Monday, April 22, 2013

Attraverso Review: Antifragile: Things That Gain from Disorder by Nassim Nicholas Taleb

By Professor Jeffery Atik

Nassim Nicholas Taleb is back, and in his new book he asserts that his signature idea was not The Black Swan (that was so last book), but rather Antifragility. This second idea shares a viral quality with the first; like the Black Swan, once you catch the notion of antifragility, it's hard to get rid of it.

Antifragility is the characteristic of certain systems to grow stronger when stressed; it is the mirror concept to fragility (where stress destroys). Exercise stresses our muscles, and so renders us stronger. As Taleb insists, antifragility is not robustness -- robustness is merely resistance to stress. Stress improves the antifragile. And in a world where stresses cannot be avoided, it is better to be antifragile.

I admit to being a Taleb fan -- and not everyone is. Most all -- critics and admirers -- agree he is an engaging and imaginative thinker. But he does seem to go out of his way to be, shall we say, difficult. Antifragile is an odd book -- it is a collection of personal essays mixed with some rather formal decision theory. That said, the personal (and the fictional) do serve the argument.

Taleb sees antifragility everywhere. Indeed, he is an avid antifragility spotter -- which results in no small amount of quirkiness in his personal life. At times Taleb convinces, at times he doesn't -- as his examples (or speculations) range from finance to picking bar fights to drinking too much wine. And so we get views of Taleb's various cantankerous postures. Physicians by and large do more harm than good (as they are compelled to do something) -- and so should be avoided outside of dire emergency. Universities are dangerous -- better to wander in a library.

As Taleb would concede, there are many more instances of fragile systems than antifragile ones. So a large part of the book is exploring the roots of fragility -- and possible moves to avoid fragility's dangers. Taleb provides a host of tantalizing heuristics -- take small over large, simple over complex, acute stress over chronic stress, the natural over the artificial. Old technologies are to be prefered over new ones -- as those technologies that have already survived the stresses of experience are more likely to remain viable (this is an example of the Lindy effect). It is no surprise that Taleb writes with a fountain pen. Of course Taleb may be wrong in particular instances. I suppose his cardiologist (if he has one) is horrified by his binging diet and his disdain for statins.

Finance is the field where Taleb has his most important following. Antifragility becomes an investment design goal -- one should lay certain risks off on 'suckers' while accumulating plays that pay off greatly in certain extreme situations. His antifragile model portfolio -- drawn to demonstrate the 'barbell' idea -- would have 90 percent in cash and the remaining 10 percent in an investment with a "massive upside". Ten percent loss would be the worse case; the upside is to be left to "take care of itself." This example of structural asymmetry matches the wildly optimistic with the paranoid in each of us -- two qualities Taleb sees in himself. These strategies may well be psychologically suitable -- but it remains to be demonstrated how they perform. I suspect they would perform well precisely when we need them; Taleb's barbell portfolio would have handled the Financial Crisis quite well.

In the final chapters, Taleb explores the ethical implications of our fragile world. The Taleb persona is an odd, though admirable fellow. He avoid the fragile deceptions of risk avoidance (no hiding from life's hazards in a tenured post at the university for him) and seeks a flux of new experience. He is a self-described flâneur, seeking "optionality." And yet there is a certain fatalism to his life-view. We should aspire to live long, but not too long: "place aux autres", Taleb says.

There is much behavior that offends him. His examples seem a bit catty -- as he uses the names of individuals he cares little for (Joseph Stiglitz, Alan Blinder, Robert Rubin) to label categories of unethical conduct. He excoriates the bankers (like Rubin) who construct free options (heads I win, tails I win). Yet his access to the antifragile depends at times on the presence of 'suckers' -- those who succumb to the various fallacies Taleb identifies and avoids. Perhaps his sucker bets are ethically unproblematic -- the suckers after all (when playing against Taleb, but not Rubin) do win in the ordinary case.

Taleb's ethics reflect the influence of newish sociobiological ideas (notwithstanding his preference for the seasoned in ideas). He seems to accept the fate of the species as a more appropriate locus for concern than the fate of any particular individual, including Taleb himself. Taleb seems to seek the status of a free man -- which he calls 'self-ownership': a kind of detachment that results from a mix of independence, retreat and stoicism. It is from this position that one may practice altruism.

In the end, Taleb's antifragile prescriptions may have greater ethical, or psychological, content than predictive value. But if that is so, I suspect it would not trouble Taleb. He would certainly prefer to be seen as a philosopher (or a moralizing kind) than as a financial analyst. He remains restive and inquisitive -- and that's a good thing. The flâneur's life is inherently experimental.

Follow the author on Twitter @jefferyatik.

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