Notes on Antifragile
See the book here.
Some things seem to improve in volatile and unpredictable environments. Antifragile attempts to examine why.
The book takes a critical look at modern society and the practice of interfacing in systems, which makes them more fragile.
Antifragile items benefit from volatility and shock
- Fragile items (like glass) that posted always have the label "Please handle with care".
- This concept of things being breakable is an easy concept as there are many examples.
- What is antifragile?
- It may seem initially that robust is the answer.
- Although something that is robust will survive shocks and stressors.
- Antifragile is the oppose from fragile.
- It benefits from harm.
- It would be a package that said "Please handle roughly".
- There is no word for this idea in most languages.
- The idea is initially hard to conceive of.
- An example is the Greek myth of Hydra, where one head is cut off in battle two grow back.
The antifragility of a system depends of fragility of it's parts
- An example is evolutionary process.
- With each shock it forces life forms to transform, mutate and improve to survive.
- Each individual is fragile, in order for the whole to be antifragile.
- All that matters is that an organisms genetic code is passed on.
- Individuals are unimportant and die in the process.
- The system needs this to happen in order to ensure the most successful survive.
- It can be seen as trail and error.
- The mistakes and successes of each individual provide the information for the system to evolve.
- The price of failure is extinction and the reward for success is survival
- T.his narrative is the same in the economy.
- It is made up of all types of businesses from small artisanal shops to large corporations.
- They all learn from the failure of others and the system becomes stronger as a whole because of it.
Shocks and stressors build additional capacity in an antifragile system
- Exercise a great example of this idea.
- Putting our bodies through stress forces our body to react and grow stronger.
- Our bodies over compensate and will improve it's capacity to deal with future shocks.
- This leaves the body with extra strength.
- These redundant resources come from stress over time.
- This may seem inefficient to have all this excess.
- It actually prepares our bodies for heavier future shocks.
- Building that extra capacity means that the system (the body) can deal with unexpected stressors like carrying an extra heavy object.
- When this occurs the extra capacity is invaluable.
Tranquil environments result in fragile systems
- Most man made systems are fragile as they cannot self-improve, at best they can be robust.
- A washing machine for example will wear down over time.
- There are a few artificial systems that are antifragile, like the economy.
- Those that are antifragile are almost biological in nature.
- They have a number of interdependent layers and sub-units.
- While this complexity is a key component they also need volatility.
- This ensures that the weaker sub-units don't survive and allows the stronger units to be reviled.
- Without pressure systems eventually lose their antifragility.
- Governments who try to smooth the economic cycles with subsidies and regulations normally make the system more fragile.
- There is less information to weed out the weaker units and resources are normally mis-allocated.
- They then become susceptible to damaging shocks like the 2008 housing crisis.
Taking advantage of antifragility you don't need to understand the opportunities, just when to seize them
- Most successful traders tend to be the least academic.
- They didn't understand the ins and outs of the economy.
- They just knew when to buy and sell.
- Society tends to value theory, academia and knowledge, not practical knowledge.
- Knowing why planes fly does not make you a qualified pilot.
- You can take advantage of volatile and antifragile system when you have options.
- It is important to have opportunities not obligations.
- Stock options give opportunity to buy stock at various prices which when go above that price give you the option to sell the stock and hold it when below the price.
- To profit you just need to know when to use your option.
- Options present themselves in other scenarios as well. Being asked to social occasion is an option when there is not obligation to go.
Manage risks to benefit from unpredictable events
- There are always going to be periods of unpredictability and volatility in life.
- The best way to deal with this is to domesticate the uncertainty not try to avoid or eliminate it.
- One strategy presented is the barbell strategy.
- The idea is to pay attention to the extremes (the ends of the barbell) and ignore the middle.
- 90% of your total assets mitigate the negative and is in a safe account.
- The other 10% are in more risky investments the upside could be huge and the downside at worst is 10%.
- This is a much better strategy than putting 100% in the middle as everything could be lost.
The larger the system the harder it is hit by the unexpected
- Intro to the idea of the squeeze.
- For example if you have an important meeting that you have to attend and suddenly a natural disaster causes the price of flights to spike.
- If in order to keep your job you had to attend the conference regardless of the price this would be the squeeze.
- Squeezes are the opposite of options.
- The cost of the squeeze is determined by the size of the entity being squeezed.
- Say there are 150 people that need to attend the meeting, all of a sudden the cost of the flight has gone up 150 times.
- Globalism has transformed the world economy into a single behemoth, making it ever more vulnerable to large squeezes.
- Everything is now globally interconnected
- This could led to a potential domino effect if there is crisis
- Banks would be squeezed to cut funding which wold then squeeze businesses to cut employees, which would then be squeezed to potentially lose their homes
Many modern professionals are antifragile at the expense of everyone else
- In 2008 many financial experts informed the populous there was nothing to worry about.
- They were of course incorrect, and many people lost their homes and assets.
- The experts did not lose their position as an expert despite their massive failure to predict the crisis.
- This is because their field is extremely narrow and all the experts were familiar and interdependent.
- This made a any criticism on one reflect on all of them.
- It was much easier for them to stay quiet and let everything blow over.
- This is a massive problem, they reap full benefits when they are correct and no consequences when they are wrong.
- They can continue to spot their advice with no skin in the game.
- Bankers play with other peoples money they have become antifragile at the expense of everyone else.
The desire to eliminate volatility from life will make things more fragile
- The economic cycle of boom and bust is viewed by many as inefficient and unpredictable.
- Many politicians try to smooth this cycle out and have complex theories about when and how they should intervene.
- They try to make society as smooth and tranquil as possible .
- In general we are arrogant about what we know and think we can and should control.
- This policy is called naive interventionism, we tend to make systems worse rather than better.
- Without knowing it systems are robbed of the volatility vital for antifragility.
- Problems stay dormant and reach massive proportions.
- A forest is always under threat from a massive fire.
- A series of smaller fires decreases the likelihood of a diaster if a large one should break out.
Modern teaching suffers from a "turkey" problem
- A turkey is well fed and looked after for the majority of the year.
- On thanksgiving day it would be in a for shock.
- The turkey is its most confident that the farmer loves it the morning it is killed.
- This highlights a common problem in society.
- We cannot make predictions of the future from narrow views of the past.
- Companies spend millions on strategists and risk managers, hoping to take advantage of predictions.
- These predictions tend to be turkey problems and are misinformed.
- Another issue is that we assume the worst event in the past is the worst event that could happen in the future.
- The Fukushima nuclear reactor was built to withstand the biggest earthquake ever experienced.
- The designers did not account for the fact that there could be a bigger one that happened in 2011.
We undervalue the role of antifragility in the role of fuelling progress and advances in society
- In school we are taught the industrial revolution was a product of scientific progress.
- In fact it was largely a result of amateurs and hobbyists tinkering.
- The submarine was invented by Rev. George Garett who worked on it in his spare time.
- Inventions were the result of hundreds of amateurs working independently trying new ideas and tech and occasionally hitting success.
- It is hard to imagine that our progress was facilitated by chance in a complex system of trail and error.
- When we look back at history we try to create narratives that are more deterministic.
- It is easier to think that inventors and engineers knew what they were doing as opposed to tinkering and hoping.
- Many modern professionals in the sciences owe their funding and high regard to their claims that they will make ground breaking discoveries.
- Money is poured into these professions in the hoe that they produce new theories that will facilitate new advances.
- Yet this knowledge cannot bring about the progress it claims.
- We need randomness to bring about real chance.
Antifragility is a quality that has help progress human society. It allows systems to self improve in an unpredictable and volatile world. Modern Society is in the process of trying to dismantle the volatile environment that is vital for antifragility. The system is therefore becoming more fragile.
Don't try and predict the future, just be prepared for it. Shocks and stressors happen good or bad. Instead of planning, it is more effective to be prepared. Once you are ready to survive anything you can take bigger risks that allow you to succeed.
Don't get squeezed and give yourself options. You never want to be in the situation were you are forced to do something whatever the cost. Look for the option to do want you want and not the obligation to do something.
It's often best not to listen to experts, instead look at where they put their assets and their practices. This will give a better insight into what they trust.