Takeaways from Nassim Talib's Anti-fragile

February 12, 2016

1. The Spectrum: Fragile <- Robust -> Antifragile

Anti-fragility is a framework Talib proposes with which we should observe at the world. We should pay attention to mainly how things react to two factors in order to understand their true nature:

Fragility tend to react negatively to randomness and stressors. On the contrary, anti-fragility reacts positively to randomness and thrives under stressful situations. As we progress in life, we should understand how randomness and stressors impact the different aspects of our lives, and try turning traits that are fragile into traits that are anti-fragile. Robustness sits in the middle of the spectrum - it merely withstands pressure, but does not react negatively or positively.

2. Combating Fragility

A black swan event is a concept Talib discussed in depth in his other best seller Black Swan. It describes an event born out of randomness - therefore without people knowing when or how - that has an outsized impact.

In order to make a system more robust or anti-fragile, one must not rely on predicting future events (attempting to cut out randomness), for these black swan events happen every so often with absolutely no reason. By definition, these black swan events / randomness are not avoidable. Talib believing in changing the exposure to failures, not making predictions of future failures

One method of combating fragility is to introduce redundancy or backups. Nature understands this concept very well - humans are born with backups (ie. two lungs, two kidneys, two hands, and two eyes). Through evolution, our body learns to overcompensate for unforeseen dangers by always having a backup. Granted, redundancy is usually the opposite of an efficient system, but it helps making the system antifragile.

Another method to combat fragility is to introduce optionality. To continue with the example of human body, we are born with many senses that tell us what's around us. We can smell, touch, taste, and see. One may argue that we can be ok with only our vision, but having all the options above greatly increases our chance of survival in a hostile world.

A few more examples:

3. Concavity & Convexity

Someone once said that life is a math equation. We can actually also use math to detect fragility and anti-fragility! How exciting.

concave vs. convex

4. Barbell Strategy

Barbell Strategy can be seen as an example of anti-fragility (convexity). It is often discussed in the context of career development or investment strategy, though it can apply to many aspects of our lives. It essentially describes an opportunity where there's an imbalance in current downside (small) vs. future potential upside (big).

Some examples of the Barbell Strategy:

5. Inversion Thinking

Books about Charlie Munger often praise the concept of inverse thinking. Instead of focusing on learning how to make decisions, Munger believes in learning how NOT to. Talib's teachings agree with inversion thinking because subtraction is often more robust than addition. An analogy Talib uses is a scenario such as the following - if you see 100 white swans, you cannot definitively conclude that all swans are white. However, the introduction of even a single black swan refutes that notion.

Some examples of inversion thinking:

6. Naive Interventionism

Naive intervention can turn something that is antifragile into something fragile. Oftentimes, obstacles make certain things or people stronger. By removing friction (regardless of intentions), one may cause more harm. We should be thoughtful before interrupting things that are in motion, in order to not fix things that should rather be left alone. The misconception that randomness is bad should be crushed.

Some examples of naive intervention:

7. Lindy Effect

8. Green Lumber Fallacy

The most successful "green lumber" trader on wall street didn't even know what green lumber meant. He thought it meant the lumber was actually green instead of “freshly cut.” People couldn't understand why someone like that could successfully trade the commodity and had the best results.

We often mistakenly think that some visible knowledge is the KEY ingredient to success, while it's something less visible or narratable entirely. Have to figure out what's more relevant. Humans care a lot about narrative, we don't trust them if they cannot explain "green lumber". Reality, on the other hand, doesn't care about narrative as long as the job is done.