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If you haven't heard about it already, Taleb, the guy behind the Black Swan theory(or as they claim) is out with another book. Although I wasn't intending on buying the book initially, his Saturday essay (WSJ) was what finally convinced me. Then of course Felix Salmon came out with a review along with Matt Ridley , and I just couldn't wait for it to come in.

Although I haven't really read the entire thing(there's some deep stuff which deserves more than a quick read), here are some quick points :

  • Taleb's attitude towards uncertainty can be summarized as - Randomness and uncertainty, you want to use them and not hide from them. You want to be the fire and wish for the wind. The mission is to domesticate, dominate, and conquer the opaque, the unique and the uncertain. But how?
  • Anti-fragile is beyond resilient. The resilient merely resists the shocks and stays the same, the anti-fragile become stronger.
    Taleb uses the example of the mythical creature Hydra, 'you cut the head of a Hydra and two grow out. That's anti-fragility right there.'
  • The anti-fragile loves randomness and uncertainty, and more crucially, loves errors. In fact, we are most better at what we do because of anti-fragility. Taleb says that - he'd rather be dumb and anti-fragile than smart and fragile.'
  • His stance on risk is essentially the same as always and he goes on to mention that-"its far easier to figure out if something is fragile than to predict the occurrence of probability of it being fragile. Anything that has more upside that downside from random events is what is anti-fragile; the reverse is fragile."
  • Just like spending a month in bed would lead to muscle atrophy, complex systems are weakened, even killed when deprived of stressors. This is the tragedy of modernity: as with neurotically overprotective parents, those trying to help are often hurting us the most.
  • But some become anti-fragile at the risk of others, and such anti-fragility is hidden. While in the past, those who took the risk were liable for their actions, today the opposite is prominent. We are witnessing the rise of a new class of heroes who are members of I.A.N.D.(International Association of Name Droppers). They game the system and the citizens pay the price. (Moral Hazard perhaps?)
  • Most of history has been written because of Black Swan events. Such events hijack our brains because they are un-explainable. We don't realize the role of these events because of an illusion of predictability. Because of our fears and our thirst for order, we tend to be harmed by such events rather than benefit from them.
  • Man-made complex systems eliminate predictability and cause out-sized events, so the modern world may be increasing in technological knowledge, but paradoxically, it makes things a lot more predictable.
  • We know a lot less about hundred-year floods than five-year floods, but every time we see a hundred-year flood, we throw it out and call it an outlier instead of learning from it.
  • Mother nature is the best expert at rare events, and the best manager of Black Swans. It has succeeded to in getting here without Ivey League educated instructions. Anti-fragility is not just an antidote to Black Swans; understanding it makes us less intellectually fearful in accepting such events.
  • The anti-fragile gains from errors in prediction. Things that gain from randomness should dominate the world, everything else should be gone. But somehow, we live in this world under the illusion that everything works under rules, an illusion labeled as 'lecturing birds on how to fly.'
  • Taleb's hate for complexity is quite prominent as well, and he mentions that complications lead to multiplicative chains of unanticipated effects. Because of the opacity, an intervention leads to unforeseen consequences. He mentions that simplicity is difficult to implement; or like Steve Jobs would have said-"you have to work hard to get your thinking clean to make it simple."
  • Heuristics are simplified rules of thumb that make things simple and easy to implement. But the main advantage is that the user knows that they are not perfect, and thus is susceptible to be fooled of their simplicity.
  • The anti-fragile likes volatility and it also likes time. Why time? Because time is functionally similar to volatility. Its simply what a grandmother calls experience.
  • Modernity has replaced ethics with legalese, and the law can be gamed with a good lawyer. Fragility is transferable, thus the first ethical rule is: If you see fraud and don't say fraud, you're a fraud.
  • Anti-fragility is desirable in general, but not always, as there are cases when anti-fragility is costly. Further, its hard to consider that robustness is always desirable, or as Nietzche said- "one can die from being immortal. "
  • Although the book seems like a good mix of philosophy, history and finance so far, it does have its elements of humor. Taleb gives examples of how he's allergic to bankers and whenever there's one around, he can sense his irritation.

    I'm sure this book is not for everyone, but for those who are looking for a Christmas downtime read, its definitely worth it.

Comments (18)

  • Boothorbust's picture

    I can't stand this guy to be honest. He pretends to be so profound but at the end of the day he just strings together a bunch of anecdotes and pretends to have predicted things he never did. If he were really all that smart he'd be a bajillionaire and wouldn't be writing books that are supposedly so impressive.

  • Amphipathic's picture

    Can't wait to read it, this guy is awesome (though I imagine pointing out stuff like SD shouldn't be used as a measure of risk isn't going to make him that popular on this forum)

  • SirTradesaLot's picture

    I will read it, but I'm not terribly excited about it. I thought Fooled by Randomness was a good book, but Black Swan should have been a chapter, not an entire book. Repeating yourself is good to a certain point and then it just becomes obnoxious, which is what he did in Black Swan. Repeating yourself is good to a certain point and then it just becomes obnoxious, which is what he did in Black Swan.

    adapt or die wrote:
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  • Going Concern's picture

    My boi Nassim is a sweaty-toothed madman.

    “A deception that elevates us is dearer than a host of low truths”

  • In reply to Boothorbust
    wannabeaballer's picture

    Boothorbust wrote:
    I can't stand this guy to be honest. He pretends to be so profound but at the end of the day he just strings together a bunch of anecdotes and pretends to have predicted things he never did. If he were really all that smart he'd be a bajillionaire and wouldn't be writing books that are supposedly so impressive.

    SB. I agree that he relates unrelated historical events to build a compelling case for the future, which cannot be disproved. Stating that something REALLY bad is going to happen in the repeated fashion that Taleb does reminds me of the quatrains of Nostradamaus. The next bad event could be another 9/11, stock market crash, plague, or anything else. The thing is, there is nothing you can do about it.

    The next time the market goes down 10%, this guy will be all over your TV telling you to prepare for disaster.

  • teenagepirate's picture

    This guy pretends like buying OTM options has been a great strategy historically when just about every paper (Ilmanen, 2012 FAJ for a review) shows that it hasn't. The sad thing is that since academic research or the data is inaccessible for most people, they end up believing him..

    Here's my favorite blogpost on Taleb. http://scottlocklin.wordpress.com/2009/07/17/nassi...

  • teenagepirate's picture

    btw, from the comments on Erik Falkenstein's blog (about Taleb):

    Eric Falkenstein said...
    I haven't written a 10k post yet. But 'obsessive stalker'? This from a guy who hunted down my boss, his email, and wrote a long private message, twice, to stop me from writing on the internet? He's the loon.

    As mentioned, see "Projection". It underlies much of what he sees in others.

  • In reply to SirTradesaLot
    prashantkhorana's picture

    SirTradesaLot wrote:
    I will read it, but I'm not terribly excited about it. I thought Fooled by Randomness was a good book, but Black Swan should have been a chapter, not an entire book. Repeating yourself is good to a certain point and then it just becomes obnoxious, which is what he did in Black Swan. Repeating yourself is good to a certain point and then it just becomes obnoxious, which is what he did in Black Swan.

    Agreed, his repetitive tone is annoying. That being said, unlike Fooled by randomness and Black Swan, the philosophical nature of this book is definitely different. Worse case scenario, you could probably just read it to confirm your belief that Taleb is a one of a kind eccentric.

  • EURCHF parity's picture

    During bubbles, prices go upwards and vol goes and stays down. During the crash, prices go down and vol shoots up.

    The problem with trading vol is the same as with trading prices: timing. In both cases you need to be a reasonably good trader, with great risk management and excellent timing skills, to make money.

    Let's imagine an options trader starting a fund only buying OTM puts or similar "long fat tails" strategy (basically assuming the edges of the vol surface are too low). What happens to its MTM P&L from 2004 to 2007? How long will LPs stand it? What happens to said fund if LPs hit their risk limits before the event occurs? What career options does the fund manager have once his fund has closed due to a suspicious lack of performance over the entire duration of its existence?

  • impossibre's picture

    Although he does make some important points on the over-relying on models, I find him very annoying. His academic papers only get published because of his "celebrity-status" but are usually hollow in terms of theory and academic rigor.

    I think that the best part of Black Swan is when he describes his weight training regimen and then gives a big shout-out to probably the only trainer in the world that does something remotely related to his strategy consisting of "let's do random moves as if we were still cavemen".

    Maybe if he wasn't so full of himself I wouldn't be tempted to reject everything about him.

  • In reply to impossibre
    Amphipathic's picture

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