Why Taleb's Antifragile Book is a Fraud
I bring this up because last month I was listening to a Joe Rogan podcast where they mentioned hormesis, the concept that small amounts of a toxin or stressor strengthen an organism. The guest noted hormesis was discovered in the 1950s when researchers noticed a little bit of herbicide paradoxically makes plants stronger. Actually, this phenomenon was found back in 1888 concerning yeast, though the basic idea is probably timeless, in that everyone understands exercise strengthens muscles while immobilizing a limb after an injury leads to atrophy, and too much stress causes problems to muscles and limbs. A glass of wine a day is a tonic, too much leads to cirrhosis. Even concerning poison, there’s the term Mithridatism, which comes from King Mithridates (160 BC) self-administering small amounts of a toxin to build up his immunity.
Taleb states his neologism antifragility is “beyond resilience or robustness.” He defines antifragility more precisely as “a convex response to a stressor or source of harm, leading to a positive sensitivity to increase in volatility.” Thus hormesis is not an example of antifragility, because, in the parlance of finance, hormesis is like increasing the value of a portfolio by reducing one’s beta, while antifragility is increasing the value of a portfolio by increasing its gamma. Gamma is a measure of convexity, the signature feature of a put or call option, and in uncertain environments, a higher gamma leads to higher value.
The common takeaway of Antifragile, however, is simple resilience. For example, in Jonathan Haidt’s book the Coddling of the American Mind he credits Taleb’s concept of antifragility for arguing that protecting students from ideas they find offensive leads to them becoming more fragile, anxious, and easily discouraged. Actively confronting ideas we don’t like makes us tougher and smarter, in that as JS Mill wrote, ‘he who knows only his own side of the case knows little of that.’ Haidt’s book mentions unstructured play for children, the immune system, and exposure to peanuts as examples of Taleb’s concept of antifragility. Wikipedia’s entry on antifragile gives as its primary example that of bone density being strengthened by exposure to stress. These are all examples of hormesis.
Thales |
Back to his definition of antifragile, it is not that the prospering agents are convex to stress, instead that as survivors their progeny takes over the extinct’s lebensraum; the dynamic effect of robustness in a system based on survival of the fittest looks like convexity. Indeed, Taleb notes the property applies to the group, not the individuals: “the surviving cohort is stronger than the initial one—but not quite the individuals since the weaker ones died.” So here, like with hormesis, he notes it is a metaphor, but really not. He is quite aware that such systems are not direct examples of antifragility because the agents that generate convexity at the higher level are merely robust, via hormesis.
An industry protected from failure or change via union work rules or bailouts removes the micro-instability needed at all levels of a company to develop innovation, robustness, and a healthy familiarity with failure. While some rules and regulations are good, most are merely a pretext for barriers to entry protecting current workers and firms. This is just about allowing hormesis to do its thing.
Failure will always be costly, and due to moral hazard, no one will sell you a put option on your failures. In addition to acclimating ourselves to failure, just as useful are the Christian virtues of faith, hope, and love. If you have faith in what you hope for regardless of your economic success and love someone who loves you for who you are, failures under the sun are not so terrible. This allows you to explore more virgin territory so that when the unexpected happens, you might be in the right place at the right time.
There are two ways to generate an option payoff. One is to buy an option; another is via dynamic replication, which involves doubling down a position as it becomes more in-the-money. The outsized success of winners over losers in dynamic systems generates large convexities, but to be a winner, the keys are not buying options, but rather, obliquity, the process of achieving success indirectly via a combination of vision, excellence, resilience, and flexibility. To describe the essence of this as being convex detracts from the real heart, which is why everyone mentions examples of hormesis, waves their hands, and hopes no one notices the bait-and-switch.
Promoting the new idea that acquiring options on the next Black Swan is the basis of “our own existence as a species on this planet” is the sort of hyperbole you hear at TED talks. It is the sort of thing bureaucrats love because they are generally too high up to have much domain-specific expertise, and the incoherent but plausible-sounding theme allows one to talk about strategy without actually knowing anything specific. Then you give examples of your great idea that are really something else entirely, and fade to black…
Source: http://falkenblog.blogspot.com/2019/03/why-talebs-antifragile-book-is-fraud.html
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