Anti-fragility

Anti-fragility

How do we benefit from the uncertainty of a world we don’t understand, one dominated by “fat tails”? The answer to this was provided by Nassim Taleb in a book curiously titled Antifragile.

Here is the core of the idea. We can think about three categories of objects: Ones that are harmed by volatility and unpredictability, ones that are neutral to volatility and unpredictability, and finally, ones that benefit from it. The latter category is antifragile—like a package that wants to be mishandled. Up to a point, certain things benefit from volatility, and that’s how we want to be. Why? Because the world is fundamentally unpredictable and volatile, and large events—panics, crashes, wars, bubbles, and so on—tend to have a disproportionate impact on outcomes.

Preparation can be more useful than trying to predict a rare shock. An “expert” forecast in a complex system may miss both the event and its consequences, while a plan with limited downside can remain useful across several outcomes.

What are some ways we can prepare—arm ourselves with antifragility—so we can benefit from the volatility of the world?

The first one is what Wall Street traders would call “upside optionality”, that is, seeking out situations that we expect have good odds of offering us opportunities. Take the example of attending a cocktail party where a lot of people you might like to know are in attendance. While nothing is guaranteed to happen—you may not meet those people, and if you do, it may not go well— you give yourself the benefit of serendipity and randomness. The potential benefit is a useful connection; the ordinary cost is your time and effort. Going to the party gives these encounters a chance to happen.

The second thing we can do is to learn how to fail properly. Failing properly has two major components. First, never take a risk that will do you in completely. (Never get taken out of the game completely.) Second, develop the personal resilience to learn from your failures and start again. These rules aim to keep a failed attempt from ending your ability to try again.

A failed attempt can provide information about what to change. Learning from it is useful when the loss is manageable and another attempt remains possible.

Let’s say you’d like to start a successful business, but you have no business experience. Do you attend business school or start a business that might fail? Business school has its benefits, but business itself—the rough, jagged real-world experience of it—teaches through rapid feedback loops of success and failure. Trial and error provides information about what works.

Look for experiments whose losses you can absorb and whose possible benefits remain open.

_ Taleb, Nassim. Antifragile. New York: Random House, 2012.