Key Takeaways
To be antifragile is to benefit from uncertainty and disorder. In order to set yourself up well to be antifragile and benefit from uncertainty and disorder, you need to make sure you cap your downside. You don’t benefit from uncertainty if you’re dead. So you should protect your downside. Once your downside is protected, you want to seek out positive Black Swan events to get in front of. You want to always look for convexity, not concavity.
Notes & Quotes
Technology is the result of antifragility
“Technology is the result of antifragility, exploited by risk-takers in the form of tinkering and trial and error, with nerd-driven design confined to the backstage.”
Get in trouble to innovate
“How do you innovate? First, try to get in trouble.”
Trying to combat movements or rebellions is a fools game
“The sucker game is to try to repress them using brute force rather than manipulate them, give in, or find more astute ruses, as Hercules did with Hydra.”
You get a good reputation when you stop caring about having one
“Somehow it is only when you don’t care about your reputation that you tend to have a good one. Just as in matters of seduction, people lend the most to those who need them the least.”
Note: It’s like this with VC money and raising it for a startup, no one wants to fund you if you need the money, but everyone wants to when you don’t
Write what you find interesting
“What the author is bored writing bores the reader.”
Evolution works because it is antifragile
“The most interesting aspect of evolution is that it only works because of its antifragility; it is in love with stressors, randomness, uncertainty, and disorder — while individual organisms are relatively fragile, the gene pool takes advantage of shocks to enhance its fitness.”
Note: this is really a fascinating point. The randomness of mutations on the individual organism can be devastating (think cancer), but for the whole species, it can be highly valuable (maybe it leads to a better gene).
Information survives the longest and is antifragile
“Nature prefers to let the game continue at the informational level, the genetic code. So organisms need to die for nature to be antifragile.”
If nature ran the economy
“If nature ran the economy, it would not continuously bail out its living members to make them live forever. Nor would it have permanent administrations and forecasting departments that try to outsmart the future — it would not let the scam artists of the United State Office of Management and Budget make such mistakes of epistemic arrogance.”
Black Swan Management 101
“Nature (and nature-like systems) likes diversity between organisms rather than diversity within an immortal organism, unless you consider nature itself the immortal organism.”
Being able to predict the future is a myth
“In fact we saw that the world is too random and unpredictable to base a policy on visibility of the future. What survives comes from the interplay of some fitness and environmental conditions.”
Rule through decentralization
“Ottomans, like the Romans before them, let local elites run the place so long as sufficient tax was paid, while they focused on their business of war.”
Prosperity through freedom
“What makes the species prosper isn’t peace, but freedom.”
Slight variation is better than no variation
“Confusing people a little bit is beneficial — it is good for you and good for them. For an application of the point in daily life, imagine someone extremely punctual and predictable who comes home at exactly six o’clock every day for fifteen years. You can use his arrival to set your watch. The fellow will cause his family anxiety if he is barely a few minutes late. Someone with a slightly more volatile — hence unpredictable — schedule, with, say, a half-hour variation, won’t do so.
Variations also act as purges. Small forest fires periodically cleanse the system of the most flammable material, so this does not have the opportunity to accumulate. Systematically preventing forest fires from taking place ‘to be safe’ makes the big one much worse.”
“One of life’s packages: no stability without volatility.”
Prefer some small crises to none at all
“Firms become very weak during long periods of steady prosperity devoid of setbacks, and hidden vulnerabilities accumulate silently under the surface — so delaying crises is not a very good idea.”
Randomness works well in search
“Sometimes better than humans. Nathan Myhrvold brought to my attention a controversial 1975 paper published in Science showing that random drilling was superior to whatever search method was being employed at the time.”
Note: this could be great to incorporate in search algorithms. I’ve always felt that the current algorithms we have now for recommendations don’t have enough variety in them because they cater too much to what we tell it and there’s no way for us to tell it everything, we might not even know what we want. This topic comes up in Rory Sutherland’s book Alchemy.
Changing the two political parties in the US would be beneficial
“What is plaguing us in the United States is not the two-party system, but being stuck with the same two parties. Parties don’t have organic built-in expiration dates.”
Thinking of second-order effects
“We need to learn to think in second steps, chains...killing Islamists compounds their numbers...time for American policy makers to understand that the more they intervene in other countries for the sake of stability, the more they bring instability.”
Note: second-order effects like Charlie Munger always says to think about. Howard Marks also talks about them and has a saying that everyone can think about the first-order effects but not many consider the second-order.
The Principal-Agent Problem
“Emerges when one party (the agent) has personal interests that are divorced from those of the one using his services (the principal).”
Interventions are rarely available when they’re actually needed
“Interventionism depletes mental and economic resources; it is rarely available when it is needed the most.”
How we should intervene
“As a rule, intervening to limit size (of companies, airports, or sources of pollution), concentration, and speed are beneficial in reducing Black Swan risks.”
We get worse when we give more to the system
“Experiments show that alertness is weakened when one relinquishes control to the system. Motorists need the stressors and tension coming from the feeling of danger to feed their attention and risk controls, rather than some external regulator — fewer pedestrians die jaywalking than using regulated crossings.”
The flood of information is making us neurotic
“The supply of information to which we are exposed thanks to modernity is transforming humans from the equable [calm under fire, only upset when truly necessary] into the neurotic [always assumes the worst].”
The Problems with Data
“In business and economic decision making, reliance on data causes severe side effects — data is now plentiful thanks to connectivity, and the proportion of spuriousness in the data increases as one gets more immersed in it. A very rarely discussed property of data: it is toxic in large quantities — even in moderate quantities.”
“The more frequently you look at data, the more noise you are disproportionately likely to get; hence the higher the noise-to-signal ratio.”
“It has been very hard for me to explain that the more data you get, the less you know what’s going on, and the more iatrogenics you will cause. People are still under the illusion that ‘science’ means more data.”
How to avoid the data problem
“The best solution is to only look at very large changes in data or conditions, never at small ones.”
How States Should Function
“The state exists as a tax collector, but the money is spent in the communes themselves, directed by the communes”
Trying to predict events rather than the system
“Governments are wasting billions of dollars on attempting to predict events that are produced by interdependent systems and are therefore not statistically understandable at the individual level.”
“It is the system and its fragility, not events, that must be studied.”
Make the world “greed-proof”
“The more intelligent (and practical action) action is to make the world greed-proof, or even hopefully make society benefit from the greed and other perceived defects of the human race.”
Note: incentives! One of the reasons capitalism works
We’re good at predicting things in the physical world but not the social world
“It is obvious to anyone before drinking time that we can put a man, a family, a village with a mini town hall on the moon, and predict the trajectory of planets or the most minute effect in quantum physics, yet governments with equally sophisticated models cannot forecast revolutions, crises, budget deficits, or climate change. Or even the closing prices of the stock market a few hours from now.”
Focus on your actions, not on what people say about you
“There is another dimension to the need to focus on actions and avoid words: the health-eroding dependence on external recognition. People are cruel and unfair in the way they confer recognition, so it is best to stay out of that game. Stay robust to how others treat you.
Decision making is more important than knowledge
“Wisdom in decision making is vastly more important — not just practically, but philosophically — than knowledge.”
The modern stoic
“My idea of the modern Stoic sage is someone who transforms fear into prudence, pain into information, mistakes into initiation, and desire into undertaking.”
Invest in your actions
“Invest in good actions. Things can be taken away from us — not good deeds and acts of virtue.”
Aim to have more to gain than to lose
“If I have ‘nothing to lose’ then it is all gain and I am antifragile.”
“If you have less to lose than to gain, more upside than downside, then you like volatility (it will, on balance, bring benefits), and you are also antifragile.”
“More upside than downside can come simply from the reduction of extreme downside (emotional harm) rather than improving things in the middle.”
“Fragility implies more to lose than to gain, equals more downside than upside, equals (unfavorable) asymmetry.”
“Antifragility implies more to gain than to lose, equals more upside than downside, equals (favorable) asymmetry.”
Note: Another way of looking at this is the more rare something is expected to be, the higher the payoff (if positive Black Swan) or the greater the risk (in the case of a negative Black Swan)
Survival over success
“They miss the strong logical precedence of survival over success. To make profits and buy a BMW, it would be a good idea to, first, survive.”
The barbell strategy reduces risk because the maximum loss is known
“Someone with 100 percent in so-called ‘medium’ risk securities has a risk of total ruin from the miscomputation of risks. This barbell technique remedies the problem that risks of rare events are incomputable and fragile to estimation error; here the financial barbell has a maximum known loss.”
Life barbell strategy: pure action, then pure reflection
“This is what Seneca elected to do: he initially had a very active, adventurous life, followed by a philosophical withdrawal to write and meditate, rather than a ‘middle’ combination of both. Many of the ‘doers’ turned ‘thinkers’ like Montaigne have done a serial barbell: pure action, then pure reflection.”
Note: I like this approach, it’s similar to Ben Franklin’s and many of the ancients who started as soldiers, then because business men, then statesman, and finally philosophers
“Georges Simenon, one of the most prolific writers of the twentieth century, only wrote sixty days a year, with three hundred days spent ‘doing nothing’. He published more than two hundred novels.”
Policy barbell strategy
“In social policy, it consists in protecting the very weak and letting the strong do their job, rather than helping the middle class to consolidate its privileges, thus blocking evolution and bringing all manner of economic problems that tend to hurt the poor the most.”
Barbell strategy as insurance
“The barbell is simply an idea of insurance of survival; it is a necessity, not an option.”
Don’t ask people what they want
“Steve Jobs’ modus was that people don’t know what they want until you provide them with it.”
America the risk takers
“America’s asset is, simply, risk taking and the use of optionality.”
The more uncertainty, the more valuable the option
“You have the option, not the obligation.”
Better to have fanatics than casual fans
“Authors, artists, and even philosophers are much better off having a very small number of fanatics behind them than a large number of people who appreciate their work.”
Growth comes from the margins
“No one at present dares to state the obvious: growth in society may not come from raising the average the Asian way, but from increasing the number of people in the ‘tails’, that small, very small number of risk takers crazy enough to have ideas of their own, those endowed with that very rare ability called imagination, that rarer quality called courage, and who make things happen.”
Don’t be stupid, rather than be smart
“All you need is the wisdom to not do unintelligent things to hurt yourself (some acts of omission) and recognize favorable outcomes when they occur.”
Optionality is not a lottery ticket
“Casino bets and lottery tickets also have a known maximum upside — in real life, the sky is often the limit, and the difference between the two cases can be significant. Risk taking ain’t gambling, and optionality ain’t lottery tickets.”
Businesses with optionality win
“If you list the businesses that have generated the most wealth in history, you would see that they all have optionality.”
The Half-Invented
“Taking the half-invented into the invented is often the real breakthrough”
The idea that there are inventions all around us waiting in plain sight to be discovered
The simplest technologies run the world
“The simplest ‘technologies’, or perhaps not even technologies but tools, such as the wheel, are the ones that seem to run the world.”
The significant can only be revealed through practice
On trying to make discoveries
“One needs to be intelligent in recognizing the favorable outcome and knowing what to discard.”
“In many pursuits, every trial, every failure provides additional information, each more valuable than the previous one — if you know what does not work, or where the wallet is not located...We can from trial to trial figure out progressively where to go.”
Procrustean bed approach
“We cannot change humans as easily as we can build greed-proof systems, and nobody thinks of simple solutions.”
How best to deal with an uncertain future
“You make forays into the future by opportunism and optionality.”
Why clergyman have made such great contributions to science and not scientists
“No worries, erudition, a large or at least comfortable house, domestic help, a reliable supply of tea and scones with clotted cream, and an abundance of free time. And, of course, optionality. The enlightened amateur, that is.”
Note: sounds similar to the college students of today and perhaps why we often see such innovations and new businesses being started while students are still in college. They have an abundance of free time and have almost everything else taken care of for them, so very little inconveniences or worries.
All you can do is create the environment for innovation, not force it
“All you can do is create an environment that facilitates these collaborations, and lay the foundation for prosperity. And, no, you cannot centralize innovations, we tried that in Russia.”
The turkey problem — Just because there is no evidence for something taking place, does not mean something cannot still happen
“Absence of evidence is not evidence of absence”
Rules for dealing with the uncertainty of innovation
Look for optionality; in fact, rank things according to optionality
Preferably with open-ended, not closed-ended, payoffs
Do not invest in business plans but in people, so look for someone capable of changing six or seven times over his career, or more (an idea that is part of the modus operandi of the venture capitalist Marc Andreessen); one gets immunity from the backfit narratives of the business plan by investing in people. It is simply more robust to do so
Make sure you are barbelled, whatever that means in your business
Exposure is more important than knowledge
“The payoff, what happens to you (the benefits or harm from it), is always the most important thing, not the event itself.”
Note: basically, it doesn’t matter if you can predict the exact event happening or have the knowledge for why a particular event happened, but rather making sure you are exposed to the positive Black Swans that you may not see coming and protected from the negative Black Swans that you may not see coming.
As Warren Buffett has said, “it’s not predicting the flood that counts, it’s building the ark”
The problem is in size
“The problem is primarily size, and the fragility that comes from size. Always keep in mind the difference between a stone and its weight in pebbles.”
Note: the saying is that a pound of pebbles dropped on your head might hurt you but not kill you, whereas a pound of a single rock dropped on your head might kill you
Note: try to prevent exposing yourself to large problems rather than smaller ones, it is the large ones that can kill us, not the small mistakes
Some of the most important things to know can’t be easily described with words
“There are many things without words, matters that we know and can act on but the narrow human concepts that are available to us. Almost anything around us of significance is hard to grasp linguistically — and in fact the more powerful, the more incomplete our linguistic grasp.”
Note: reminds me of the story Feynman tells about saying that knowing the name of a bird does not mean you understand what the bird is, only that you understand something about human language.
Knowledge grows more by subtraction than by addition
“Knowledge grows more by subtraction much more than by addition — given that what we know today might turn out to be wrong but what we know to be wrong cannot turn out to be right, at least not easily...since one small observation can disprove a statement, while millions can hardly confirm it, disconfirmation is more rigorous than confirmation.”
If something requires lots of reasons to do it, don’t do it
“If you have more than one reason to do something...just don’t do it. It does not mean that one reason is better than two, just that by invoking more than one reason you are trying to convince yourself to do something. Obvious decisions (robust to error) require no more than a single reason.”
Technology is best when it is invisible
“Technology is at its best when it is invisible. I am convinced that technology is of greatest benefit when it displaces the deleterious, unnatural, alienating, and, most of all, inherently fragile preceding technology.”
Why most innovation comes from the young
“Much progress comes from the young because of their relative freedom from the system and courage to take action that older people lose as they become trapped in life.”
Biased towards what we see change, rather than what’s always there
“We notice what varies and changes more than what plays a large role but doesn’t change.”
The Lindy Effect for books
“Books that are one year old are usually not worth reading no matter they hype and how ‘earth-shattering’ they may seem to be.”
Regression to the mean for companies that are hyped
“Companies that get hyped up for their potential and called ‘best’ on the cover of magazines or in books such as Good to Great are about to underperform and one can derive an abnormal profit by shorting their stock.”
Note: like the Sports Illustrated cover curse — i.e. regression to the mean
The good is mostly in the absence of the bad
Heroism is taking on the risk for others — not common today
“The main difference between us and them is the disappearance of a sense of heroism; a shift away from a certain respect — and power — to those who take downside risk for others. For heroism is the exact inverse of the agency problem: someone elects to bear the disadvantage (risks his own life, or harm to himself, or, in milder forms, accepts to deprive himself of some benefits) for the sake of others.”
We are here today because others took on risks for us
“If we are here today, it is because someone, at some stage, took some risks for us.”
Taking the other side of fragile makes you antifragile
Take researchers who use their own research seriously
“Take this simple heuristic — does the scientific researcher whose ideas are applicable to the real world apply his ideas to his daily life? If so, take him seriously.”
Society does not require benevolence if set up well
“We have known since Adam Smith that the collective doesn't require the benevolence of individuals, as self-interest can be the driver of growth.”