Book review: Antifragile; Things that Gain from Disorder
Highly recommended
This book is the third in a series by Nassim Nicholas Taleb, the first being, Fooled by Randomness; the second, The Black Swan. I read the first but not the second, and I recommend the books for anyone who wishes to better understand the subtitle of his first book: “Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets.” Taleb is the one who popularized the notion of black swans, which are now regularly invoked in discussions of crises. At one time, scientists concerned with such things determined that there were no black swans, since they’d never seen one, which leads to another thread that pervades his books: absence of evidence is not evidence of absence.
According to the author, antifragility anchors one end of a spectrum, on the other end of which is, not surprisingly, fragility. Fragile seems like one of those words that is hard to define without using the word in the definition, but he defines it as you likely would. Antifragility is the idea of something becoming stronger in a crisis, and while one might think of “robust” as the opposite of fragile, it merely lies on the spectrum between antifragility and fragility.
Examples of antifragility are peppered throughout the book, and they include the individual who takes non-lethal doses of a toxin to build up an immunity to the toxin, becoming antifragile in the process. In the financial markets, antifragility is exemplified by the long, or owned, option position, which becomes more valuable as volatility increases. Derivatives is also the arena in which the author’s concept of convexity is most familiar, and positive convexity (a non-linear payoff; i.e. return) is to be preferred over negative convexity, which he also refers to as concavity. On the other hand, soccer moms create fragile kids by not letting them be subject to stressors, and the authorities foster fragility in the banking system by not letting financial institutions fail and by encouraging fewer but larger institutions.
Be forewarned that you may not like the author. He is a braggart through and through. He is proud of his way of thinking about things. He’s proud of his street-fighter physique. His tone borders on biting; he is cynical and trains his sights on politicians, central planners, but he reserves most of his ire for economists and other “Russia-Harvard” types, as they have no skin in the game, unlike Roman bridge builders who had to sleep under the bridges they built.
He names the names of those who had no skin in the game, who were “blindfolded bus drivers,” and who drove their buses filled with retirees and others off the cliff edge…and continue to drive buses blindfolded, having suffered no consequences; think prominent central bankers and White House economic advisors. They have a “combination of analytical ability and blindness to fragility,” and since others rely on their opinions, they should have some skin in the same, should have to sleep under the bridges they build.
This was one of the best books I read in 2015, and I recommend it to you. It’s not light reading, to be sure, but the concepts in it can be widely applied in many fields.
The concepts in this book are not endorsed by, nor is the author affiliated with, LPL Financial.