Antifragile: Things That Gain from Disorder

by Taleb, Nassim Nicholas

  A rule then hit me: with the exception of, say, drug dealers, small companies and artisans tend to sell us healthy products, ones that seem naturally and spontaneously needed; larger ones—including pharmaceutical giants—are likely to be in the business of producing wholesale iatrogenics, taking our money, and then, to add insult to injury, hijacking the state thanks to their army of lobbyists. Further, anything that requires marketing appears to carry such side effects. You certainly need an advertising apparatus to convince people that Coke brings them “happiness”—and it works.

  There are, of course, exceptions: corporations with the soul of artisans, some with even the soul of artists. Rohan Silva once remarked that Steve Jobs wanted the inside of the Apple products to look aesthetically appealing, although they are designed to remain unseen by the customer. This is something only a true artisan would do—carpenters with personal pride feel fake when treating the inside of cabinets differently from the outside. Again, this is a form of redundancy, one with an aesthetic and ethical payoff. But Steve Jobs was one of the rare exceptions in the Highly Talked About Completely Misunderstood Said to Be Efficient Corporate Global Economy.

  Artisans, Marketing, and the Cheapest to Deliver

  Another attribute of the artisanal. There is no product that I particularly like that I have discovered through advertising and marketing: cheeses, wine, meats, eggs, tomatoes, basil leaves, apples, restaurants, barbers, art, books, hotels, shoes, shirts, eyeglasses, pants (my father and I have used three generations of Armenian tailors in Beirut), olives, olive oil, etc. The same applies to cities, museums, art, novels, music, painting, sculpture (I had at some point an obsession with ancient artifacts and Roman heads). These may have been “marketed” in some sense, by making people aware of their existence, but this isn’t how I came to use them—word of mouth is a potent naturalistic filter. Actually, the only filter.

  The mechanism of cheapest-to-deliver-for-a-given-specification pervades whatever you see on the shelves. Corporations, when they sell you what they call cheese, have an incentive to provide you with the cheapest-to-produce piece of rubber containing the appropriate ingredients that can still be called cheese—and do their homework by studying how to fool your taste buds. Actually, it is more than just an incentive: they are structurally designed and extremely expert at delivering the cheapest possible product that meets their specifications. The same with, say, business books: publishers and authors want to grab your attention and put in your hands the most perishable journalistic item available that still can be called a book. This is optimization at work, in maximizing (image and packaging) or minimizing (costs and efforts).

  I said about marketing by soft drink companies that it is meant to maximally confuse the drinker. Anything one needs to market heavily is necessarily either an inferior product or an evil one. And it is highly unethical to portray something in a more favorable light than it actually is. One may make others aware of the existence of a product, say a new belly dancing belt, but I wonder why people don’t realize that, by definition, what is being marketed is necessarily inferior, otherwise it would not be advertised.

  Marketing is bad manners—and I rely on my naturalistic and ecological instincts. Say you run into a person during a boat cruise. What would you do if he started boasting of his accomplishments, telling you how great, rich, tall, impressive, skilled, famous, muscular, well educated, efficient, and good in bed he is, plus other attributes? You would certainly run away (or put him in contact with another talkative bore to get rid of both of them). It is clearly much better if others (preferably someone other than his mother) are the ones saying good things about him, and it would be nice if he acted with some personal humility.

  Actually this is not at all far-fetched. As I was writing this book, I overheard on a British Air flight a gentleman explain to the flight attendant less than two seconds into the conversation (meant to be about whether he liked cream and sugar in his coffee) that he won the Nobel Prize in Medicine “and Physiology” in addition to being the president of a famous monarchal academy. The flight attendant did not know what the Nobel was, but was polite, so he kept repeating “the Nobel Prize” hoping that she would wake up from her ignorance. I turned around and recognized him, and the character suddenly deflated. As the saying goes, it is hardest to be a great man to one’s chambermaid. And marketing beyond conveying information is insecurity.

  We accept that people who boast are boastful and turn people off. How about companies? Why aren’t we turned off by companies that advertise how great they are? We have three layers of violations:

  First layer, the mild violation: companies are shamelessly self-promotional, like the man on the British Air flight, and it only harms them. Second layer, the more serious violation: companies trying to represent themselves in the most favorable light possible, hiding the defects of their products—still harmless, as we tend to expect it and rely on the opinion of users. Third layer, the even more serious violation: companies trying to misrepresent the product they sell by playing with our cognitive biases, our unconscious associations, and that’s sneaky. The latter is done by, say, showing a poetic picture of a sunset with a cowboy smoking and forcing an association between great romantic moments and some given product that, logically, has no possible connection to it. You seek a romantic moment and what you get is cancer.

  It seems that the corporate system pushes companies progressively into the third layer. At the core of the problem with capitalism—again, please do not invoke Adam Smith—lies the problem of units that are different from individuals. A corporation does not have natural ethics; it just obeys the balance sheet. The problem is that its sole mission is the satisfaction of some metric imposed by security analysts, themselves (very) prone to charlatanism.

  A (publicly listed) corporation does not feel shame. We humans are restrained by some physical, natural inhibition.

  A corporation does not feel pity.

  A corporation does not have a sense of honor—while, alas, marketing documents mention “pride.”

  A corporation does not have generosity. Only self-serving actions are acceptable. Just imagine what would happen to a corporation that decided to unilaterally cancel its receivables—just to be nice. Yet societies function thanks to random acts of generosity between people, even sometimes strangers.

  All of these defects are the result of the absence of skin in the game, cultural or biological—an asymmetry that harms others for their benefit.

  Now, such systems should tend to implode. And they do. As they say, you can’t fool too many people for too long a period of time. But the problem of implosion is that it does not matter to the managers—because of the agency problem, their allegiance is to their own personal cash flow. They will not be harmed by subsequent failures; they will keep their bonuses, as there is currently no such thing as negative manager compensation.

  In sum, corporations are so fragile, long-term, that they eventually collapse under the weight of the agency problem, while managers milk them for bonuses and ditch the bones to taxpayers. They would collapse sooner if not for the lobby machines: they start hijacking the state to help them inject sugary drinks into your esophagus. In the United States large corporations control some members of Congress. All this does is delay the corporation’s funeral at our expense.5

  Lawrence of Arabia or Meyer Lansky

  Finally, if you ever have to choose between a mobster’s promise and a civil servant’s, go with the mobster. Any time. Institutions do not have a sense of honor, individuals do.

  During the Great War, T. E. Lawrence, nicknamed Lawrence of Arabia, struck a deal with the Arab desert tribes to help the British against the Ottoman Empire. His promise: to deliver to them in return an Arab state. As the tribes did not know better, they made good on their side of the bargain. But, it turned out, the French and British governments had made a secret agreement, the Sykes-Picot Agreement, to divide the area in question between themselves. After the war, Law
rence went back to live in the U.K., supposedly in a state of frustration, but, of course, not much more. But he left us with a good lesson: never trust the words of a man who is not free.

  Now on the other hand, a mobster’s greatest asset is that “his word is gold.” It was said that “a handshake from the famous mobster Meyer Lansky was worth more than the strongest contracts that a battery of lawyers could put together.” In fact he held in his mind the assets and liabilities of the Sicilian mafia, and was their bank account, without a single record. Just his honor.

  As a trader I never trusted transactions with “representatives” of institutions; pit traders are bound by their bonds, and I’ve never known a single self-employed trader over a two-decade-long career who did not live up to his handshake.

  Only a sense of honor can lead to commerce. Any commerce.

  Next

  We saw how, thanks to the misunderstanding of antifragility (and asymmetry or convexity), some classes of people use hidden options and harm the collective without anyone realizing. We also saw the solution in forcing skin in the game. Next, we will look at another form of optionality: how people can cherry-pick ethical rules to fit their actions. Or how they use public office as a means to satisfy personal greed.

  1 GSE is Fannie Mae and Freddie Mac—they both blew up.

  2 I find it truly disgusting that one of the Orszag brothers, Peter, after the crisis got a job with the Obama administration—another rehiring of blindfolded bus drivers. Then he became vice chairman of Citibank, which explains why Citibank will blow up again (and we taxpayers will end up subsidizing his high salary).

  3 My suggestion to deter “too big to fail” and prevent employers from taking advantage of the public is as follows. A company that is classified as potentially bailable out should it fail should not be able to pay anyone more than a corresponding civil servant. Otherwise people should be free to pay each other what they want since it does not affect the taxpayer. Such limitation would force companies to stay small enough that they would not be considered for a bailout in the event of their failure.

  4 I have had the same experience with journalists citing each other about my books without the smallest effort to go to my writings—my experience is that most journalists, professional academics, and other in similar phony professions don’t read original sources, but each other, largely because they need to figure out the consensus before making a pronouncement.

  5 There seems to be a survival advantage to small or medium-sized owner-operated or family-owned companies.

  CHAPTER 24

  Fitting Ethics to a Profession

  How the slaves can snatch control—Squeezing the sissies—The tantalized class, permanently tantalized

  At no time in the history of mankind has the following situation been seen in such an acute form. Say Mr. John Smith Jr., JD, is employed as lobbyist for the tobacco industry in Washington, D.C., which, as we all know, is engaged in the business of killing people for profit (we saw with the powers of subtraction that if we stopped such industries from existing by, say, banning cigarettes, then everything else done by medicine becomes a footnote). Ask any of his relatives (or friends) why they can tolerate it and don’t just ostracize him or harass him to tears, avoid him at the next family funeral. The answer is likely to be “everyone needs to make a living”—as they are hedging the possibility of their falling into the same situation some day.

  We need to test the direction of the arrow (using the same logic as in our discussion of lecturing birds on flying):

  Ethics (and Beliefs) → Profession

  or

  Profession → Ethics (and Beliefs)

  Prior to Fat Tony’s debate with Socrates, Nero was curious about the first minute of encounter, since there is a gap of about twenty-five centuries. It is not a simple matter to identify the elements of our physical environment that would surprise Socrates the most. Questioned on the point by Fat Tony, who had some grudging respect for Nero’s knowledge of history, Nero’s speculative reply was “It would most certainly be the absence of slaves.”

  “These people never did small domestic things themselves. So imagine Socrates’ sorry figure of a bulging belly, spindly legs, wondering Opou oi douloi?”

  “But, Neeroh Toolip, there are still slaves around,” Fat Tony blurted out. “They often distinguish themselves by wearing this intricate device called a necktie.”

  Nero: “Signore Ingeniere Tony, some of these tie-wearers are very rich, even richer than you.”

  Tony: “Nero, you sucker. Don’t be fooled by money. These are just numbers. Being self-owned is a state of mind.”

  Wealth Without Independence

  There is a phenomenon called the treadmill effect, similar to what we saw with neomania: you need to make more and more to stay in the same place. Greed is antifragile—though not its victims.

  Back to the sucker problem in believing that wealth makes people more independent. We need no more evidence for it than what is taking place now: recall that we have never been richer in the history of mankind. And we have never been more in debt (for the ancients, someone in debt was not free, he was in bondage). So much for “economic growth.”

  At the local level, it looks like we get socialized in a certain milieu, hence exposed to a treadmill. You do better, move to Greenwich, Connecticut, then become a pauper next to a twenty-million-dollar mansion and million-dollar birthday parties. And you become more and more dependent on your job, particularly as your neighbors get big tax-sponsored Wall Street bonuses.

  This class of persons is like Tantalus, who was subjected to an eternal punishment: he stood in a pool of water underneath a fruit tree and whenever he tried to grab the fruit it moved away and whenever he tried to drink, the water receded.

  And such a permanently tantalized class is a modern condition. The Romans circumvented these social treadmill effects: much of social life took place between a patron and his less fortunate clients who benefited from his largesse and ate at his table—and relied on his assistance in times of trouble. There was no welfare at the time, and no church to distribute or recommend charity: everything was private (Seneca’s book De beneficiis I mentioned earlier was exactly about which obligations one had in such situations). There was little exposure to the other wealthy biggies, just as mafia dons don’t socialize with other mafia dons but with their constituents. To a large extent, that’s how my grandfather and great-grandfather lived, as they were local landowners and politicians; power was accompanied by a coterie of dependents. Provincial landowners were required to maintain an occasional “open house,” with an open table for people to come help themselves to the fruits of the wealth. Court life, on the other hand, leads to corruption—the nobleman comes from the provinces, where he is now brought down to size; he faces more flamboyant, wittier persons and feels pressure to prop up his self-esteem. People who would have lost their status in the cities conserve it in the provinces.

  You cannot possibly trust someone on a treadmill.

  THE PROFESSIONALS AND THE COLLECTIVE

  It is a fact that one can rapidly, after a phase of indoctrination, become enslaved to a profession, to the point of having one’s opinions on any subject become self-serving, hence unreliable for the collective. This is the bone the Greeks had to pick with professionals.

  One of my first jobs was for a Wall Street firm. After I’d been employed for a few months, the managing director called us up and told us that we needed to contribute to a few politicians’ campaigns, with a “recommended” payment of a certain proportion of our income. These politicians were said to be “good.” By “good” was meant good for their business of investment banking, as these politicians would help with legislation that would protect their business. Had I done that, I would no longer have been eligible ethically to voice a political opinion “for the sake of the public.”

  In a story well argued throughout the centuries, Demades the Athenian condemned a man who traded in funeral goods on
the grounds that he could only derive profits by the death of the great many people. Montaigne, rephrasing the argument made by Seneca in his De beneficiis, argued that we would then be obligated to condemn every single professional. According to him, the merchant only thrives by the debauchery of youth, the farmer by the dearness of grain, the architect by the ruin of buildings, lawyers and officers of justice by the suits and contentions of men. A physician takes no pleasure in the health of even his friends, a soldier does not wish for the peace of his country, etc. And, even worse, should we go into people’s inner and private thoughts and motivations, we would see that their wishes and hopes are almost invariably at someone else’s expense.