Why Antifragile is the perfect read for today’s turmoil

Because we’re human we associate age with impending mortality. But for things not subject to a process of inevitable decay, the opposite tends to be true: the longer something has been around already, the longer it’s likely to survive into the future. Taleb calls it “‘aging’ in reverse.”

Books are a great example. The longer that a book has been in print, the greater the chance of it still being in print for years or decades to come. One year in print proves nothing; ten years shows staying power; a hundred and it’s probably a classic; and if it’s older than printing itself, then it’s a cultural cornerstone and quite possibly sacred.

This is why book reviews should be of older books – not the very oldest, because they speak for themselves, but those whose relevance is sufficiently enduring to require explanation. Furthermore, if a reviewer is re-reading and thinking about a book years after the first read, he or she might just have something worth saying about it.

To my mind, Taleb is the greatest living UnHerdian – no contemporary thinker has done more to challenge the herd-like thinking of the economic, political and cultural elites. Taleb’s best-known work is The Black Swan, which argues that people are very bad at foreseeing extremely unlikely, but massively consequential, events. Because these ‘Black Swans’ are bound to happen sooner or later, it is the improbable and unpredictable that shapes human history, not the commonplace events that can be predicted.

What distinguishes modernity from the rest of history, however, is that because we now have the technical ability to predict the commonplace with considerable accuracy (e.g. short-term weather forecasts), we’re deluded into thinking that we can also foresee the events that really matter. Hence a banking system organised around sophisticated risk models that supposedly had us prepared for the worst that could happen.

Taleb was among the very few financial experts who recognised that the models were fundamentally flawed – and said so long before the credit crunch and the global banking crisis. Furthermore, as a trader, he put his money where his mouth was – betting against the prevailing wisdom of the financial markets.

He’s never said just how much money he made in the process, but it was enough for him to give up the day job and devote his life to philosophical enquiry. Antifragile is the result of those studies, but it isn’t a conventional work of philosophy – not in the modern academic sense, anyway. Thankfully, it owes a great more to the classical tradition, in that it is accessible, eclectic and useful.

In fact, more than useful, it is indispensable. While his earlier books explained why extreme events are so hard to predict, Antifragile is about how to live in this fundamentally unpredictable world.

This is where his concept of ‘antifragility’ comes in. You might think that the opposite of ‘fragility’ is ‘robustness’, but things that are robust are merely immune to the harm that disorder does to things which are fragile. The complete opposite of fragility would apply to things that actually gain from disorder.

There is no word for this property in the English language, which is why Taleb has invented one of his own. He gives various practical examples of antifragility – one of the most important of which lies in the difference between mechanical and living systems. The latter are antifragile not only because they can repair themselves, but because in the process of doing so they often get stronger.

Think about the impact of exercise on the human body – in the short-term, individual muscle fibres break under the strain (hence the soreness that results from a workout), but as the muscles repair themselves the fibres multiply, increasing muscle mass and power.

Indeed, to avoid the stresses and strains of physical effort altogether is very bad for our health. It weakens the body and invites the Black Swan of catastrophic illness – an extreme shock from which the body might never recover.

Much the same applies to the economy. In the years prior to the credit crunch, governments used cheap money policies to smooth out the business cycle – “no more boom and bust” as Gordon Brown once said. For a while it worked, growth was steady and recessions were avoided, but only at the cost of running up debts that hugely amplified the pain when the crunch finally came.

In a warning that is sadly just as relevant today, Taleb argues powerfully and persistently against the distorting effect of debt – that great attractor of Black Swans. He also argues that the normal ups-and-downs of the business cycle are in any case to be welcomed, not avoided. In order to be antifragile it is necessary that some parts of the economy are allowed to fail so that the whole can get stronger.

Taleb makes the appropriate nods to those who have made this point before him – in particular, Joseph Schumpeter and his idea of creative destruction. However, Taleb brings something new to the table: he takes a number of established ideas that will be well-understood and appreciated by conservatives (the real kind, not those lobbying on behalf of crony capitalism) and systematically relates them to his insight on the true nature of risk and uncertainty.

As he repeatedly reminds us, it is the extreme probabilities – the Black Swan events – that matter. Simplistic models of risk concentrate on the most likely scenarios (i.e. the highest point on a bell curve of possible outcomes). Supposedly more sophisticated models take account of some of the more extreme possibilities – say, the one-in-a-hundred chances. Taleb, however, urges us to take into account the full range of possibilities contained within the ‘tails’ of the bell curve.

For some things, the tails don’t extend very far – for instance, the possible range of human life expectancies is limited on one side of the graph to zero years, and on the other to roughly 120 years. But in other cases – such as household income – at least one side of the curve is practically unlimited, extending far beyond the commonplace. Statisticians calls these ‘fat tails’ because they encompass such a wide spread of outcomes.

Because these fat tails tend to occur on only one side of the curve, the nature of risk in the real world is highly asymmetric – i.e. the worst that could happen is much more significant than the best that could happen and vice versa. For instance, exceeding the speed limit may get you to your destination a bit faster (modest upside) or it might get you killed (extreme downside). On the other hand, a canny investment in an exciting new start-up might see you lose an affordable slice of your savings (modest downside) or get you an early stake in the next Google (extreme upside).

Conventional policy making tends to focus on the most likely outcomes in any given scenario, yet it is the extreme events which change the world. Therefore our top priority should be to minimise our exposure to the extreme downsides (the negative Black Swans) and maximise our exposure to the extreme upsides (the positive Black Swans).

The key to such a strategy is what Taleb calls “optionality”. In investment terms, an option gives you the right, but not the obligation, to pursue an opportunity. It therefore allows you to cut your losses if things don’t work out or maximise your gain if they do. Furthermore, because positive Black Swans (like their negative brethren) are uncommon and you can’t tell in advance where they’ll appear, you need to have the widest possible range of options.

Policy making that maximises optionality will therefore favour the small over the large, diversity over uniformity and localisation over centralisation. Of course, many other thinkers have come to similar conclusions. For instance, in a famous paper entitled ‘The Use of Knowledge in Society’, Friedrich Hayek argued that information is widely dispersed and thus can only be made use of though the free interaction of local actors as opposed to a single, central authority.

But Taleb shows us there’s more going on than local knowledge. While knowledge of the commonplace may well be local in nature, advance knowledge of the extreme events that make the most impact isn’t available anywhere. The strongest argument for decentralised, diversified decision-making is that it allows us to make lots of little investments in the hope that at least one of them will pay off big-time. In other words, localism isn’t just about getting smart, it’s also about getting lucky (and not leaving everything exposed to any particular instance of bad luck).

Looking at the great policy disasters of recent times, it’s telling that the approach taken by policy makers is diametrically opposed to Taleb’s ideas. Over and over again, we see governments betting the farm on projects with limited optionality and where the worst that can happen overshadows the best that can happen.

The Eurozone, for instance, represented a single enormous investment in a scheme with a modest upside (reduced transaction costs) and an extreme downside (the ongoing Eurozone crisis). The deregulation of the banks was another example (profits for the few versus bail out costs for the many), as was the deliberate inflation of the property market (short-lived boost versus long-term damage to growth and housebuilding). Looking to the future one has to question mega-projects like HS2 (modest improvement to travel times versus spiralling costs) or the construction of nuclear power stations (ask the Japanese).

As this is a book review, I should say something about its style as well as its substance. So, a word of warning: the former will not be to everyone’s taste.

For a start you never quite know what’s coming next. The book is a patchwork of philosophy, economics, mathematics, lifestyle advice and autobiography. Alighting from one subject to the next, Taleb also switches between different modes of explanation – from graph to anecdote to polemic. There are snatches of history, literary allusions and fictional dialogues. In short it’s a riot (though not a mess). If you prefer the sort of book that behaves itself, proceeding from point to point in a straight line then Antifragile is not for you.

The book also places some demands on the reader. Not because of its language, which is far from turgid, nor because of its grounding in statistics and probability (all but the simplest maths is confined to a technical appendix). Rather, it is the structure of the argument that requires the reader’s full attention. By approaching his points from various tangents and angles, Taleb is showing that they apply not just to the world of finance but to other domains too. Moreover, by making the reader work, the book embodies its own advice. Physical effort strengthens the body and mental effort strengthens the mind.

Finally, the reader needs to get on with the author as a person. For all of its patchwork quality, every part of the book is stamped with Taleb’s character – and he is not a man given to false modesty or to suffering fools (and knaves) gladly. Readers may or may not care for this sort of thing, but for me it was a breath of fresh air.

Those who were morally, intellectually and directly responsible for the economic calamities of the 2000s have mostly got away with it. Many are still in post – whether in government, business or academia – others enjoy comfortable retirements.  So why shouldn’t those who were right about the banks and the Eurozone and all the other disasters say ‘I told you so’? They have every right to their anger.

For the most part, however, this is not an angry book. Rather it is a demolition of the false certainties that still bedevil the modern world.

Antifragility is neither Left-wing nor Right-wing in its politics, but is an important addition to – indeed a development of – conservative thought. Conservative philosophers have long recognised the limits of human rationality, but their suggested response to this reality has tended towards the passive, bordering on the defeatist.

Taleb’s great achievement is to bring a more active principle into play. Fully aware of the uncertainties of human existence, he nevertheless shows us that we can position ourselves against them – shielding ourselves against the downside, but open to the upside.

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