altering insights. So, if you read this latest of his books, Antifragile, you stand forewarned of this risk.

Taleb started his career as a popular writer talking about probability, and he made a very big splash when he published his book, The Black Swan, which discusses the impact of the highly improbable in markets and in life. Philosophically, he’s dealing with the problem of induction, the kind of thinking that says all we ever see are white swans, therefore, all swans are white. For Europeans, that was true until they went to Australia and discovered black swans. Induction has its flaws. 

In Antifragile, Taleb builds on his previous work and argues that while some things are fragile (e.g., a china cup) and some things are robust (e.g. the Timex watch that “can take a lickin’ and keep on tickin’”), other things are antifragile. Antifragile things actually gain from volatility (shocks or disturbance). The outstanding example that Taleb identifies is evolution, where a certain amount of volatility allows for change. Taleb is quick to point out that things that are antifragile can only withstand a certain degree of volatility. In other words, there can be too much of a good thing. In fact, this is one of the intriguing issues left open by the book: even for systems that could benefit from increased volatility, such as an economy, how do we determine the amount of volatility that we should condone (assuming we can control volatility)? Taleb seems to support (although he does not address the issue directly in the book that I recall), allowing the economy its ups and downs. This hands-off approach makes a certain amount of sense—up to a point. However, in a situation such as we have experienced since 2008, should we really allow market mechanisms to run willy-nilly without any intentional interference on our part? This is something that I don’t think he addresses, yet he suggests, following up laissez-faire economic line of thinking, that this would be correct. He does not directly address the argument of Keynes. Taleb, I think, knows that Keynes had keen insights into issues of probability and uncertainty and humility about our lack of knowledge about the economy. Taleb doesn’t provide or even address the issue of how to provide us with a heuristic or principle by which to judge the amount of volatility we should actively tolerate.

I find his thinking persuasive in the field of medicine, for instance, where a little bit of volatility or exposure to negative influences, such as germs, actually enhances our immune system and makes it stronger. Taleb mentions that he puts it drop of tap water on his tongue when he comes to visit India, which makes a fair amount of sense. Again, the challenge seems to be engaging the right amount of disturbance to tolerate or promote. The same goes for physical training, when we subject ourselves to a stressor, such as weights, and our body reacts by stronger. Our body exhibits antifragility by adapting to the insults of a heavy (beyond normal) weight. Too much weight, however, or an insufficient recovery time, will actually harm the body, causing injury or a failure to thrive. Again, the question is how much is enough or how much is too much.

Taleb also understands the potential ethical problems with his perspective. He is not suggesting that we through the less fortunate over board in order to allow untrammeled volatility in society or the economy (essentially the idea of Social Darwinism). Furthermore, he makes a very persuasive ethical argument that decision-makers should have “skin in the game”. In other words, “banksters” should suffer losses as well as gains when their bets go wrong, as they did so terribly in 2008. Under the existing system, Wall Street was in a “heads we win, tails you lose” mode. The situation was made worse by government bailouts that created moral hazard (although to my mind, the bailouts, while odious, were necessary). Again, I think Taleb skirts some of the bigger issues, but his overall perspective adds an important element of consideration as to how we should run economy and society.
Following are couple of quotes that are worthwhile:

The Italian political and legal philosopher Bruno Leoni has argued in favor of the robustness of judge-based law (owing to its diversity) as compared to explicit and rigid codifications. True, the choice of a court could be a lottery – but it helps prevent large-scale mistakes. (90)
For those readers who wonder about the difference between Buddhism and stoicism, I have a simple answer. A stoic is a Buddhist with attitude, one who says “f*** you” to fate. (153)

As to the first quote about the common law, I think there is a good deal of truth in that. The argument between the English (and American, Indian, etc.) legal systems and those of the Continent have been over the use of codes versus judge-made law. While the U.S. has moved to greater use of codes, we still have a benefit in judge-made law that should improve the flexibility of our legal system. 

As to the second quote, about Buddhism and Stoicism, I’m still looking for a good comparison, because I think that there is a close relationship, in attitude, if not in genealogy. His passing comments fails to say enough, buy it is tantalizing. 

Overall, it’s a very worthwhile and important book. Laugh and snicker when he rails against those whom you also dislike, and ignore him when he offends you, and you’ll gain all the benefits without suffering the warned-against side effects.

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