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Antifragile - Nassim Nicholas Taleb


berkshiremystery
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Nicholas Taleb has some new book coming out!

 

[amazonsearch]Antifragile: Things That Gain from Disorder[/amazonsearch]

 

Publication Date: November 27, 2012

 

From the bestselling author of The Black Swan and one of the foremost thinkers of our time, Nassim Nicholas Taleb, a book on how some things actually benefit from disorder.

 

In The Black Swan Taleb outlined a problem, and in Antifragile he offers a definitive solution: how to gain from disorder and chaos while being protected from fragilities and adverse events. For what Taleb calls the “antifragile” is actually beyond the robust, because it benefits from shocks, uncertainty, and stressors, just as human bones get stronger when subjected to stress and tension. The antifragile needs disorder in order to survive and flourish.

 

Taleb stands uncertainty on its head, making it desirable, even necessary, and proposes that things be built in an antifragile manner. The antifragile is immune to prediction errors. Why is the city-state better than the nation-state, why is debt bad for you, and why is everything that is both modern and complicated bound to fail? The book spans innovation by trial and error, health, biology, medicine, life decisions, politics, foreign policy, urban planning, war, personal finance, and economic systems. And throughout, in addition to the street wisdom of Fat Tony of Brooklyn, the voices and recipes of ancient wisdom, from Roman, Greek, Semitic, and medieval sources, are heard loud and clear.

 

Extremely ambitious and multidisciplinary, Antifragile provides a blueprint for how to behave—and thrive—in a world we don't understand, and which is too uncertain for us to even try to understand and predict. Erudite and witty, Taleb’s message is revolutionary: What is not antifragile will surely perish.

 

 

 

 

 

 

 

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  • 2 months later...

[amazonsearch]Antifragile:  Things That Gain From Disorder[/amazonsearch]

 

Due to be released at the end of the month, I recently finished an early copy.  If you consider this the 3rd edition to the trilogy, Fooled By Randomness, then Black Swan, -- it was worth the wait and a nice book.  If you read the Black Swan, then you know about creeping determinism and the turkey problem.

 

To reveal creeping determinism, or `abstract blindness' I am reminded of the WWII bombers that returned from German bomb runs.  The ones that returned were all shot-up and full of holes.  The General asked, `what can we do to protect the bombers'?  A smart mathematician said put extra armor where there are "no" holes.  Where There are No Holes! 

 

When looked thru the lens of abstract blindness, one realizes that the bombers that did not return were the ones with holes in them that no one could see.  This dove tails into the Antifragile’s frequent reminder that absence of evidence , is not the same as evidence of absence --  meaning (in my view) just because there is 30 years of data that says it has never happened before does not mean it will not happen (the turkey problem). Enjoy the read!

 

Cheers

JEast

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Guest hellsten

Great article by Nassim:

http://online.wsj.com/article/SB10001424127887324735104578120953311383448.html

 

Rule 4: Trial and error beats academic knowledge.

 

Things that are antifragile love randomness and uncertainty, which also means—crucially—that they can learn from errors. Tinkering by trial and error has traditionally played a larger role than directed science in Western invention and innovation. Indeed, advances in theoretical science have most often emerged from technological development, which is closely tied to entrepreneurship.

 

 

We all know that the stressors of exercise are necessary for good health, but people don't translate this insight into other domains of physical and mental well-being. We also benefit, it turns out, from occasional and intermittent hunger, short-term protein deprivation, physical discomfort and exposure to extreme cold or heat. Newspapers discuss post-traumatic stress disorder, but nobody seems to account for post-traumatic growth. Walking on smooth surfaces with "comfortable" shoes injures our feet and back musculature: We need variations in terrain.

 

Modernity has been obsessed with comfort and cosmetic stability, but by making ourselves too comfortable and eliminating all volatility from our lives, we do to our bodies and souls what Mr. Greenspan did to the U.S. economy: We make them fragile. We must instead learn to gain from disorder.

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The P&C Industry would probably be called 'robust' more than 'antifragile'.  This recognizing that the industry could, though remotely, have a spiral effect where one insure collapses, that causes another to collapse, etc... that would eventually cause governments to intervene.

 

 

Cheers

JEast

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  • 2 weeks later...

Why Taleb is wrong about markets and uncertainty

http://condoroptions.com/2012/11/26/why-taleb-is-wrong-about-markets-and-uncertainty/

 

 

Insurance companies are the very essence of fragility: they collect policy premiums and hope that the world stays exactly as it is. A natural disaster, epidemic, or outbreak of mass hysteria could ruin an insurer. But in the real world, we see insurance companies surviving easily enough after disruptions. The premiums collected in quiet periods are typically more than enough to offset risks, and companies even use recent events to justify charging higher premiums to newly risk-averse customers. Historically, betting on the fragility of insurance companies – especially immediately after a natural disaster – has been a losing strategy.

 

A more literal case of anti-fragility is an investor who buys an option straddle, consisting of a put and a call on the same security with the same strike price and time to expiration. The more volatile the underlying asset is, the more profit accrues to the straddle buyer, and because the position consists of both puts and calls, the investor is indifferent to the direction of price movement. A breath-taking rally is just as advantageous as a market crash.* The risk to a straddle buyer is that the options will be worthless at expiration: if the underlying asset is priced at the strike price of the straddle at expiry, all of the premium paid for those options will be lost.

 

In spite of their epistemically virtuous behavior (as Taleb would have it), option buyers tend to lose more than they win: not just more often, but more money, too. VCs are long gamma, too, and have on average delivered sub-par returns in spite of the anti-fragility of the companies they fund. Somehow, short-gamma insurance companies survive.

 

This is the fact that should make sympathetic readers of Taleb pause: we have had at least two major global crises in recent years – the financial crisis in 2007-08 and the European banking crisis in 2011 – and yet the payoff to option buyers from those events has not even covered the carrying costs of the strategy in the last several years, much less the costs incurred from buying anti-fragility (option gamma) during the prior decade. It’s not just that options are not underpriced in light of “black swan” risks: they’re dramatically overpriced.

 

RR: Taleb has appropriated Minsky's idea in a non-empiric non-rigorous way to propose the opposite that Minsky proposed. Go to the source instead, read Minsky.

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Insurance companies are the very essence of fragility: they collect policy premiums and hope that the world stays exactly as it is.

 

That sentence doesn’t really make sense to me. As with every business, some insurance companies are fragile, others are robust, others (ok, I agree, the minority by far!) are even anti-fragile (see, for instance, FFH and LRE). It all depends on management. Management of an insurance company has three duties:

1) To asses risk better than the insured, to know the premium under which an underwriting contract risks becoming unprofitable,

2) To restrain from underwriting a contract, when competition forces the premium to fall below the minimum level required for the contract to be profitable,

3) To invest opportunistically the float gathered through the years.

An insurance company that fails in 1), 2), and 3) is fragile, one that succeeds at least in 1) and 2) is robust, and one that succeeds in all those three endeavors is anti-fragile (it will literally benefit from volatility and disorder, like all successful investors do).

 

That being said, I think Mr. Taleb makes a clear distinction between a single insurance company and the insurance industry. The insurance industry as a whole is clearly anti-fragile. The bigger the disaster, the more scared, and therefore the more irrational, the insured become. The more irrational the insured become, the greater the edge the insurance industry has on them: 1) benefits from disorder. Furthermore, the greater the disaster, the less dumb capital is available in the insurance industry: 2) benefits from disorder.

 

giofranchi

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That being said, I think Mr. Taleb makes a clear distinction between a single insurance company and the insurance industry.

 

I thought about this same issue in other applications of Taleb's "anti-fragility" concept.  I think the important part of the concept is to realize that all anti-fragility is "local" - when Taleb talks about a concave distribution of outcomes, it is still convex on the ends.  If an atom bomb goes off underneath someone's feet, they don't turn into superman, even though people, as biological organisms, are said to be "anti-fragile".  Taleb's "long gamma" options strategy can't work if the financial system is in ruins and the counterparties can't pay.

 

Also, Taleb attempts to refute the argument that the options his strategy employs are overpriced:

 

http://www.fooledbyrandomness.com/Ilmanen.pdf

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  • 5 weeks later...

Ended reading “Antifragile” yesterday. It took me 5 weeks to listen to its whole audiobook. And I listened to it only in times when I couldn’t have worked anyhow, when I couldn't have been productive. 17 Hours that I would have lost driving, running at the gym, walking on the street, etc.

 

Audiobooks: a very useful invention!  :)

 

giofranchi

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Giofranchi, I agree.  I don't know what I'd do without my audiobooks. I started listening to audiobooks in my car maybe 12 years ago or more. I used to get them on tape (then CD) from the library even way back before I had an mp3 player.  Up until about a year ago I spent an average of 3 hrs per day in my car, now I spend about 1hr/day in my car.  Plus I listen when I do yard work, or workout, etc...  I can't tell you how many books I've listened to over the years, too many to count.  I enjoy them so much that I've never thought of my commute as wasted time.

 

I always have 3 books in progress at all times, one audiobook, one on my nook, and one dead tree version.  I probably only watch on average about 2 hours of TV per week and that is a Netflix movie not anything showing on TV itself.  If it weren't for the wife and kids I wouldn't be subscribing to cable at all.

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Giofranchi, I agree.  I don't know what I'd do without my audiobooks. I started listening to audiobooks in my car maybe 12 years ago or more. I used to get them on tape (then CD) from the library even way back before I had an mp3 player.  Up until about a year ago I spent an average of 3 hrs per day in my car, now I spend about 1hr/day in my car.  Plus I listen when I do yard work, or workout, etc...  I can't tell you how many books I've listened to over the years, too many to count.  I enjoy them so much that I've never thought of my commute as wasted time.

 

I always have 3 books in progress at all times, one audiobook, one on my nook, and one dead tree version.  I probably only watch on average about 2 hours of TV per week and that is a Netflix movie not anything showing on TV itself.  If it weren't for the wife and kids I wouldn't be subscribing to cable at all.

 

One of the reasons I like this board so much is that “out there” in the “cold” world I am usually looked at with “great” suspicion… sometimes, even amusement… “Has he got some serious problems?”, “Is he a little crazy?”… I have a whole apartment that I use as my own personal office, and it so much full of shelves stacked up with books, annual reports, etc., that anyone who comes in starts looking at me with disbelief…

On this board, instead, everyone behaves like I do!! What “out there” seems to be so unconventional, and therefore difficult to accept, on this board is just common and obvious!!  :)

 

giofranchi

 

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Giofranchi, I agree.  I don't know what I'd do without my audiobooks. I started listening to audiobooks in my car maybe 12 years ago or more. I used to get them on tape (then CD) from the library even way back before I had an mp3 player.  Up until about a year ago I spent an average of 3 hrs per day in my car, now I spend about 1hr/day in my car.  Plus I listen when I do yard work, or workout, etc...  I can't tell you how many books I've listened to over the years, too many to count.  I enjoy them so much that I've never thought of my commute as wasted time.

 

I always have 3 books in progress at all times, one audiobook, one on my nook, and one dead tree version.  I probably only watch on average about 2 hours of TV per week and that is a Netflix movie not anything showing on TV itself.  If it weren't for the wife and kids I wouldn't be subscribing to cable at all.

 

One of the reasons I like this board so much is that “out there” in the “cold” world I am usually looked at with “great” suspicion… sometimes, even amusement… “Has he got some serious problems?”, “Is he a little crazy?”… I have a whole apartment that I use as my own personal office, and it so much full of shelves stacked up with books, annual reports, etc., that anyone who comes in starts looking at me with disbelief…

On this board, instead, everyone behaves like I do!! What “out there” seems to be so unconventional, and therefore difficult to accept, on this board is just common and obvious!!  :)

 

giofranchi

 

Damn, and I thought that I would be the only person with the those habits. If someone would enter my apartment, I have already the hallway on one side, the whole wall covered with my bookcases full of mostly business, finance and science books (at last count over 700, after I stopped counting, not to mention books in other rooms), annual reports, and research papers. But always afraid that strangers would freak out over those titles and think that I might be some mental weirdo... "Stalking the Black Swan", "Securities Analysies", "Bringing Down the House", "Fortunes Formula", "SuperFreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance", "Against The Gods", "Theory of Games and Economic Behavior", "The Blind Watchmaker", "The Selfish Gene",... sooner or later someone might think that I'm an antisocial with a borderline syndrome. ;D

 

And I have the odd behavior of covering my bookcases and titles occasionally when the plumber or meterman comes and passes my hallway, feeling my reading habits would make them gawk. :o

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Not just this board, but the internet as a whole.  As Cory Doctorow wrote in  "Eastern Standard Tribe" you can be part of a community based on any number of things which you have in common with other people, not just where you happen to be physically located. In fact you can easily find others throughout the world with whom you have significantly more in common with than your neighbors in any number of different ways.  You can be part of many different communities for different reasons with people who are all physically located all over the world.  The whole current theory of the nation-state (marking off areas of land and calling the people a 'nation') is falling further and further into obsolescence every year in proportion to the ease of communication and the network effect linking us all together.  (and good riddance to it).

 

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Gio, Berkshiremystery, where do you get your audiobooks? Download from internet? CD? I was surprised that audiobook for Antifragile was selling for significant premium vs kindle or paper version.

 

I actually downloaded Antifragile from Audible.com today for free with this promo link http://www.retailmenot.com/out/2466917 - I believe that the price was only $7.50 without the promo code.

 

Also, if you live in the US, you can get many audio books from your local library. http://library2go.lib.overdrive.com/2C66D511-FD56-4E6C-BE28-025DB8AC4709/10/438/en/Default.htm is a good place to start since it is subscribed through many libraries and the selection is decent.

 

alpha23

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Gio, Berkshiremystery, where do you get your audiobooks? Download from internet? CD? I was surprised that audiobook for Antifragile was selling for significant premium vs kindle or paper version.

 

I actually downloaded Antifragile from Audible.com today for free with this promo link http://www.retailmenot.com/out/2466917 - I believe that the price was only $7.50 without the promo code.

 

Also, if you live in the US, you can get many audio books from your local library. http://library2go.lib.overdrive.com/2C66D511-FD56-4E6C-BE28-025DB8AC4709/10/438/en/Default.htm is a good place to start since it is subscribed through many libraries and the selection is decent.

 

alpha23

 

Thanks! Will give it a try

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Gio, Berkshiremystery, where do you get your audiobooks? Download from internet? CD? I was surprised that audiobook for Antifragile was selling for significant premium vs kindle or paper version.

 

Hi biaggio,

sorry I have missed your question until now!

I buy books at amazon.com and then I download the audiobooks from audible.com. I always like to have both the paper version, which I use to underline the most important ideas and to take some notes, and the audio version.  :)

 

giofranchi

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Gio, Berkshiremystery, where do you get your audiobooks? Download from internet? CD? I was surprised that audiobook for Antifragile was selling for significant premium vs kindle or paper version.

 

biaggio,...

 

maybe you misunderstood me,... I'm still that outdated, that when it comes to books, I need to feel the real paper in my hands, where I can also make marks. Only Giofranchi is the cutting edge techno-freak when it comes to reading books.

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Gio, Berkshiremystery, where do you get your audiobooks? Download from internet? CD? I was surprised that audiobook for Antifragile was selling for significant premium vs kindle or paper version.

 

biaggio,...

 

maybe you misunderstood me,... I'm still that outdated, that when it comes to books, I need to feel the real paper in my hands, where I can also make marks. Only Giofranchi is the cutting edge techno-freak when it comes to reading books.

 

I signed up for audiobook this afternoon + listened to this book for 3 hrs this afternoon while driving kids around to their activities.

 

Very much enjoyed listening to book especially as compared to listening to the crap that s on the radio.

 

Berkshiremystery you may want to re consider audiobook- there is a good chance I keep the subscription after 30 day free trial is over.

 

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