Book II: Modernity and the Denial of Antifragility
Denying the units in the system of their fragility eventually weakens the system.
Book 2 will explain how, by preventing volatility in antifragile systems, we increase the likelihood of Black Swans.
Chapter 5: The Souk and the Office Building
Imagine two brothers in London. One works for a bank, the other is a cab driver. The cab driver job seems riskier because there is more volatility in income.
But it is in fact safer. The cab driver can’t get fired, and won’t struggle to find a job passed 50 years old. Since he is in direct contact with the environment, he gets direct information about it and can react accordingly.
Eg: if his income decreases for a week, he should drive to another part of town.
Every small mistake the driver makes enables him to get better.
Unfortunately, humans hate small mistakes -> this decreases the antifragility of the system -> makes room for larger mistakes.
The banker, while earning a stable salary, can the next day lose his entire income. The cab driver job is therefore, safer.
Let’s have a look at how it applies to political systems.
Switzerland, unlike most other countries, does not have a big central government. Its political system is bottom-up. The country is organized as a collection of municipalities that fight each other, assembled into a federation.
As a result, big variations can’t happen.
Rather, variations are small and bottom-up. They take the form of petty fights between neighbors.
This relationship that units have within the system is not scalable. Should municipalities increase the number of people, they will become big cities and the fights will become different.
Switzerland works well because humans behave better in smaller rather than bigger units.
While a big administration is shielded from its mistakes, Swiss politicians would have to face the regard of their neighbors and colleagues should they make big mistakes, like invading Vietnam.
This doesn’t happen when the space between the common people and the politicians is large, like in big countries.
On a small scale, people are human beings. On a large scale, people are large numbers.
-> Stalin could not have existed in a municipality.
Humans can’t grasp the abstract. A baby crying is traumatizing. 10 000 people dead is a statistic.
This is why bureaucracies don’t work. They are directed by civil servants that make decisions based on abstract numbers. Big is bad. Small countries don’t have lobbyists. Small companies either.
Switzerland knows variations alike to Mediocristan: small but frequent which cancel each other in the aggregate.
The opposite is Extremistan: stable systems that know few but catastrophic events once in a while.
There are therefore two types of variations: one where little but frequent variations maintain stability in the long run, and one where no variation maintains stability in the short term, but sees devastating events once in a while.
Chapter 6: Tell Them I love (Some) Randomness
The point we have been making is that it’s better to have a loose system with moderate variations than a stifled stable system with Black Swans.
The proof that tight control over systems led to blowups was made by James Clerk Maxwell, showing that tightly controlling the speed of engines led to instability.
This principle is everywhere.
In the market, fixed prices and the elimination of speculators lead to short-term stability but long-term fragility. If a currency never varies, the slightest variation will lead people to panic. Moderate variations reinforce stability.
Variations also act as purges. Small forest fires burn the most inflammable material, hence preventing bigger fires. Preventing all fires make forests much more subject to fires in the long run.
The same goes for companies. Stability and profits make them weak.
-> preventing randomness in an antifragile system weakens the system.
Let’s now look at how adding randomness can make an antifragile stronger.
- Adding a bit of noise in a silent room helps people focus.
- If a donkey is thirsty and hungry and at an equal distance of food and water, it will die, not being able to decide which one to go first. Randomness fixes this.
- Political systems with random politicians work better.
If small fires prevent big fires, could small wars prevent big wars?
It may. Likewise, forced peace (like after WWI) can degenerate into…world wars.
-> since randomness is information, stable systems don’t exhibit visible risks.
Modernity systematically extracts randomness, leading to big instability.
The Enlightenment led man to believe that he was rational and that he could understand society (he cannot). This led to seeking optimization everywhere.
We went from a random environment like the jungle, to a stifled environment with streets, the 5-day workweek, financial planning, etc. Violence was transferred from individuals to the state -> denying antifragility.
Modernity starts with the monopoly on violence from the state, and ends with their monopoly on fiscal irresponsibility.
Chapter 7: Naive Intervention
Naive interventionism is the urge to fix something that doesn’t need fixing.
-> medical interventions kill three to ten times more people than car accidents (in the US).
Treating someone for something they don’t have arises out of the agency problem. The agency problem happens when one party (the agent) has interests diverging from the one using his services (the principal).
Unintended harmful consequences of an intervention whose purpose is to have a positive effect are called iatrogenics (eg: a medical treatment that causes more harm than benefits).
Going further, what could be the opposite of iatrogenics, that is, causing unintended positive side effects while trying to harm? There are no words for such practice.
For now, consider that such an attack would strengthen an antifragile system.
Eg: hackers attacking systems make the system stronger.
In a way, capitalism follows the same principle.
Can A Whale Fly Like an Eagle?
Economists and social scientists don’t understand iatrogenics.
Theories are fragile. A minor variation can discredit them. Phenomenology (the repeated observance of the same phenomenon without understanding its cause) is robust.
While iatrogenics in medicine are in Mediocristan, iatrogenics in economics and social sciences are in Extremistan, because of the concentration of power at the top of the state.
Gordon Brown and Alan Greenspan, by trying to eliminate economic cycles, considerably weakened the system.
-> it’s often better to do nothing than to do something, but not always.
Naive intervention should not be confounded with “no intervention at all”.
So, what should we control? Easy. We must limit:
- Size
- Concentration
- Speed
These always increase both Black Swans’ risk and impact.
Intervention is not about being pro or anti. It’s about knowing when to intervene, and when not to.
The problem is that people get paid for what they do, not for what they don’t do.
The surgeon which gives you a chance to heal by yourself won’t be rewarded. Silent heroes exist, but they’re hard to find. True heroes are those who avoid a catastrophe, not those who fix it.
-> The Romans liked generals that did not go into battle.
Lao Tzu coined the term “passive achievement”, and the Latin words festina lente means “make haste slowly”.
Procrastination, as such, is a natural defense of our soul fighting against the reflex of interventions.
It’s a message from our natural willpower. If a lion runs after you, you won’t procrastinate. As a result, the cure to procrastination is changing what you do to do something you won’t procrastinate for.
A Legal Way to Kill People
The problem today is the overabundance of data. Not everything is interesting. It’s important to separate noise (what we can ignore) from information.
Eg: fasting deprives the body of information carried by hormones released when we eat. It also makes the body stronger.
-> data is toxic in large quantities.
The more data you get, the more you get drowned in noise, the less you know what’s going on.
The State Can Help When Incompetent
The Soviet State was so inefficient at food production that towns had to rely on producing food by themselves. Likewise, the neighborhoods they built were so random too that people really acted as communities and helped each other there.
State incompetence adds randomness which strengthens the system.
Chapter 8: Prediction as a Child of Modernity
The problem with predictions is that they are often wrong, and that we can’t predict Black Swans.
Robust and antifragile don’t depend on predictions, because they are not threatened by them. Only the fragile does.
Furthermore, we can control fragility more than we think.
- Detecting (anti)fragility is easier, therefore, you should work to minimize the harm a Black Swan would cause.
- Make things more robust so that they resist forecasting errors.
- Things become more antifragile due to the main stressor: time.
-> you can be excused for failing to prevent a tsunami. You shouldn’t be for building something that doesn’t resist tsunamis.
Book III: A Nonpredictive View of the World
Chapter 9: Fat Tony and the Fragilistas
You can’t predict in general, but you can predict that those who rely on predictions are taking more risks (it’s a bias), will have some trouble, perhaps even go bust.
This is how Fat Tony made his money. He bet on the loss of people making predictions.
Why? Because those who predict are fragile to prediction errors.
Fat Tony’s way of working is simple. He looks for the fragile, makes a bet on its collapse, and collects the paycheck when it effectively collapses.
Chapter 10: Seneca’s Upside and Downside
Seneca solved the problem of antifragility with stoicism.
The mainstream idea of stoicism works as follows: the stoic is indifferent to fate.
When Zeno of Kition lost their fortune in a shipwreck, he declared himself free from any burden and could then focus on philosophy.
-> this is the exact definition of robustness.
Whether we have or lose, nothing changes. The stoic is indifferent to what happens.
Now.
The real idea of stoicism though is different: the stoic is antifragile from fate, not robust. He has no downside, and plenty of upsides.
The problem with success is that it brings asymmetry -> when you have success, you have a lot more to lose than to gain.
-> you become fragile.
Losing is more painful than winning. Possessions make us worried about downsides (losing them).
In order to decrease the weight of a hypothetical loss, Seneca would mentally imagine having nothing and begin his adventures as if he had lost it all: with just a blanket (and two slaves).
-> when you assume that the worst possible thing has happened, everything else is bonus.
The idea isn’t to suppress emotions, but to domesticate them.
To quote the author, a Stoic is someone who transforms fear into prudence, pain into information, mistakes into initiation, and desire into undertaking.
So, why did Seneca keep his wealth (he was extremely wealthy) if he considered it negatively?
Because he focused on limiting the harm that wealth could give him.
He did so by considering what he had was an expenditure. If an investment came back to him, it was a benefit. If it did not, it was given for free.
Seneca was a winner, whatever happened. Pure antifragility – and asymmetry.
Fragility implies more to lose than to gain, equals more downside than upside, equals (unfavorable) asymmetry.
Antifragility implies more to gain than to lose, equals more upside than downside, equals (favorable) asymmetry
We put this idea into practice with the barbell strategy.
Chapter 11: Never Marry the Rock Star
Here’s how you can become antifragile.
First, decrease the downside -> lower exposure to negative Black Swans.
Businessmen often do the opposite – and it’s wrong.
-> you can’t enjoy the upside if, at any moment, you are at risk of dying.
Survival first – profits, second.
This leads to the barbell strategy.
A barbell is a bar where the weight is at each of its ends, with nothing in the middle.
Concretely, it entails being extremely conservative and low risk on one end, and taking a series of small risks with big upside on the other.
Another nice consequence of the barbell strategy is that it reduces the notion of downside risk.
Eg: if you put 90% of your money in the safest asset and 10% in highly risky assets -> you can’t lose more than 10% – but you can have fantastic returns.
If you put 100% in medium-risk assets, you may actually lose everything.
This is the equivalent of women that marry the stable accountant to limit downside risks; and cheat with the rock star once in a while.
Evolutionary biologists explain how women seek security on one hand while the best genes on the other.
Since they can’t get both in one partner, they engage in some sort of barbell strategy.
Book IV: Optionality, Technology, and the Intelligence of Antifragility
Saint Thomas Aquinas, quoting an Arab commentator of what Aristotle had said, wrote that people did not do anything except when they had a goal to achieve through their actions.
This is false as it implies people only do stuff when forced to.
The truth is that people choose what they want to do. They have options. An option is what makes you antifragile as it allows you to change your plans and adapt.
NB: please have a look here at how options in trading work.
Chapter 12: Thales’ Sweet Grapes
Thales, a philosopher, made a bet that the olive harvest would be huge by buying the option to use all of the olive press in the city.
When the harvest ended up being huge, he released each of the press on his own terms, and made enough money for the rest of his life.
Aristotle, upon seeing this, made the conclusion that Thales knew the harvest would be great. It was in fact, the opposite. Thales did not know, which is why he bought a right, not an obligation on the olive press.
Thales’ option was antifragile: Thales had more to gain than to lose, more upside than downside.
Options are radically antifragile, and the best option of all is freedom.
Eg:
- Someone invites you to a party without any obligation to come (or stay): nothing to lose, everything to gain.
- Renting a place: you can stay as much as you like, leave when you like. No downside, only upsides.
Options don’t care about the average outcome, only the favorable ones (since the downside doesn’t count).
The luxury industry is antifragile, it does not rest on the average, but on the extreme – the extremely rich people.
In society, this is the people at the tail (the extremely smart, or the extremely active) that enable society to move forward. Societies that succeed are societies that encourage those people, not the average.
If you have options, you don’t need insights, data, or knowledge. You just need to avoid doing dumb things and seize opportunities when you see them, exercising the right option as time goes by.
The author calls this system (getting results without needing intelligence and information) “the philosopher’s stone”.
Nature understands well the concept of options. A French biologist estimated that about half of embryos are naturally aborted. Nature keeps what it wants, and eliminates the rest.
Here’s the definition of an option:
Asymmetry + rationality = option
Rationality means keeping what’s good and getting rid of what’s bad.
The fragile has no option; the antifragile chooses what’s best.
Nature is antifragile because it does exactly that: it chooses what’s best.
If we look at the most profitable businesses, they also have optionality. Real estate has options over the bank, and technology is made out of tinkering (trial and error, small mistakes, then positive Black Swan).
Chapter 13: Lecturing Birds on How to Fly
The Mesoamericans invented the wheel, but it was used for toys for children. They didn’t use them for transportation of goods – they never thought about it.
Likewise, the Greeks invented the steam machine – but did not realize how they could apply its power.
-> inventions are created due to randomness.
We find new stuff out by randomly tinkering and trying out stuff.
-> implementations don’t come (necessarily) from inventions. They too, require luck.
The simpler and more obvious the discovery, the less equipped we are to figure it out by complicated methods.
Trial and error have one overriding value people fail to understand: it is not really random, rather, because of optionality, it requires some rationality.
You need to understand when your trial yielded results, and when it did not.
In mainstream thinking, technology comes from “academic theory”.
Research -> scientific knowledge -> technology -> practical applications -> economic growth.
This model applies to a few things like the atomic bomb.
In practice, it works the opposite.
Random tinkering -> heuristics -> practice and apprenticeship
The idea that theory leads to practice and not the other way around is called epiphenomena. And it’s wrong.
This is explored in many phenomenons, where we tend to make causal relationships between two phenomenons that in fact have nothing to do with each other.
To quote the author: authors don’t get ideas after they write books. They get ideas before!
We don’t notice these because we can’t grasp what’s simple. We love the sophisticated (recall the wheels in Mesoamerica).
Chapter 14: When Two Things Are Not the “Same Thing”
In Adu Dhabi, oil money imported schools and world universities from around the world in the hope to create economic growth.
However, this is mostly a mirage. Switzerland, a country with a low percentage of the population educated in universities, people create wealth because of skills and stressors.
Innovation, as we said, comes from difficulties.
Where is the difficulty in Abu Dhabi?
People more educated don’t create more wealth. There is no evidence of that…but of the opposite. Wealth leads to people being more educated.
Education, however, isn’t the sign of anything. An entrepreneur is asked to build, not to talk. As a result, entrepreneurs don’t need to be good talkers.
So, there are two types of knowledge. The narrative, theoretical applied to practice coming out of universities, and the practical, results-yielding knowledge coming from practitioners.
Knowledge that ends up giving results is knowledge vetted through time: the oldest ideas are the best ones. Grandmother knowledge > expert knowledge.
