Antifragile Things That Gain From Disorder

Citation

Subedi, D. (2013), "Antifragile Things That Gain From Disorder", Competitiveness Review, Vol. 23 No. 3, pp. 296-298. https://doi.org/10.1108/10595421311319852

The keywords in this book, as per the copyright page, are uncertainty, forecasting and complexity. The focus of this book is “antifragility.” This concept incorporates what is called “resilience” in risk management (Sheffi, 2005) and goes beyond that. The focus of Taleb's (2010) previous book The Black Swan: The Impact of the Highly Improbable is understanding risk. A substantial portion of the current one is also devoted to the discussion of risk.

Nassim Taleb used to be a trader and is now a philosophical writer, academic researcher and a professor (Amazon.com), making him immensely suitable and knowledgeable to tackle subjects related to this book, which are vast and complicated. Moreover, he is also an interesting personality who, as per one reviewer of the (The) Economist, can be “amusing or irritating” ((The) Economist, 2012). Of course, Taleb knows controversies do not hurt his book sales (Chapter 2).

Taleb coined the term “fragalista” and used it more than 50 times to describe the ideas, authors and works that he thinks have added to the fragility of enterprises, people or societies and caused them to be less adaptive or innovative. Most economists, New York Times columnists and bankers, as well as business professors and MBAs, are called by this name. He mentions “professor” at least 35 times and never in a positive light. He thinks professors who portray themselves as experts do not understand business, innovation or risk – charlatan is the word he uses (Chapters 2 and 20). And he also does not see any value in analysis techniques MBAs learn (Chapters 2 and 23).

However, he respects Daniel Kahneman – a trained psychologist and an empiricist and also a Nobel laureate in economics. Kahneman gets at least ten very positive citations in this book. And the respect is mutual, Kahneman mentions Taleb's earlier book – The Black Swan – six times in his own book – Thinking Fast and Slow (Kahneman, 2011). Kahneman (2011) uses citations to explain how rational thinkers' automatic search for “causality” and falling for logical sounding “coherent” stories (Chapter 6) (which is called “narrative fallacy”) gives them “ the illusion of understanding,” many times leading them towards false conclusions (Chapter 19).

In this book, Taleb uses a story of a fictitious character called “Fat Tony” to explain how econometric models, predictions and probabilities, etc. that are taught in business schools, just create “narrative fallacy” and the “illusion of understanding” and stresses that people who have a healthy skepticism towards theory and wisdom and understand the essence of the facts are more successful (Chapter 14).

Given this tone, this book should be judged a success to the extent that it provides such wisdom to hardcore business owners like “Tony” or managers with (or without) MBAs. First, here is a summary and important insights of this book.

This book has seven major sections. Taleb calls each section an independent book. In book one he explains how uncertainty, failure and chances induced by randomness allow a system to innovate and evolve and make it antifrigile. He also discusses the importance of redundancy and multi‐layering.

Book two basically elaborates on randomness. He says systems that suppress small variations can be harbingers of bigger problems. He explains that prediction should have no place in risk management, because its track record “in figuring out a significant rare event” is zero.

Book three explains that antifragility is the ability to benefit from randomness. Taleb gives examples of how to make bets which have small downsides and big upsides. He decries the theories of such rational decision making and expected utility, which he states have no value in practical decision making. And he suggests that the “barbell strategy,” where you invest a large amount in a safe no risk portfolio and bet a small amount with large upside has potential to make you very rich.

Book four explains relationships between real option, implicit (i.e. unarticulated) knowledge and antifragility. Taleb points to the importance of vigilance and the ability to benefit from unexpected opportunities. He emphasizes the importance of trial and error, tinkering and intuitive knowledge in creating options.

Book five, which is on nonlinearity, is one the most important and concisely written parts in this book. By adding nonlinearity to asymmetry and volatility, Taleb clearly explains how a small increase in disturbance (volume of traffic for example) can create a huge backlog. Or, on the positive side, a small bet can give a huge payback.

Books six and seven are filled with his own observations, anecdotes and also some important insights. The most important insight of book six is that one should not give up on conventional wisdom too easily. On the other hand, many of those recent killer apps, best seller books or management ideas can be just fads. Book seven is about ethics of risk management.

The book has some noteworthy observations. The “black swan” problems are the first ones. These are “rare events” whose “likelihood” is impossible to predict. As well, he is also skeptical about the efficacy of statistical forecasting techniques, especially given their inability to forecast the cliffs. Taleb calls this inability “the great turkey problem” (Chapter 5). A butcher brings food to a turkey till the day he kills it. As such, forecasting based on past data is analogous to a turkey associating the butcher with food.

This book repeatedly admonishes readers that “absence of evidence” is not same as “evidence of absence” (Chapters 5, 15, 17, 21, 24). The turkey did not have a clue of the butcher's intention till the fateful day. Before the Fukushima disaster, no one could know that nuclear power plants could be that dangerous (Chapter 2). Besides, Taleb is also skeptical of the theorizing prevalent in contemporary academia. The “Fat Tony” story mentioned above is one good example of this. Taleb describes himself as a “skeptical empiricist” who likes to “create theories out of practice,” not put “theories into practice” (Chapter 15).

Taleb's most important arguments are about how uncertainties/randomness, which have negative sides (which are to be avoided), also have powerful positives (which should be sought after and exploited for success) (Chapters 3‐5). To capture all this together, a triad of antifragility, robustness and fragility is introduced and repeated (28 times) in this book.

Now, to discuss some weaknesses. Remember, this is a book written by a “skeptical empiricist” who thinks business school professors and graduates lack wisdom and skills that really matter. Then this book, which is promoting practicality, should be providing concrete examples of what they should have known all along. The readers are definitely left wanting here.

For example, in Chapter 2, he decries MBAs for not understanding the importance of redundancy and multi‐layering. However, every MBA knows about safety stocks (Sheffi, 2005, p. 175). They also know companies, even Toyota which is famed for lean operations, have more than one supplier for most of the items they purchase (Liker, 2004, p. 217). And companies like FedEx, who are routinely exposed to uncertainties, keep empty planes and vans ready to be operational at short notice (Sheffi, 2005, p. 177).

Again, in Chapter 14, he disparages MBAs for not understanding the importance of trial and error. Of course they understand this. For example, total quality management encourages trials and experiments. And it also provides simple and intuitive tools like “five whys” to get to the bottom of errors and learn from them (Liker, 2004, p. 252‐253). The notion of real option is developed around the idea of benefiting from the upsides of the uncertainties. That is why companies sign different types of contacts to different suppliers. If there is one with an agreement to supply fixed quantity to satisfy minimum demand, then there is another with a flexible contact to allow the company to benefit from the possible surge (Sheffi, 2005, p. 99). And there is another example where one company has mastered the process of dyeing a complete sweater, rather than the wool, to be better able to capture ever‐changing fashion (Simchi‐Levi et al., 2008, p. 346).

These are just a few examples which would help “Fat Tony” (or some business manager with or without an MBA) make his/her “Shekel.” But this book only provides lots of philosophizing based on personal anecdotes and opinions as examples. “Tony,” who did not care for Socrates (Chapter 17), would not have cared for these narratives.

On the balance, this is a timely book written on issues relevant to all business managers/owners, decision makers or students of decision, judgment, risk or risk management. However, reading this book also requires one to navigate through lots of irritations, caricatures and tons of not so relevant stories, anecdotes and speculations.