Antifragile: Things That Gain from Disorder

by Taleb, Nassim Nicholas

  Now why is such thinking by the likes of Professor Pisano dangerous? It is not a matter of whether or not he would inhibit research in biotech. The problem is that such a mistake inhibits everything in economic life that has antifragile properties (more technically, “right-skewed”). And it would fragilize by favoring matters that are “sure bets.”

  Remarkably, another Harvard professor, Kenneth Froot, made the exact same mistake, but in the opposite direction, with the negative asymmetries. Looking at reinsurance companies (those that insure catastrophic events), he thought that he found an aberration. They made too much profit given the risks they took, as catastrophes seemed to occur less often than what was reflected in the premia. He missed the point that catastrophic events hit them only negatively, and tend to be absent from past data (again, they are rare). Remember the turkey problem. One single episode, the asbestos liabilities, bankrupted families of Lloyd underwriters, losing income made over generations. One single episode.

  We will return to these two distinct payoffs, with “bounded left” (limited losses, like Thales’ bet) and “bounded right” (limited gains, like insurance or banking). The distinction is crucial, as most payoffs in life fall in either one or the other category.

  To Fail Seven Times, Plus or Minus Two

  Let me stop to issue rules based on the chapter so far. (i) Look for optionality; in fact, rank things according to optionality, (ii) preferably with open-ended, not closed-ended, payoffs; (iii) Do not invest in business plans but in people, so look for someone capable of changing six or seven times over his career, or more (an idea that is part of the modus operandi of the venture capitalist Marc Andreessen); one gets immunity from the backfit narratives of the business plan by investing in people. It is simply more robust to do so; (iv) Make sure you are barbelled, whatever that means in your business.

  THE CHARLATAN, THE ACADEMIC, AND THE SHOWMAN

  I end the chapter on a sad note: our ingratitude toward many who have helped us get here—letting our ancestors survive.

  Our misunderstanding of convex tinkering, antifragility, and how to tame randomness is woven into our institutions—though not consciously and explicitly. There is a category of people in medicine called the empirics, or empirical skeptics, the doers, and that is about it—we do not have many names for them as they have not written a lot of books. Many of their works were destroyed or hidden from cultural consciousness, or have naturally dropped out of the archives, and their memory has been treated very badly by history. Formal thinkers and theorizing theorizers tend to write books; seat-of-the-pants people tend to be practitioners who are often content to get the excitement, make or lose the money, and discourse at the pub. Their experiences are often formalized by academics; indeed, history has been written by those who want you to believe that reasoning has a monopoly or near monopoly on the production of knowledge.

  So the final point here is about those called charlatans. Some were, others were less so; some were not; and many were borderline. For a long time official medicine had to compete with crowds of flashy showmen, mountebanks, quacks, sorcerers and sorceresses, and all manner of unlicensed practitioners. Some were itinerant, going from town to town carrying out their curative acts in front of large gatherings. They would perform surgery on occasion while repeating incantations.

  This category included doctors who did not subscribe to the dominant Graeco-Arabic school of rational medicine, developed in the Hellenistic world of Asia Minor and later grown by the Arabic language school. The Romans were an anti-theoretical pragmatic bunch; the Arabs loved everything philosophical and “scientific” and put Aristotle, about whom nobody seemed to have cared much until then, on a pedestal. For instance we know very, very little of the skeptical empirical school of Menodotus of Nicomedia—we know a lot more about Galen, the rationalist. Medicine, for the Arabs, was a scholarly pursuit and founded on the logic of Aristotle and the methods of Galen; they abhorred experience.6 Medical practitioners were the Other.

  The regulation of the medical establishment corresponds to worries about the empirics for economic reasons as competition made their incomes drop. So no wonder these were bundled with the thieves, to wit this long title for an Elizabethan treatise: A short discourse, or, discouery of certaine stratagems, whereby our London-empericks, haue bene obserued strongly to oppugne, and oft times to expugne their poore patients purses.

  “Charlatan” was held to be a synonym for empirick. The word “empiric” designated someone who relied on experiment and experience to ascertain what was correct. In other words, trial and error and tinkering. That was held to be inferior—professionally, socially, and intellectually. It is still not considered to be very “intelligent.”

  But luckily for us, the empirics enjoyed immense popular support and could not be uprooted. You do not see their works, but they left a huge imprint on medicine.

  Note the initial peaking of iatrogenics after the academization—and institutionalization—of medicine with the onset of modernity. It has only recently started to reverse. Also, formal academics, seen in the light of history, were not better than those they called charlatans—they just hid their fraud under the weight of more convincing rationalizations. They were just organized quacks. My hope is for that to change.

  Now, I agree that most nonacademically vetted medical practitioners were scoundrels, mountebanks, quacks, and often even worse than these. But let’s hold off jumping to the wrong conclusions. Formalists, to protect their turf, have always played on the logical fallacy that if quacks are found among nonacademics, nonacademics are all quacks. They keep doing it: the statement all that is nonrigorous is nonacademic (assuming one is a sucker and believes it) does not imply that all that is nonacademic is nonrigorous. The fight between the “legitimate” doctors and the Others is quite enlightening, particularly when you note that doctors were silently (and reluctantly) copying some of the remedies and cures developed and promoted by the Others. They had to do so for economic reasons. They benefited from the collective trial and error of the Others. And the process led to cures, now integrated into medicine.

  Now, reader, let us take a minute and pay some respect. Consider our ingratitude to those who got us here, got our disrespect, and do not even know that they were heroes.

  1 According to David Edgerton, the so-called linear model was not believed in much in the early twentieth century; it is just that we believe now that we believed then in the supremacy of teleological science.

  2 We also figured out that two fragilistas, Myron Scholes and Robert Merton, got the Memorial Prize in Economics called “Nobel” for the packaging of a formula that other people discovered in much more sophisticated form before them. Furthermore, they used fictional mathematics. It is quite unsettling.

  3 I remind the reader that the bone in Book IV is teleology and sense of direction, and while this is largely skeptical of formal academia (i.e. anti-universities), this is staunchingly anti-pseudoscience (or cosmetic science) and ultra-pro-science. It is just that what many call science is highly unscientific. Science is an anti-sucker problem.

  4 Remarkably, Johan Jensen, of Jensen’s inequality, which provides the major technical support behind the ideas of this book, was an amateur mathematician who never held any academic position.

  5 This is a technical comment. “1/N” is the argument Mandelbrot and I used in 2005 to debunk optimized portfolios and modern finance theory on simple mathematical grounds; under Extremistan effects, we favor broad, very broad diversification with small equal allocations rather than what modern financial theory stipulates.

  6 It is not very well noticed that Arabic thought favors abstract thinking and science in the most theoretical sense of the word — violently rationalistic, away from empiricism.

  CHAPTER 16

  A Lesson In Disorder

  Where is the next street fight?—How to decommoditize, detouristify—The intelligent student (also in reverse)—Flâneur as options

  Let us con
tinue with teleology and disorder—in private life and individual education. Then an autobiographical vignette.

  THE ECOLOGICAL AND THE LUDIC

  As we saw with the fellow making the common but false analogy to blackjack in Chapter 7, there are two domains, the ludic, which is set up like a game, with its rules supplied in advance in an explicit way, and the ecological, where we don’t know the rules and cannot isolate variables, as in real life. Seeing the nontransferability of skills from one domain to the other led me to skepticism in general about whatever skills are acquired in a classroom, anything in a non-ecological way, as compared to street fights and real-life situations.

  It is not well advertised that there is no evidence that abilities in chess lead to better reasoning off the chessboard—even those who play blind chess games with an entire cohort can’t remember things outside the board better than a regular person. We accept the domain-specificity of games, the fact that they do not really train you for life, that there are severe losses in translation. But we find it hard to apply this lesson to technical skills acquired in schools, that is, to accept the crucial fact that what is picked up in the classroom stays largely in the classroom. Worse even, the classroom can bring some detectable harm, a measure of iatrogenics hardly ever discussed: Laura Martignon showed me results from her doctoral student Birgit Ulmer demonstrating that children’s ability to count degrades right after they are taught arithmetic. When you ask children how many intervals there are between fifteen poles, those who don’t know arithmetic figure out that there are fourteen of them. Those who studied arithmetic get confused and often make the mistake that there are fifteen.

  The Touristification of the Soccer Mom

  The biologist and intellectual E. O. Wilson was once asked what represented the most hindrance to the development of children; his answer was the soccer mom. He did not use the notion of the Procrustean bed, but he outlined it perfectly. His argument is that they repress children’s natural biophilia, their love of living things. But the problem is more general; soccer moms try to eliminate the trial and error, the antifragility, from children’s lives, move them away from the ecological and transform them into nerds working on preexisting (soccer-mom-compatible) maps of reality. Good students, but nerds—that is, they are like computers except slower. Further, they are now totally untrained to handle ambiguity. As a child of civil war, I disbelieve in structured learning—actually I believe that one can be an intellectual without being a nerd, provided one has a private library instead of a classroom, and spends time as an aimless (but rational) flâneur benefiting from what randomness can give us inside and outside the library. Provided we have the right type of rigor, we need randomness, mess, adventures, uncertainty, self-discovery, near-traumatic episodes, all these things that make life worth living, compared to the structured, fake, and ineffective life of an empty-suit CEO with a preset schedule and an alarm clock. Even their leisure is subjected to a clock, squash between four and five, as their life is sandwiched between appointments. It is as if the mission of modernity was to squeeze every drop of variability and randomness out of life—with (as we saw in Chapter 5) the ironic result of making the world a lot more unpredictable, as if the goddesses of chance wanted to have the last word.

  Only the autodidacts are free. And not just in school matters—those who decommoditize, detouristify their lives. Sports try to put randomness in a box like the ones sold in aisle six next to canned tuna—a form of alienation.

  If you want to understand how vapid are the current modernistic arguments (and understand your existential priorities), consider the difference between lions in the wild and those in captivity. Lions in captivity live longer; they are technically richer, and they are guaranteed job security for life, if these are the criteria you are focusing on …

  As usual, an ancient, here Seneca, detected the problem (and the difference) with his saying “We do not study for life, but only for the lecture room,” non vitae, sed scolae discimus, which to my great horror has been corrupted and self-servingly changed to fit the motto of many colleges in the United States, with non scolae, sed vitae discimus as their motto, meaning that “We study [here] for life, not for the lecture hall.”

  Most of the tension in life will take place when the one who reduces and fragilizes (say the policy maker) invokes rationality.

  AN ANTIFRAGILE (BARBELL) EDUCATION

  Something cured me of the effect of education, and made me very skeptical of the very notion of standardized learning.

  For I am a pure autodidact, in spite of acquiring degrees.

  My father was known in Lebanon as the “Intelligent Student Student Intelligent,” a play on words, as the Arabic phrase for “intelligent student” (or scholar) is taleb nagib and his name was Nagib Taleb. That was the way the newspaper published his name for having the highest grade on the Lebanese high school exit exam. He was a national valedictorian of sorts, and the main newspaper announced his passing in 2002 with a front-page headline with a pun on his predestined name, THE INTELLIGENT STUDENT STUDENT INTELLIGENT IS NO LONGER. His school education was harrowing, though, as he attended the elite Jesuit school. The Jesuits’ mission was to produce the mandarins who ran the place, by filtering and filtering students after every year. They were successful beyond their aim, as in addition to having one of the highest success rates in the world in the French baccalaureate (in spite of the war), their school had a world-class roster of former students. The Jesuits also deprived pupils of free time, so many gave up voluntarily. So one can surmise that having a father as national valedictorian would definitely have provided me with a cure against school, and it did. My father himself did not seem to overvalue school education, since he did not put me in the Jesuit school—to spare me what he went through. But this clearly left me to seek ego fulfillment elsewhere.

  Observing my father close up made me realize what being a valedictorian meant, what being an Intelligent Student meant, mostly in the negative: they were things that intelligent students were unable to understand. Some blindness came with the package. This idea followed me for a long time, as when I worked in trading rooms, where you sit most of the time waiting for things to happen, a situation similar to that of people sitting in bars or mafia men “hanging around.” I figured out how to select people on their ability to integrate socially with others while sitting around doing nothing and enjoying fuzziness. You select people on their ability to hang around, as a filter, and studious people were not good at hanging around: they needed to have a clear task.

  When I was about ten I realized that good grades weren’t as good outside school as they were in it, as they carried some side effects. They had to correspond to a sacrifice, an intellectual sacrifice of sorts. Actually my father kept hinting to me the problem of getting good grades himself: the person who was at the exact bottom of his class (and ironically, the father of a classmate at Wharton) turned out to be a self-made merchant, by far the most successful person in his class (he had a huge yacht with his initials prominently displayed on it); another one made a killing buying wood in Africa, retired before forty, then became an amateur historian (mostly in ancient Mediterranean history) and entered politics. In a way my father did not seem to value education, rather culture or money—and he prompted me to go for these two (I initially went for culture). He had a total fascination with erudites and businessmen, people whose position did not depend on credentials.

  My idea was to be rigorous in the open market. This made me focus on what an intelligent antistudent needed to be: an autodidact—or a person of knowledge compared to the students called “swallowers” in Lebanese dialect, those who “swallow school material” and whose knowledge is only derived from the curriculum. The edge, I realized, isn’t in the package of what was on the official program of the baccalaureate, which everyone knew with small variations multiplying into large discrepancies in grades, but exactly what lay outside it.

  Some can be more intelligent than others in a stru
ctured environment—in fact school has a selection bias as it favors those quicker in such an environment, and like anything competitive, at the expense of performance outside it. Although I was not yet familiar with gyms, my idea of knowledge was as follows. People who build their strength using these modern expensive gym machines can lift extremely large weights, show great numbers and develop impressive-looking muscles, but fail to lift a stone; they get completely hammered in a street fight by someone trained in more disorderly settings. Their strength is extremely domain-specific and their domain doesn’t exist outside of ludic—extremely organized—constructs. In fact their strength, as with overspecialized athletes, is the result of a deformity. I thought it was the same with people who were selected for trying to get high grades in a small number of subjects rather than follow their curiosity: try taking them slightly away from what they studied and watch their decomposition, loss of confidence, and denial. (Just like corporate executives are selected for their ability to put up with the boredom of meetings, many of these people were selected for their ability to concentrate on boring material.) I’ve debated many economists who claim to specialize in risk and probability: when one takes them slightly outside their narrow focus, but within the discipline of probability, they fall apart, with the disconsolate face of a gym rat in front of a gangster hit man.