"If you have more than one reason to do something," says Taleb "just don't do it."
This is one of the many exasperatingly true edicts I found in "Antifragile", a book that changed the way I view the world. Taleb is a modern day prophet. He points out the errors of our ways, loudly rallies against the evil-doers (Economists, bankers, and politicians), and warns us to return to the "righteous" path (Antifragile). Prophets are often derided until their predictions come true. Taleb has earned his prophet credentials by predicting the banking meltdown, and profiting nicely from it. His book is approachable, sprinkled with personal stories and entertaining parables (Math equations are confined to the appendix). I have only one reason for my attempt to condense it.
Taleb's observations:
1. Social systems and natural systems are similar. Both domains are complex, non-linear, and composed of little-understood inter-dependencies. Any attempts to model them is bound to be simplistic and inaccurate.
2. Such systems are affected by external events- "stressors".
2.1 The stressors are random in frequency and magnitude.
2.2 Low magnitude stressors occur frequently. Stressors of high magnitude occur very rarely.
2.3 It is impossible to predict the timing or even the probability of these rare events. (A very small error in estimating the shape of the distribution curve will cause a big change in the prediction)
2.4 However, history has been largely shaped by those large-cataclysmic rare events. Taleb names them "Black Swans."
3. With enough time and variability, anything fragile will break. However, nature, our body, and economic systems survive due to their ability to learn and improve from variability. They are "Antifragile". Quoting Nietzsche, "Whatever does not kill me, makes me stronger"
Too much human intervention disrupts the natural tendency to self-heal. We are becoming more fragile and more susceptible to Black Swans.
4. We don't like uncertainty. Catering to this tendency, economist try, unsuccessfully to predict the future. Hearing these prediction, (even knowing they are wrong), we make risky decisions, resulting in catastrophes.
5. We don't like variability. We appoint people (like Greenspan) to reduce it. As a result, instead of experiencing many small slowdowns, from which the system can recover and improve, we get large meltdowns.
6. Our society promotes a new class of people such as Bankers and politicians, who have great power, yet take no risk. We, the public, carry the risk and bear the losses.
7. We let physicians, and the big pharmas, over-medicate us, exposing us to the rare but real danger of unintentional harm..
Taleb suggests that the way to handle variability and mitigate the problems above, is to become more Antifragile. One of his definitions for the term is as follows.
"Anything that has more upside than downside from random events is Antifragile." The reverse is "Fragile." Something that is not affected by variability is "Robust"
Below is some of his advice on how to survive, and even thrive from variability (my order).
8. Don't try to compute risk. "It is far easier to figure out if something is fragile than to predict the occurrence of an event that may harm it." Once fragility is detected, work to reduce it.
9. Top-down is fragile. Bottom-up thrives under stress.
9.1 City-states are better and more effective than modern Nation-states.
10. Big is fragile. Create disincentives for companies to grow to "too big to fail" status.
11. New discoveries are made by engineers/tinkerers, not in bureaucratically-funded academia. Develop an environment that tolerates (even honors) failure (i.e. Silicon Valley).
12. Do less. Better still, procrastinate. Avoid interference with things we do not understand. Let time take care of it.
13. Look for opportunities for exercising optionality. Optionality provides limited downside and open-ended upside.
14. Limit medical treatments to situations where the benefits are large and clear.
13. Adopt a "Barbell" strategy. A strategy that employs a combination of extremes, while avoiding the middle.
13.1 Combine aggressiveness and paranoia. Play it safe in some areas (robust to negative Black Swans) and take many small risks in others (open to positive Black Swans.)
13.2 Put 90% of your funds in (inflation proof) cash, and the other 10% in extremely risky securities.
13.3 Exercise hard, than take long rest periods.
13.4 Eat a large steak, then abstain from meat for a few days.
13.5 Marry an accountant, and have an affair with a rock star.
Enjoy the book.
