Antifragile

Antifragile: Things That Gain from Disorder

Hardcover, 1st edition
Author	Nassim Nicholas Taleb
Country	U.S.
Language	English
Subject	Philosophy, mathematics, business, economics
Publisher	Random House (United States) Penguin Books (United Kingdom)
Publication date	November 27, 2012
Pages	519
ISBN	1-400-06782-0
Dewey Decimal	155.24 TA
Preceded by	The Bed of Procrustes

See also Antifragile (concept).

Antifragile: Things That Gain From Disorder is a book by Nassim Nicholas Taleb published in November 2012 by Random House in the United States and Penguin in the United Kingdom.

Introduction

In the introduction of the book, Taleb describes it as follows: "Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better".

"Simply, antifragility is defined as a convex response to a stressor or source of harm (for some range of variation), leading to a positive sensitivity to increase in volatility (or variability, stress, dispersion of outcomes, or uncertainty, what is grouped under the designation "disorder cluster"). Likewise fragility is defined as a concave sensitivity to stressors, leading a negative sensitivity to increase in volatility. The relation between fragility, convexity, and sensitivity to disorder is mathematical, obtained by theorem, not derived from empirical data mining or some historical narrative. It is a priori".

Criticism of Alan Blinder

In the last chapter (p. 412), among the people Taleb criticizes is Alan Blinder, the former vice chairman of the board of governors of the Federal Reserve System for trying to sell him an investment product at Davos in 2008 which would allow an investor to circumvent the regulations limiting deposit insurance and benefit from coverage for near unlimited amounts. Taleb commented that the scheme "would allow the super-rich to scam taxpayers by getting free government-sponsored insurance". He also criticized Blinder for using ex-regulators to game the system which they built in the first place and for voicing his opposition to policies of bank insurance that would hurt his business, i.e., claiming that what is good for his business is "for the public good". The event has been discussed in the media, but not denied by Blinder.

Green Lumber Fallacy

The Green Lumber Fallacy is one of the most important concepts introduced by Taleb in the book and is a kind of fallacy where one mistakes one important kind of knowledge for another, or in other words, "mistaking the source of important or even necessary knowledge, for another less visible from the outside, less tractable one... how many things we call 'relevant knowledge' aren’t so much so". Mathematically, it is the use of an incorrect function that, by chance, returns the correct output, such that one conflates g(x) with f(x). The root of the fallacy is that although people may be focusing on the right things, due to complexity of the thing, they are not good enough to figure it out intellectually.

The term green lumber refers to a story by authors Jim Paul and Brendan Moynihan in their book What I Learned Losing A Million Dollars, where a trader made a fortune trading lumber he thought was literally "green" rather than fresh cut. "This gets at the idea that a supposed understanding of an investment rationale, a narrative or a theoretical model is unhelpful in practical trading."

The protagonist makes a big discovery. He remarks that a fellow named Joe Siegel, one of the most successful traders in a commodity called “green lumber,” actually thought that it was lumber painted green (rather than freshly cut lumber, called green because it had not been dried). And he made it his profession to trade the stuff! Meanwhile the narrator was into grand intellectual theories and narratives of what caused the price of commodities to move, and went bust.It is not just that the successful expert on lumber was ignorant of central matters like the designation “green.” He also knew things about lumber that nonexperts think are unimportant. People we call ignorant might not be ignorant. The fact is that predicting the order flow in lumber and the usual narrative had little to do with the details one would assume from the outside are important. People who do things in the field are not subjected to a set exam; they are selected in the most nonnarrative manner—nice arguments don’t make much difference.

Early occurrences

An early occurrence of this fallacy is found in the ancient story of Thales. Aristotle explains that Thales reserved presses ahead of the olive harvest at a discount only to rent them out at a high price when demand peaked, following his predictions of a particularly good harvest. Aristotle attributes Thales’ success to his ability to correctly forecast the weather. However, it was not his ability to forecast that made Thales successful but that "Thales put himself in a position to take advantage of his lack of knowledge…that he did not need to understand too much the messages from the stars…that was the very first option on record”.

Green Lumber Problem

The Green Lumber Fallacy only becomes a problem (namely, the Green Lumber Problem) when the perpetuation of the fallacy has a high, and opaque, negative impact. For example:

• Green Lumber Fallacy and a Green Lumber Problem: “James Le Fanu showed how our understanding of the biological processes was coupled with a decline of pharmaceutical discoveries, as if rationalistic theories were blinding and somehow a handicap”.
• Green Lumber Fallacy Only: "The same holds for the statement Lifting weights increases your muscle mass. In the past they used to say that weight lifting caused the 'micro-tearing of muscles,' with subsequent healing and increase in size. Today some people discuss hormonal signaling or genetic mechanisms, tomorrow they will discuss something else. But the effect has held forever and will continue to do so."

See also

• Moral hazard
• Fooled by Randomness by the same author
• Lindy Effect