May 6, 2020

📚 Book Notes: Antifragile

I really liked the concept of antifragility. Having read The Black Swan, I knew Taleb's style. I find him hard to read but the content is presented in myriad applications. So I skimmed it, making lots of notes along the way. These include the need for redundancy, stocking up for emergencies, the barbell strategy, having skin in the game, etc.

Here are my notes from Antifragile:

1. Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile.
2. We can almost always detect antifragility (and fragility) using a simple test of asymmetry: anything that has more upside than downside from random events (or certain shocks) is antifragile; the reverse is fragile.
3. Hydra, in Greek mythology, is a serpent-like creature that dwells in the lake of Lerna, near Argos, and has numerous heads. Each time one is cut off, two grow back. So harm is what it likes. Hydra represents antifragility.
4. It is said that the best horses lose when they compete with slower ones, and win against better rivals.
5. It is all about redundancy. Nature likes to overinsure itself.
   Layers of redundancy are the central risk management property of natural systems. We humans have two kidneys (this may even include accountants), extra spare parts, and extra capacity in many, many things (say, lungs, neural system, arterial apparatus), while human design tends to be spare and inversely redundant, so to speak — we have a historical track record of engaging in debt, which is the opposite of redundancy (fifty thousand in extra cash in the bank or, better, under the mattress, is redundancy; owing the bank an equivalent amount, that is, debt, is the opposite of redundancy). Redundancy is ambiguous because it seems like a waste if nothing unusual happens. Except that something unusual happens — usually.
   Further, redundancy is not necessarily wussy; it can be extremely aggressive. For instance, if you have extra inventory of, say, fertilizers in the warehouse, just to be safe, and there happens to be a shortage because of disruptions in China, you can sell the excess inventory at a huge premium. Or if you have extra oil reserves, you may sell them at a large profit during a squeeze.
6. Had the Titanic not had that famous accident, as fatal as it was, we would have kept building larger and larger ocean liners and the next disaster would have been even more tragic.
7. Artisans, say, taxi drivers, prostitutes (a very, very old profession), carpenters, plumbers, tailors, and dentists, have some volatility in their income but they are rather robust to a minor professional Black Swan, one that would bring their income to a complete halt. Their risks are visible. Not so with employees, who have no volatility, but can be surprised to see their income going to zero after a phone call from the personnel department. Employees’ risks are hidden.
   Thanks to variability, these artisanal careers harbor a bit of antifragility: small variations make them adapt and change continuously by learning from the environment and being, sort of, continuously under pressure to be fit. Remember that stressors are information; these careers face a continuous supply of these stressors that make them adjust opportunistically. In addition, they are open to gifts and positive surprises, free options — the hallmark of antifragility, as we will see in Book IV. George was used to having, once in a while, a crazy request, one he was free to decline: during the Icelandic volcano scare, when U.K. air traffic was shut down, he was asked by a rich old lady to drive her to a wedding in the South of France — a two-thousand-mile round-trip journey. Likewise, a prostitute faces the small probability of seeing a severely infatuated rich client give her a very expensive diamond, or even an offer of matrimony, in what can be expected to be a short transitional period before her widowhood.
   A week with declining earnings for a taxi driver or a prostitute provides information concerning the environment and intimates the need to find a new part of town where clients hang around; a month or so without earnings drives them to revise their skills.
8. About all solutions to uncertainty are in the form of barbells.
   Let us use an example from vulgar finance, where it is easiest to explain, but misunderstood the most. If you put 90 percent of your funds in boring cash (assuming you are protected from inflation) or something called a “numeraire repository of value,” and 10 percent in very risky, maximally risky, securities, you cannot possibly lose more than 10 percent, while you are exposed to massive upside. Someone with 100 percent in so-called “medium” risk securities has a risk of total ruin from the miscomputation of risks. This barbell technique remedies the problem that risks of rare events are incomputable and fragile to estimation error; here the financial barbell has a maximum known loss.
9. Take literature, that most uncompromising, most speculative, most demanding, and riskiest of all careers. There is a tradition with French and other European literary writers to look for a sinecure, say, the anxiety-free profession of civil servant, with few intellectual demands and high job security, the kind of low-risk job that ceases to exist when you leave the office, then spend their spare time writing, free to write whatever they want, under their own standards. There is a shockingly small number of academics among French authors. American writers, on the other hand, tend to become members of the media or academics, which makes them prisoners of a system and corrupts their writing, and, in the case of research academics, makes them live under continuous anxiety, pressures, and indeed, severe bastardization of the soul. Every line you write under someone else’s standards, like prostitution, kills a corresponding segment deep inside. On the other hand, sinecure-cum-writing is a quite soothing model, next best to having financial independence, or perhaps even better than financial independence. For instance, the great French poets Paul Claudel and Saint-John Perse and the novelist Stendhal were diplomats; a large segment of English writers were civil servants (Trollope was a post office worker); Kafka was employed by an insurance company. Best of all, Spinoza worked as a lens maker, which left his philosophy completely immune to any form of academic corruption.
10. And professions can be serial: something very safe, then something speculative. A friend of mine built himself a very secure profession as a book editor, in which he was known to be very good. Then, after a decade or so, he left completely for something speculative and highly risky. This is a true barbell in every sense of the word: he can fall back on his previous profession should the speculation fail, or fail to bring the expected satisfaction.
11. More barbells. Do crazy things (break furniture once in a while), like the Greeks during the later stages of a drinking symposium, and stay “rational” in larger decisions. Trashy gossip magazines and classics or sophisticated works; never middlebrow stuff. Talk to either undergraduate students, cab drivers, and gardeners or the highest caliber scholars; never to middling-but-career-conscious academics. If you dislike someone, leave him alone or eliminate him; don’t attack him verbally.
12. Further, you will never get to know yourself — your real preferences — unless you face options and choices. Recall that the volatility of life helps provide information to us about others, but also about ourselves. Plenty of people are poor against their initial wish and only become robust by spinning a story that it was their choice to be poor — as if they had the option. Some are genuine; many don’t really have the option — they constructed it. Sour grapes — as in Aesop’s fable — is when someone convinces himself that the grapes he cannot reach are sour. The essayist Michel de Montaigne sees the Thales episode as a story of immunity to sour grapes: you need to know whether you do not like the pursuit of money and wealth because you genuinely do not like it, or because you are rationalizing your inability to be successful at it with the argument that wealth is not a good thing because it is bad for one’s digestive system or disturbing for one’s sleep or other such arguments. So the episode enlightened Thales about his own choices in life — how genuine his pursuit of philosophy was. He had other options. And, it is worth repeating, options, any options, by allowing you more upside than downside, are vectors of antifragility.
13. The trick is to be bored with a specific book, rather than with the act of reading.
14. Avoidance of boredom is the only worthy mode of action. Life otherwise is not worth living.
15. We check people for weapons before they board the plane. Do we believe that they are terrorists: True or False? False, as they are not likely to be terrorists (a tiny probability). But we check them nevertheless because we are fragile to terrorism. There is an asymmetry. We are interested in the payoff, and the consequence, or payoff, of the True (that they turn out to be terrorists) is too large and the costs of checking are too low. Do you think the nuclear reactor is likely to explode in the next year? False. Yet you want to behave as if it were True and spend millions on additional safety, because we are fragile to nuclear events. A third example: Do you think that this random medicine will harm you? False. Do you ingest these pills? No, no, no.
16. A king, angry at his son, swore that he would crush him with a large stone. After he calmed down, he realized he was in trouble, as a king who breaks his oath is unfit to rule. His sage advisor came up with a solution. Have the stone cut into very small pebbles, and have the mischievous son pelted with them.
    The difference between a thousand pebbles and a large stone of equivalent weight is a potent illustration of how fragility stems from nonlinear effects. Nonlinear? Once again, “nonlinear” means that the response is not straightforward and not a straight line, so if you double, say, the dose, you get a lot more or a lot less than double the effect — if I throw at someone’s head a ten-pound stone, it will cause more than twice the harm of a five-pound stone, more than five times the harm of a one-pound stone, etc. It is simple: if you draw a line on a graph, with harm on the vertical axis and the size of the stone on the horizontal axis, it will be curved, not a straight line. That is a refinement of asymmetry.
    For the fragile, shocks bring higher harm as their intensity increases (up to a certain level).
    Your car is fragile. If you drive it into the wall at 50 miles per hour, it would cause more damage than if you drove it into the same wall ten times at 5 mph. The harm at 50 mph is more than ten times the harm at 5 mph.
    Jumping from a height of thirty feet (ten meters) brings more than ten times the harm of jumping from a height of three feet (one meter) — actually, thirty feet seems to be the cutoff point for death from free fall.
    For the fragile, the cumulative effect of small shocks is smaller than the single effect of an equivalent single large shock.
17. Take for instance the following statement, entirely evidence-based: if you build muscle, you can eat more without getting more fat deposits in your belly and can gorge on lamb chops without having to buy a new belt. Now in the past the theory to rationalize it was “Your metabolism is higher because muscles burn calories.” Currently I tend to hear “You become more insulin-sensitive and store less fat.” Insulin, shminsulin; metabolism, shmetabolism: another theory will emerge in the future and some other substance will come about, but the exact same effect will continue to prevail.
    The same holds for the statement Lifting weights increases your muscle mass. In the past they used to say that weight lifting caused the “micro-tearing of muscles,” with subsequent healing and increase in size. Today some people discuss hormonal signaling or genetic mechanisms, tomorrow they will discuss something else. But the effect has held forever and will continue to do so.
18. So there are many hidden jewels in via negativa applied to medicine. For instance, telling people not to smoke seems to be the greatest medical contribution of the last sixty years. Druin Burch, in Taking the Medicine, writes: “The harmful effects of smoking are roughly equivalent to the combined good ones of every medical intervention developed since the war.… Getting rid of smoking provides more benefit than being able to cure people of every possible type of cancer.”
19. Fat Tony has two heuristics.
    First, never get on a plane if the pilot is not on board.
    Second, make sure there is also a copilot.
    The first heuristic addresses the asymmetry in rewards and punishment, or transfer of fragility between individuals. Ralph Nader has a simple rule: people voting for war need to have at least one descendant (child or grandchild) exposed to combat. For the Romans, engineers needed to spend some time under the bridge they built — something that should be required of financial engineers today. The English went further and had the families of the engineers spend time with them under the bridge after it was built.
    To me, every opinion maker needs to have “skin in the game” in the event of harm caused by reliance on his information or opinion (not having such persons as, say, the people who helped cause the criminal Iraq invasion come out of it completely unscathed). Further, anyone producing a forecast or making an economic analysis needs to have something to lose from it, given that others rely on those forecasts (to repeat, forecasts induce risk taking; they are more toxic to us than any other form of human pollution).
20. Never ask the doctor what you should do. Ask him what he would do if he were in your place. You would be surprised at the difference.

If you liked the above content, I'd definitely recommend reading the whole book. 💯

Until We Meet Again...
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