Antifragile: Things that gain from disorder Nassim Nicholas Taleb

Detect antifragility and fragility using a simple test of geometry: anything that has more upside than downside from random events or certain shocks is antifragile; the reverse is fragile

People often focus on look what I did for you, not look what I avoided for you.

The more frequently you look at data, the more noise you are disproportionally likely to get, rather than the valuable signal.

Assume further that for what you are observing, at a yearly frequency, the ratio of signal to noise is about one to one- this means half the changes are real and half are randomness. But if you look at the data on a daily basis, the composition would shift to 95% noise and 5% signal. And on an hourly basis, 99.5% noise and .5% signal. That is 200 times more noise than signal-which is why anyone who listens to news is one step below sucker.

To conclude, the best way to mitigate interventionism is to ration the supply of information, as naturalistically as possible.

You cant predict in general, but you can predict that those who rely on predictions are taking more risks, will have some trouble, perhaps even go bust.

Those who predict are fragile to prediction errors. Numerical prediction leads people to take more risks.

When you become rich, the pain of losing your fortune exceeds the emotional gain of getting additional wealth, so you start living under constant emotional threat.

Fragility has a ratchetlike propert, the irreversibility of damage. What matters is the route taken, the order of events, not just the destination-what scientists call path dependent property.

This fragility from path dependence is often ignored by businessmen who, tend to believe that generating profits is their principal mission, with survival and risk control something to perhaps consider they miss the strong logical precedence of survival.

Notions such as speed and growth, anything related to movement-are empty and meaningless when presented without accounting for fragility. It is obvious that one needs to focus on the effective, not the nominal speed.

Aggresiveness plus paranoia- clip your downside, protect yourself from extreme harm, and let the upside, the positive black swans, provide benefits

Ray Dalio has a rule for making speculative bets- make sure that the probability of the unacceptable, the risk of ruin, is nil. Such a rule gets to the barbell strategy.

Centrally, we just don’t need to know whats going on when we buy cheaply, when we have the asymmetry working for us. This property goes beyond buying cheaply; we do not need to understand things when we have some edge. And the edge from optionality is in the larger payoff when you are right, which makes it unnecessary to be right too often.

All you need is the wisdom to not do unintelligent things to hurt yourself and recognize favorable outcomes when they do occur.

The most wonderful attribute of nature is the rationality with which it selects its options and picks the best for itself-thanks to evolution. Unlike someone who is afraid of doing something different, nature sees the asymmetry and locks in a better path than the previous one. In trial and error, the rationality consists in not rejecting something that is markedly better than what you had before.

Risk taking is gambling, and optionality isn’t lottery tickets.

Randomness plays a role at tow levels, the invention and the implementation.

All we need is the ability to accept that what we have is better than what we had before- to recognize an option-to take advantage of a valuable alternative that is superior to what precedes it.

One needs to be intelligent in recognizing the favorable outcome and knowing what to discard.

Stemm’s method: do an extensive analysis of where the ship may be. Draw squared of probability. Then you must have certainty the ship is not in one area before moving on to another.

Green lumber fallacy- the situation in which one mistakes a source of necessary knowledge- the greenness of lumber- for another, less visible from the outside, less tractable, less narratable.

We don’t put theories into practice- we create theories out of practice.

We cannot reverse engineer the taste of food from looking at the nutrition label – ariely.

In extremistan- it is more important be in something in a small amount than to miss it. The payoffs can be so large that you cant afford not to be in everything.

Strategic plans make the corporation option blind- it gets locked into non-opportunistic courses of action.

The payoff from trial and error and tinkering- you incur a lot of small losses but once in awhile you find something significant. Such methodology will show nasty attributes when seen from the outside-it hides its qualities, not its defects.

Two distinct payoffs: the bounded left- limited losses; and the bounded right- limited gains, insurance and banking. The distinction is crucial.

Rules: 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 of seven times over his career, or more (an idea that is part 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.

Formal thinkers and theorizers tend to write books; seat of the pants people tend to be practitioners who are often content to get the excitement, make or lose the money, and discourse at the pub. Their

experience are often formalized by academics; indeed history has been written by those who want you to believe that reasoning has a monopoly on the production of knowledge.

There are 2 domains: those that are set up like a game with rules supplied in advance in an explicit way. And the ecological, where we don’t know the rules and cannot isolate the variable, as in real life. Seeing the nontransfreability of skills from one domain to the other led me to skepticism in general about whatever skills are acquired in a classroom, anything non-ecological, as compared to street fights and real life situations.

We accept the domain specificity of games, the fact that they do not really train you for life, that there are severe losses in translation. But we find it hard to apply this lesson to technical skills acquired in schools, to accept the fact that what is picked up in the classroom largely stays in the classroom.

Soccer moms try to eliminated the trial and error, the antifragility, from childrens lives and move them to preexisting maps of reality.

Provided we have the right type of rigor, we need randomness, mess, adverntures, uncertainty, self discovery, near traumatic episodes, all these things make life worth living, compared to the structured, fake, preset schedule.

I wasn’t exactly an autodidact. I was a barbell autodidact as I studied the exact minimum necessary to pass any exam. But I read voraciously, in the humanities, math, science, and history, -outside a curriculum. I selected whatever matched my curiosity.

There is this error of thinking that things always have a reason that is accessible to us- that we can comprehend easily.

An answer is planted in every question- never respond with a straight answer to a question that makes no sense to you.

Need to focus on the payoff from your actions, instead of studying the structure of the world(what is true or false)

The payoff, what happens to you(the benefits or the harm), is always the most important thing, not the event itself.

What scientists involved in complexity call emerging properties is the nonlinear result of adding units, as the sum becomes increasingly different from the parts.

Despite of business schools- economies of scale and size hurt you at times of stress. The gains from size are visible but the risks are hidden, and some concealed risks seem to bring frailities into the companies.

The world is getting less and less predictable, and we rely more and more on technologies that have errors and interactions that are harder to estimate, let alone predict.

Since time cannot be negative, on a timeline from left to right, errors add to the right end, not the left end of it.

It all boils down to the following: figuring out if our miscalculations or misforecasts are on balance more harmful than they are beneficial, and how accelerating the damage is.

The technique- detecting acceleration of harm-applies to anything that entails decision making under uncertainty and risk management.

Do a small change in the assumptions and look how large the effect is, and if there is acceleration of such effect.

Someone with a linear payoff needs to right more than 50 % of the time. Someone with a convex payoff, much less. The hidden benefit of antifragility is that you can guess worse than random and still end up outperforming. Here lies to power of optionality-your function of something is very convex, so you can be wrong and still be fine- the more uncertainty the better.

Let me summarize the argument: if you have favorable asymmetries, or positive convexity, options being a special case, then in the long run you will do reasonable well, outperforming the average in the presense of uncertainty. The more uncertainty, the more role for optionality to kick in, and the more you will outperform. This property is very central to life.

People want more data to solve problems. The people are blind to the paradox that we have never had more data than we do now, yet we have less predictability than ever. More data can make you miss the big truck. You need to remove data, anything but the essential threat.

By invoking more than one reason you are just trying to convince yourself to do something.

When we imagine the future, we have the tendency to take the present as a baseline, then produce a speculative destiny by adding new technologies and products to it and what sort of makes sense, given an interpolation of past developments. We also represent society according to our utopia of the moment, largely driven by our wishes. We tend to overtechnologize it and underestimate the might of the equivalent of these small wheels on suitcases.

For the perishable, every additional day in its life translates into a shorter life expectancy. For the nonperishable, every additional day may imply a longer life expectancy.

The non-natural needs to prove its benefits, not the natural. Nature is less of a sucker than man.

In a complex domain, only time, a long time, is evidence.

The do you have evidence fallacy, mistaking evidence of no harm for no evidence of harm.

What nature does is rigorous until proven otherwise; what humans and science do is flawed until proven otherwise.

Random variability is often mistaken for information, leading to intervention.

Courage and heroism do not mean blind risk taking, it is not necessarily recklessness. There is a pseudocourage that comes from risk blindness, in which people underestimate the odds of failure.

Gerd Gigerenzer – Never ask the doctor what you should do. Ask him what he would do if he were in your place. You would be surprised at the difference.

Something estimated needs to have an estimation error.