The Problem of Frequency (Suckers Try to Win Arguments, Nonsuckers Try to Win)
In real-world decision-making, the frequency of being right matters far less than the magnitude of payoffs. Antifragile bets allow losing many small battles but winning one large victory, whereas fragile bets risk catastrophic loss from a single mistake.
THE IDEA
The Problem of Frequency, or How to Lose Arguments
Recall that Fat Tony was in favor of just “making a buck” as opposed to being “proven right.” The point has a statistical dimension. Let us return to the distinction between Thalesian and Aristotelian for a minute and look at evolution from the following point of view. The frequency, i.e., how often someone is right is largely irrelevant in the real world, but alas, one needs to be a practitioner, not a talker, to figure it out. On paper, the frequency of being right matters, but only on paper—typically, fragile payoffs have little (sometimes no) upside, and antifragile payoffs have little downside. This means that one makes pennies to lose dollars in the fragile case; makes dollars to lose pennies in the antifragile one. So the antifragile can lose for a long time with impunity, so long as he happens to be right once; for the fragile, a single loss can be terminal.
Accordingly if you were betting on the downfall of, say, a portfolio of financial institutions because of their fragilities, it would have cost you pennies over the years preceding their eventual demise in 2008, as Nero and Tony did. (Note again that taking the other side of fragility makes you antifragile.) You were wrong for years, right for a moment, losing small, winning big, so vastly more successful than the other way (actually the other way would be bust). So you would have made the Thekels like Thales because betting against the fragile is antifragile. But someone who had merely “predicted” the event with just words would have been called by the journalists “wrong for years,” “wrong most of the time,” etc.
Should we keep tally of opinion makers’ “right” and “wrong,” the proportion does not matter, as we need to include consequences. And given that this is impossible, we are now in a quandary.
Look at it again, the way we looked at entrepreneurs. They are usually wrong and make “mistakes”—plenty of mistakes. They are convex. So what counts is the payoff from success.
Let me rephrase again. Decision making in the real world, that is, deeds, are Thalesian, while forecasting in words is Aristotelian. As we saw in the discussion in Chapter 12, one side of a decision has larger consequences than the other—we don’t have evidence that people are terrorists but we check them for weapons; we don’t believe the water is poisonous but we avoid drinking it; something that would be absurd for someone narrowly applying Aristotelian logic. To put in Fat Tony terms: suckers try to be right, nonsuckers try to make the buck, or:
Suckers try to win arguments, nonsuckers try to win.
To put it again in other words: it is rather a good thing to lose arguments.
When to use it
Investment strategies: examine the size of possible gains and losses, the cost of maintaining a position, and whether a loss could exhaust the available capital.
Entrepreneurship: limit the cost of experiments and assess whether a successful initiative could justify the failures needed to find it.
Policy-making: avoid fragile systems that can be destroyed by a single event; instead build in redundancy and optionality.
Personal decision-making: prioritize actions with small downsides and large potential upsides (e.g., learning a new skill, networking).
FROM THEORY TO EVERYDAY LIFE
In practice
Betting Against Fragile Financial Institutions
Nero and Tony bet on the downfall of fragile financial institutions. They were wrong for years (losing small amounts), but right in 2008 when the institutions collapsed, winning big. The frequency of being wrong was high, but the payoff from being right once made the strategy successful.
Entrepreneurs and Venture Capital
A portfolio of startup investments can lose money on many ventures while a few successful ones provide most of the returns. Whether those gains cover the losses depends on the stakes, terms and outcomes. The number of successes alone does not settle the result.
A MOMENT TO REFLECT
Put it to work.
In your own life, do you tend to prioritize being right often or making decisions with asymmetric payoffs?
Think of a situation where losing an argument actually led to a better outcome—why did that happen?
How can you identify antifragile bets that allow you to be wrong many times but win big when you are right?
Often confused with
CONTINUE THE CONVERSATION
Source texts
- Antifragile (Nassim Nicholas Taleb)