how to live in a world we donot understand

Nassim Nicholas Taleb

AntiFragility

How to Live in a World We Don't Understand

CONFIDENTIAL (v. preliminary) DRAFT

2011

2

12/22/10 © Copyright 2010 by N. N. Taleb. This draft version cannot be disseminated or quoted.

PROLOGUE in THREE CHAPTERS

In Chapter 1, introduce the concept of antifragility —as well as

fragility, of course and provide the table of what is antifragile, robust

and fragile.

In Chapter 2, I discuss the magic property called Jensen's

inequality which makes antifragile systems gain from disorder.

In Chapter 3, I link antifragility with knowledge (or error)

showing why it compensates, even transcends errors, and discuss the

book's main purpose: how to live in a world we don't understand.

Chapter 1 . How to Mishandle a Package

Please cut my head — How to beat up an economist (but not too hard)—Where the philosophers' stone was Jensen's inequality —Combining stupidity with wisdom rather than the opposite —Can a philosopher be called nouveau riche?

WHAT'S THE OPPOSITE OF FRAGILE?

Just as a package sent by mail can bear a stamp "fragile",

"breakable" or "handle with care", consider the exact opposite: a

package that has stamped on it "please mishandle" or "please handle

carelessly". The contents of such package are not just unbreakable,

but benefit from shocks. Let us coin the appellation "antifragile" for such a package; a

neologisms is necessary for there is no simple, noncompound word

in the Oxford English Dictionary that expresses the point of reverse

fragility. For the idea of antifragility is not part of our consciousness

—but, luckily, it is part of our ancestral behavior, and an ubiquitous

property of every system that has survived.

To see how alien the concept to our minds, ask around what's

the antonym of fragile (and specify insistently that you mean the

exact reverse). The likely answer will be: robust, unbreakable, solid,

well-built, resilient, strong, something-proof (say waterproof,

windproof, rustproof), etc — unless they've read this book. Wrong —

and it is not just individuals, but branches of knowledge that are

confused by it; this is a mistake made in every dictionary of

synonyms and antonyms I've foundi.

This error stems from a mental distortion, of the same category

of the mistakes we make without any self-awareness of the reasoning

process involved in them; ask the same person the opposite of cold,

they will answer hot, not room temperature; the opposite of pain is

What's the Opposite of Fragile? 3


generally considered pleasure, not absence of pain. Let's get closer to

fragility, and ask for the opposite of destruction, they will answer

construction. Clearly, therefore the opposite of unstable is not stable

or sturdy, but something that gains from unstability; likewise the

opposite of brittle is not solid —but antibrittle, or antifragile. Another

way to view it: since the opposite of positive is negative, not neutral, the opposite of positive fragility should be negative fragility (hence

my appellation antifragility), not neutral which would jut convey

robustness, strength and unbreakability.

This blind spot seems universal. The expression designating

antifragility is absent from the vocabulary of the following

lingusistic families: Romance (Italian, French, Spanish, Portuguese),

classical (Latin, Greek), Semitic (Arabic, Hebrew, Aramaic), Slavic

(Russian, Polish, Serbian, Croatian), Aryan (Hindi, Urdu, Farsi),

Turkic (Turkish), and Germanic (German, Dutch, Africaans). For

instance, in French, incassable (unbreakable) and, sometimes,

robuste are held by the learned classes and dictionaries to be the

exact opposite of cassable (breakable) and fragile, respectively —the

very same persons who think that positif is opposite of negatif. In

Italian, I quizzed a scholarly audience at the beginning of one my

lectures in Genoa, formerly known as The Most Serene Republic of

Genoa: the opposite of fragile (or fragibile), they promptly said was

infragibile, (unbreakable) so they convincingly accepted my new

word, minted on the spot, antifragilita.

Hydra

Think of Hydra, in Greek mythology, the serpent of the

underworld, equipped with a collection of heads; upon severing one

of its heads two spring back in return. So obviously Hydra needs

some hostility, rather than peace, to thrive. Alas, there is no name for

such a property of vulnerability in reverse, and I know of very few

popular expressions other than persons who "make lemonade when

life gives them a lemon".

Age Like Wine

Just look around you to see how ubiquitous this antifragility,

albeit in subtle forms. I spot a gift I just received, this good bottle of

1995 Bordeaux wine not too far away from my desk. Good wine

improves with age, under the right conditions; it benefits from the

disorder, the chemical disturbances caused by time (for a physicist,

time is increase in disorder, linked to a wonderful concept called

entropy that we will use to connect many dots). But it only benefits

up to some limit: it is not globally antifragile, just locally so. Putting

the bottle inside the crater of a volcano would not improve its quality

too much. Breaking the bottle with a hammer would not help the

drinking experience neither. Let me look around me some more: I

am wearing this leather shoe made in the town of Limoges, in

France, that the makers boast can last decades. Like most things

artisanal, they do. These shoes do indeed benefits from use, up to a

point, so long as you do not spent too much time wading in sulfuric

acid.

The difference between my robust, and even largely antifragile

artisanal shoes hints at the central disease we are facing, the fragility

of the modern version of stock-market capitalism —hence my allergy

for almost everything heavily industrialized. Goods made in more

ancient ways, mostly in days preceding the abnormality known as the

MBA security analyst, tended to be not fragile, usually robust, on the

occasion, antifragile. I am not just talking about the Acropolis in

Athens or the temple of Bacchus in Eastern Lebanon. Anything non-

consumable, such as books printed several hundred years ago,

classical furniture, saddles for your horse or camel, country house

near Pompeii. Incidentally, these items have the identity of the

maker invested in them which confers a certain measure of

robustnessii.

Evolution 4


EVOLUTION

Beyond my shoes and the mundane, consider the larger notion

of evolution. It works precisely because it is antifragile; it loves

randomness, uncertainty, and disorder —while individual organisms

are relatively fragile, the gene pool takes advantage of shocks to

enhance its fitness. The more noise and disturbances in the system,

up to a point, of course (baring those extreme shocks that lead to

extinction), the more the effect of the survival of the fittest will play a

role in defining the properties, of the next generation. Say an

organism produces ten offspring. If he environment is perfectly

stable, all ten will possibly reproduce. But if there is instability,

killing five (likely to be on average weaker than their surviving

siblings), then those evolution considers the better ones will

reproduce, making the gene undergo some improvement. Likewise, if

there is variability among the offspring, then the best will reproduce,

increasing the fitness of the species.

For an illustration of how, Hydra-style, families of organisms

like harm, up to a point, though not the organisms themselves,

consider the phenomenon of antibiotic resistance. The harder you try

to harm bacteria, the stronger the survivors will be —unless you can

manage to eradicate them completely. The same with cancer therapy:

quite often cancer cells that manage to survive the toxicity of

chemotherapy and radiation reproduce faster and take over.

The same love of disorder applies to economic entities,

individuals, firms, systems, etc. But except for a few comments here

and there in the economics literature—such as the one informally

described as "creative destruction" and such some notions on

innovations and similar ideas —the idea of antifragility is absent

from existing theories in social science. You can even see ideas

formulated in different branches, like innovation and the theories of

financial derivatives (which we will see discuss the notion options

that can gain large but lose small) with no connection of the dots. Not

only that, but there is a bias against it —the foundation of modern

economic sciences lie in creating fragility. But more interestingly,

almost all human theories (and I have a long list) that have emerged

since the enlightenment fragilize; they both bring this blindness to

antifragility.

Thank You, Errors

Why? Because, ironically, aversion to uncertainty —rather than

loving it, stochatophilia — creates risk. By refusing to accept

randomness, you are vulnerable to illusions of certainties.

Antifragile systems have the perfect antiacademic attribute: they

love mistakes. They love absence of knowledge. They love disorder.

They love doing, not thinking. They don't care about being right or

wrong, looking bad in front of colleagues. So the reason we are here

is precisely because most of what has survived has this antifragile

property (the rest did not make it). It explains why humankind has

managed to get here not just in spite of mistakes, but because of

them.

Let me restate the motto, owing to both its importance and our

lack of awareness of it: thinking fragilizes and, furthermore, makes

us blind to antifragility. This is not really bad news —for those aware

of it. Such blindness is called "suckerdom" by Fat Tony, my antinerd

character whom we will meet in Chapter 1.

BLACK SWANS

I have named Black Swans events (capitalized) these large-scale

unpredictable and irregular events of massive consequence, and, in

The Black Swan, made the bold claim that most of history comes

from these events, while we worry about fine-tuning models made for

the ordinary that cannot possible track them or measure their

impact. These Black Swan events can be either beneficial or harmful

—but human-designed top-down systems tend to be exposed to harm

from Black Swans, almost never any benefit.

There is a Black Swan domain (also called the Fourth Quadrant)

where these events tend play a monstrous role; there reigns a type of

The Triad 5


intractable randomness. What is nonmeasurable and nonpredictable

will remain nonpredictable, no matter how many PhDs with Russian

and Indian names you put on it —or perhaps these contribute to

make them even more unpredictable. There is, in this zone (the

Fourth Quadrant) this limit to knowledge that could never been

reached, no matter how sophisticated science ever got. The problem

is that the rarer the event, the less tractable and the less we know

about how frequent its occurrence —yet the rarer the event, the more

confident these "scientists" were about it1. What I did was not so

much assert this impossibility to ever know anything about these

matters —this was a problem raised throughout history by a long

tradition of philosophers, including Sextus Empiricus, Algazel,

Hume, and many more. It was to produce a mechanism for decision-

making that would not suffer from these errors.

But it took about several million copies, a crisis, a dozen of

articles in scientific journals (by this author), several hundred more

(by others), several thousand pieces of hate mail by economists, six

smear campaigns, and a revamped second edition of The Black Swan

for the message to go through without distortion —no, we don't need

to spend time predicting Black Swans with complicated models

coming from chaos-complexity-catastrophe-fractal theory. The

answer is simpler: given that we know what is fragile to them, and to

model error, the solution is of course to build a world that is robust

to them, something mother nature has done admirably.

I used the word "robust". Then I realized that, well, mother

nature was not just "safe". When it comes to Black Swans, "robust"

might not be enough. In the long run everything fragile breaks given

the ruthlessness of time —yet our planet has been around for three

1 This probabilistic limit has been shown several ways, empirically in my

Fourth Quadrant paper (2008) —not a proof but an empirical argument —

and philosophically-mathematically with the then-doctoral student in

philosophy of science Avital Pilpel (2002) and the mathematician Raphael

Douady (2010).

billion years and, convincingly, robustness can't just be it: you need

perfect robustness for a crack not to show up and crash the system,

in other words for the system to regenerate itself continuously by

using Black Swans. You need Black Swan-loving units.

Between Hydra and Damocles

In a Roman evolution of a Greek myth, the Sicilian tyrant

Dionysius II has the fawning courtier Damocles enjoy the luxury of a

fancy banquet, but with a sword hanging over his head, tied to the

ceiling with a single hair from a horse's tail. ( The original Greek

mythology was more ominous. Tantalus, the titan, who immolated

his own son Pelops and gave him as food to the godsiii, was punished

by the Gods who made him attend a banquet, and hung a rock to a

string above his head. )

The sword of Damocles was meant to illustrate the side-effect of

power and success: you cannot get it without this continuous danger,

this feeling of insecurity —someone out there will be wishing for you

to be toppled. This is true —Black Swans will be out there to get you.

Charles Tapiero and I later formalized the idea concerning company

size: we figured out that if success generates size, then companies

that grow are doomed since, effectively size brings disproportional

fragility to Black Swans. Further, sophistication brings fragility to

Black Swans (as has been brilliantly adumbrated by the archeologist

Charles Tainter). But, and that is clear, it does not have to be so. You

need offsetting antifragility; and a great dose of it.

THE TRIAD

I stop; so, for now, there are three different layers:

a) Fragile -can mostly suffer from shocks, disorder, etc.

b) Robust: in the sense of not fragile, unbreakable (or hard to

break), can resist shocks.

The Triad 6


c) Antifragile: I repeat, the exact opposite of fragile; mostly

benefits from uncertainty and disorder, gains from shocks, some (not

all) shocks.

A qualifier is in order. I said some, not all shocks, as an item will

not be antifragile for every possible type of disorder, but only for

specific exposures, what is called a local, not global property. The

items in the package on which we wrote "please mishandle", would

certainly benefit from being brutalized by humans, but are likely to

suffer from a nuclear attack. So antifragility here is associated with a

specific source of disorder —and with a specific intensity. A very

small dose of arsenic might benefit me, a large one would prevent me

from finishing this book.

Table 1, conveying the central idea of this book presents the

triplet of attributes, but with a warning. The robust here in the

middle column is not equivalent to Aristotle's "golden middle", such

as, say, generosity being the middle between profligacy and

stinginess—it can be, but it is not necessarily so. Robustness is not

always good —you may want some things to break, and break early.

Antifragile is desirable, in general, but not always as there are cases

in which antifragility will be costly, extremely so. Further, it is hard

to consider fragility undesirable — as Nietzsche wrote, one can die

from being immortal.

Table 1 The Triad2

FRAGILE ROBUST ANTI- FRAGILE

Mythology -Greek Sword of Damocles, Rock of Tantalus

Phoenix Hydra

Mythology- New York

Dr John Nero Tulip Fat Tony, Yevgenia Krasnova

Ways of Thinking Modernity Medieval Europe

Ancient Mediterranean

Mathematics Concave Linear Convex

Knowledge Explicit Tacit Tacit with convexity

Epistemology True-False Sucker-Nonsucker

Life and Thinking Tourist Personal and intellectual

Flâneur with a large private library

Financial dependence

Corporate employment

Niche worker, minimum wage earner

F** you money

Biological & Economic Systems

Efficiency

Redundancy Degeneracy (functional redundancy)

Science/Technology Directed Research

Opportunistic research

Aggressive Tinkering (convex bricolage)

Errors Hates Mistakes are Loves mistakes

2 There is this ratchet-like property of fragility (i.e., irreversibility from

breaks) that is at the core of the nonlinearity: a package doesn't break, then

manage to fix itself. What matters is the route taken, not just the destination.

This makes the analysis much simpler: as it makes it easier to identify the

fragile and put it in the left column.

The Triad 7


FRAGILE ROBUST ANTI- FRAGILE

mistakes just information

Learning Classroom Real life, pathemata mathemata

Real life and library

Human Body Mollification, atrophy, "aging", sarcopenia

Recovery Hypertrophy, Hormesis, Mithridatism

Political Systems Nation-State; Centralized

City-State; Decentralized

Post-agricultural Modern Settlements

Nomadic and hunter-gatherer tribes

Knowledge Academia Erudition Ethics (Aristotelian)

The weak The strong The Magnificent

Decision Making Model-based probabilistic decision making

Heuristic-based decision making

Convex heuristics

Thinkers Plato, Aristotle, Averroes

Menodotus, Popper, Hayek, Nietzsche, Wittgenstein, John Gray

Nobody comes to mind explicitly, perhaps Hegel's sublation

Economic Life

Economists Anthropologists Religion

Reputation (profession)

Academic, Corporate executive, Pope, Bishop, Politician

Postal employee, Truck driver, train conductor

Artist, Writer

Reputation (class) Middle Class Minimum wage persons

Bohemian, aristocracy, old money

Medicine Additive treatment (give medication)

Subtractive treatment (remove items from

FRAGILE ROBUST ANTI- FRAGILE consumption, say carbs, etc.)

Philosophy/Science Rationalism Empiricism Skeptical, subtractive empiricism

Separable Holistic

Economic Life Owner operated Finance Short Option Long Option

Knowledge Positive

Science Negative Science

Art

Decision Making Acts of commission

Acts of omission ("missed opportunity")

Literature E-Reader Book Oral Tradition Business Industry Small Business Artisan Food Food

Companies Restaurants

Finance Debt Equity Venture Capital

Finance Public Debt Private debt with no bailout

General Large Small but specialized

Small but not specialized

General Monomodal Barbell

Finance Banks, Hedge funds managed by economists.

Hedge Funds (some)

Hedge Funds (some)

Business Agency Problem

Principal Operated

The book will navigate the triad in Table 1, straddling a variety

of disciplines and human activities. Of course the reader will gain

some help with insights from the characters Nero Tulip, Fat Tony,

and Yevgenia Krasnova. But let me give one entertaining application

for now.

The Denigration of the Natural 8


A Word on Ethics

We can illustrate both reputational fragility and ethics of the

middle class with an example that is stretched to extreme —and

linking both seemingly independent concepts. Each person

understands the point in his own profession or domain, which is why

it pays to multiply examples around the central idea. I was in Milan

trying to explain antifragility to Luca Fromenton, my Italian

publisher. I was there partly for the Moscato desert wines, partly for

a convention in which the other main speaker was the economist xx.

I hold that xx models (and ideas), like many propagated by the

economics establishment, cause fragility, given that they build

systems vulnerable to Black Swans. So I presented Luca with the

following thought experiment: if I beat up the economist publicly,

what would happen to me (other than an ethnological experience in a

Milanese jail and a publicized trial causing great interest in

antifragilita). He thought for a second ...well, it would be great for

book sales. Nothing I can do as an author that makes it to the front

page of Il Corriere della Sera would hurt my book, to the opposite.

No scandal, not a single one (outside of disputes of authenticity)

hurts an artist or writer3.

Further, such spontaneous action would give my thinking the

stamp of heroic authenticity. And the physical workout regimen I

follow (based on the ideas of antifragility discussed in Chapter x)

would be also validated. It would be even better if I were put to death

by the members of the economics establishment. Socrates, by

proudly seeking death, enhanced his ideas because they were

antifragile —information often is.

Now let's say I were a middle executive employee of some

corporation listed on the London Stock Exchange. What would

happen to me after my immediate termination? My termination and

3 The French have a long series of authors who owe part of their status to

their criminal record —which includes the poet Ronsard, the writer Jean

Genet.

arrest record would plague me forever. My downside is greater than

my upside, forcing me to play by certain rules. Someone earning

close to minimum wage, say a construction worker or a taxi driver,

does not overly depend on his reputation and is free to have his own

opinions. But he would be just robust compared to the artist who is

antifragile. A midlevel bank employee with a mortgage who would be

fragile to the extreme. In fact he would be completely prisoner of the

value-system, yet corrupt to the core — because of his dependence on

the annual vacation in the Barbados.

So I will show —what the Greeks knew but collected in

observations here and here from Xenophon to Aristotle without any

repository for this central ethical claim —that the middle class can be

corrupt, that is ethically fragile or nonrobust; it is not free with its

opinions (and its time). Things have gotten much worse since then.

This plagues academia; for instance I met so many economists who

agree that their publication system is wrong, their methods

nonsensical, but they need to publish within the system because of

the requirements for their careers (and corner office). They are

trapped. They get pretty angry when I call it prostitution (though

prostitutes are relatively the most robust persons in this planet and

free in their opinion as they face no reputational downside).

In the U.K. and France, someone from an aristocratic

background is generally less of a prisoner, particularly when he is

secure in his social status.

THE DENIGRATION OF THE NATURAL

The absence of such word and concept from main human

vocabularies is quite alarming. You can therefore see that the topic of

this book is not just antifragility, but also the defects leading to its

absence from human vocabulary: we humans have a natural,

seemingly innate, bias to think that systems do not improve on their

own, without our intervention or guidance —coupled with the

Aristotelian notion that we ourselves know where things should be

going, what I call the teleological fallacy.

The Denigration of the Natural 9


There is a mental defect psychologists call illusion of control that was meant to show how "irrational" (according to some norm of

behavior) we humans can be by giving ourselves the illusion to

manage the uncontrollable around us: for instance gamblers cannot

resist the pressure to do something to improve the outcome, such as

throw the die with violence when they need a high number, or throw

it softly in order to get a low one. Traders wear the same "lucky" shirt

(often unwashed) to improve their day This mental bias leads to all

manner of patently "irrational" actions such as belief in paranormal,

alternative medicine, and many such actions often put under the

umbrella magical thinking. Now the irony is that while this bias was

devised to expose patently nonscientific fields, it largely affects many

things you learn in college, particularly in social science. Many

matters we deem scientific are just the emanation of that very

illusion of control masquerading as science.

Why is the scientific illusion of control worse than that of the

pedestrian version? Because, tout simplement, these gamblers

superstitions are benign, not much worse than doing nothing, but a

doctor tinkering with your system or an army playing with a complex

system with opaque causal links, say by invading Iraq or intervening

in the environment, is far worse than nothing.

For this illusion of control leads to the denigration of acts of

omission (not doing something, letting things run their own course,

leaving nature or the human body alone) as compared to doing something (such as operating on a patient or prescribing

medication). This, we will see is the reason medicine used, until

recent history, to kill more patients than it saved (and did not even

get close to realizing it), and economists of the sophisticated

equation-carrying variety, I will hope to convince you, have been

particularly harmful to the economic health of societies —central

bankers , and finance ministers, by tinkering with economic life, have

caused massive instability.

It has taken medicine 2500 years to realize that, like

epistemology, healing and therapy are largely subtractive, not

additive: you can cure so many diseases by removing elements from

peoples' lives (say nonnatural foods, carbohydrates, grains, heroin,

medications, nicotine, bosses, spouses, cars, rude secretaries, New

Jersey, etc), not just by adding (medication, computers,

technologies).

In the past we used to think that fate or the gods intervened to

repair, improve, or change things so we felt justified to leave things

to their own devices. But a switch took place close to two centuries

ago. Since the enlightenment, that so-lauded enlightenment, we have

been prone to the bias of thinking we were needed to intervene, or,

what's worse, that we humans are badly needed.

Aside from the illusion of control, there is another associated

disease, that of rationalism, which I do not use to imply "rationality"

but, rather, the need for visible (and understandable) "reasons": we

have a tendency to believe that we comprehend the logic of things

just a bit more than warranted from our empirical record —and our

epistemic arrogance, that difference between what we know and

what we think we know is particularly large in what is called a

complex domain, fraught with massive nonlinearities. Three fields

have been particularly infected with the destructive aspect of such

university-imported rationalism: nature, socio-economic life, and the

human body, matters in which we have historically combined a

degree of low competence with a high rate of intervention. Indeed we

will catalogue the effects of rationalism in both social science and

economic theory and pre-modern medicine— and this book will show

evidence that much of what we are told was derived from rational

top-down university driven or taxpayer funded discoveries were the

result of either unrelated trial and error, or, similarly, plain luck. In

other words, from the antifragility of systems in love with

randomness.

Accordingly, the theme of this book is first, antifragility (as the

source of many things in life), second, the denial of antifragility, and,

finally, how our top-down rationalism and intellectualization cause

fragility, dramatic fragility, while thinking it can "improve matters"

and which areas are infected.

... And a Certain Respect for the Natural 10


... AND A CERTAIN RESPECT FOR THE NATURAL

If our formal systems denigrate the natural, and don't have a

name for fragility, it does not mean that our actions neglect it. I saw

two applications of the problem.

First, in Through the Language Glass, the linguist Guy

Deutscher reports that many primitive populations, without being

color blind, use only two or three colors in their communications.

But they can match strings to their corresponding color, so they can

detect the differences between the various nuances of the rainbow,

but they do not express these in their vocabularies. Ancient

Mediterranean text, Greek and Semitic, also had a reduced

vocabulary of a small number of colors polarized around the dark

and the light —Homer and his contemporaries were limited to about

three colors in their expression: black, white, and some

indeterminate part of the rainbow, often subsumed as red. The

British prime minister, Gladstone, an erudite, who was first to make

this discovery (and was reviled for it), attributed our modern

sensitization to the different nuances of color to a cross-generational

training of the eye. But, nevertheless, regardless of the presence of

these variations of color in the culture of the time, people were

shown to be able to identify the nuances —unless physically color

blind.

Second, consider the following remark by the great

mathematician Benoit Mandelbrot who developed fractal geometry:

“Clouds are not spheres, mountains are not cones, and bark is not

smooth, nor does lightning travel in a straight line”, he has written,

contradicting more than 2000 years of misconceptions. Triangles,

squares, and circles seem to exist in our textbooks more than they do

in reality—and before Mandelbrot we hadn’t noticed that. The

problem, of course, is that few realized that they had not noticed it

before him. Do you realize that we spent 2000 years with the truth

staring at us without realizing it?iv. Mandelbrot subsequently

suffered quite a bit —initially from deniers, subsequently from people

who claimed that he said nothing new, typically from the

mathematician envious of his success, but especially a human

defense mechanism against thinking we were that stupid to miss on

the point. For, before he connected the dots, some mathematicians

and scientist pointed out here and there some of the properties of

these "roughness" though nobody put them together as a general

view of nature —it is, sadly, a property of academics to be unable to

connect the dots.

Now the exact same intellectual blindness affects the property of

antifragility; it appears here and there when people resort to

mathematical language, but is not part of the expressed

consciousness.

Next, let us turn to the closest thing I know to the philosopher's

stone, of which I will make a big deal in this book.

11


Chapter 2 . Jensen 's Inequal ity , or The Intel l igence of Time

Grandmothers— How mathematicians can become bright —

Now the secret of life. There is a hidden —and very simple

mathematical property behind things, behind the reason things

survive and flourish —and manage to survive and flourish against

that inexorable debunker of fragility, time, time that smartest of all.

And what is this simple, very simple property?

The property had been heuristically known by practitioners for a

long time, but not by the formal bodies of knowledge. It is called

Jensen's inequality, by one Jensen, as we will see, but its first

modern use (and application) was by a man who got quite a bit

mishandling by history.

On March 29, 1900, a student at the Sorbonne who worked as a

stockbroker in order to support himself, Louis Bachelier, defended a

doctoral thesis in mathematics at the University of Paris, then known

as the Sorbonne. The idea was about how to value financial options,

these asymmetric contracts that give the right but not the obligation

to buy a stock at a specified price. The thesis was poorly received by

the head of the committee, and Bachelier received the grade

euphemistically called "honorable", not the "très honorable" that was

necessary to get a real academic position. It was said to lack in rigor but there was also this unattractiveness of the financial topic for the

committee. Bachelier never managed to have a decent academic

career as he was plagued with the stigma, along with an additional

black ball when, in his fifties, he was about to get his first real

position of professor. Many people later rediscovered his results in

the pricing of derivatives, and two people Robert Merton and Myron

Scholes received the Bank of Sweden Prize in Economic Sciences

(called the "Nobel" in economics) as the Swedish academy had the

illusion that they discovered his equation —ignoring the hordes of

predecessors who had more realistic equations, including Bachelier.

Merton and Sholes had just put their name on someone else's

equation. In addition, in that very same doctoral thesis, Louis

Bachelier discovered properties of random processes that were

rediscovered (and publicized) by Einstein five years later.

Note that he was an option trader (who disliked his career) —

and this book, which has almost nothing to do with finance, will be

driven by similar intuitions by yours truly, a former option trader

(who disliked his career). Now that I got the Bachelier story off my

chest, let's forget about options for now.

The more formal discovery took place as follows, five years later.

On 17 January 1905, one Johann Ludwig Jensen, said the following

(translated into the New Jersey version of English of Fat Tony, whom

we will meet —again— in Chapter x): there are many cases in which average doesn't matter in the long run.4 For in some instances the

average underestimates the effect; in other cases the average

overestimates it. Jensen, in fact, was generalizing an earlier, almost

a century old result by the French mathematician Augustin-Louis

Cauchy. Neither he nor the audience realized how fundamental this

result was for about everything —no more than the audience in the

thesis committee of Monsieur Bachelier, knew the import of that

poor man's work. The paper by the Dane was published the

following year in French in the Swedish mathematical journal Acta Mathematica with the eloquent title "sur les fonctions convexes et les

inégalités entre les valeurs moyennes" —and went unnoticed for a

long time, a very long time, as, 105 years later I can hardly find

people who can assess its consequences.

4 Jensen, J. L. W. V. (1906). "Sur les fonctions convexes et les inégalités

entre les valeurs moyennes". Acta Mathematica 30

12


Jensen's result describes the following, well understood by

regular people, but almost always lost whenever someone does too

much mathematics (or perhaps people inclined to do mathematics

have some mental blindness to these things): you do not cross a river that is on average four feet deep. More generally,

for some systems, the long run benefits or harm do not depend on the average but on the dispersion around such average.

In other words, for anything nonlinear, which we will define,

variation can matter more, much more than the average (in

proportion to such linearity). And my very definition of fragility here

in this book is when the system does not like variability; antifragility

is the reverse.

Let's consider two examples.

Your Grandmother at 70 Degrees

First example, the fragile case. If you put your grandmother at

zero degrees Fahrenheit for an hour (around -18 Celsius), then at one

hundred and forty degrees for another hour (around 60º C), for an

average of the very desirable seventy degrees (21º C), you would most

certainly end up with no grandmother, a funeral and, possibly, an

inheritance. So the average here is of no significance when one is

fragile to variations. It is easy to see that the dispersion in possible

thermal outcomes here matters much more than the average.

Three Hours at the Gym

Second example, a situation that benefits from variation. Take

two individuals, persons A and B, who go to the same gym.

a) Person A spends over three hours lifting up and down over

his head a very small weight, of, say, 1 pound, for a total of 1000

times —making a total of 1000 pounds which we compute by

multiplying the weight by the number of times lifted.

b) Person B spends three hours less five minutes lifting no

weights at all, just chatting with the otherwise bored gym employees,

then does an Olympic lift, from the floor until he holds over his head

for a few seconds close to 200 pounds of weights; he then puts it

down on the floor. He repeats the exercise five times, for a total of

1000 pounds, then goes home to drink tea with his brothers.

So both persons have lifted the exactly same total, and the

exactly same average over three hours. Over the long run, Person A

gets almost no benefit at all, for all the boredom encountered

counting to 1000, while person B, over time, will start looking like

someone who will be more motivated in removing his shirt at the

beach.

Let me add a couple of additional applications.

Traffic

Traffic highly nonlinear. When I take the day flight from New

York to London, and I leave my place around 5 AM (yes, I know), it

takes me around 26 minutes to reach the British Air terminal at JFK

airport. At that time, New York is empty. When I leave my place for

the later flight at 6 AM, there is almost no difference in travel time.

You can add more and more cars on the highway, with no or minimal

impact concerning time spent in traffic.

Then, mystery, you increase the number of cars by 10% and the

travel time jumps up by 50% (I am using approximate numbers).

Look at Jensens' inequality at work: the average number of cars does

not matter at all. If you have 90,000 cars for one hour, then 110,000

cars for another hour, traffic would be much, much slower than if you

had 100,000 cars for two hours5.

5 I have used this argument to try to make central banks avoid printing

money: you print and print with no effect, then a jump in inflation. We will see how so many economic results are completely cancelled.

Procrustean Beds and Jensen's Inequality 13


So travel time is fragile to the volatility of the number of cars on

the highway, not to their total number.

How to be Stupid

Now how does Jensen's inequality work? The details (and

technical matters) will be relegated to Chapter x, but, take for now

the following complete principle:

If you gain more when you are right than you are hurt when you are equally wrong, then Jensen's inequality will benefit you in the long run; and the opposite.

There is no other principle, none, and we can re-express not

most, but all ideas on growth, evolution, and development, and

stability, using it —from Darwin-Wallace theories of evolution to the

very idea of epistemology, via of course risk management and

modern economics6. Accordingly, you don't have a need for much of

what is commonly called intelligence, knowledge, insights, skills, and

these complicated things that take place in the brain cells. For you

don't have to be right that often. All you need is wisdom to not do

foolish things to hurt yourself (some acts of omission) and know if an

outcome if fine (after its occurrence), not before. Otherwise, if

Jensen's inequality works against you, sorry, but you are doomed, no

matter how intelligent you are and how many PhDs from Harvard

are on your staff—for there may be a small thing that will escape you

and hurt you very badly. The hair holding the sword of Damocles will

eventually break, in time, with certainty.

6 This is a technical note for those who need it now. Jensen's inequality

translates into; the average of a convex function of a variable x is higher than the function of the average of a variable x. Given that in probabilistic

terms, the average is the expectation of a random variable, we can already

see biases emerging. If you gain more than you lose, then you are convex,

otherwise concave. Anything nonlinear has local convexity or concavity.

I learned about Jensen's inequality in class at Wharton, in the

lecture on financial options that determined my career, and

immediately realized that the professor did not understand it himself

—he understood it in spots, but not everywhere. It hides where we

don't want it to hide. The class was on financial options. Options

benefit from Jensen's inequality.

I will relegate ample details to Chapter x, but this inequality

implies the following: that there are some conditions in which variability benefit, for the same average, the one who had more extremes. And there are conditions under which the variability

destroys things —like the grandmother.

PROCRUSTEAN BEDS AND JENSEN'S INEQUALITY

Another way to deal with the notion of average is to look at it as

a Procrustean bed. Procrustes was a brigand who in order to make

the travelers fit in his bed, cut the limbs of those who were tall, and

stretched those who were short. But he had the bed fitting the visitor

with total perfection. I've used the Procrustean bed analogy to

describe situations where the simplification is not a simplification.

The average temperature of 70º Fahrenheit does not simplify the

situation for your grandmother. It is a Procrustean bed —and these

are often committed by economic modelers since a model by its very

nature is a simplification. You just don't want the simplification to

distort the situation to the point of being harmful.

Why Planes Don't Arrive Early

To see how Jensen's inequality works with estimation and

model error, consider the following. I've taken the very same Paris-

New York flight most of my life, from the days when luggage did not

have wheels. The flight is about 8 hours. I recall many instances in

which I arrived early, about twenty minutes, no more. But there have

been instances in which I got there more than 2 hours late, and, in

one instance, more two days to get home.

Procrustean Beds and Jensen's Inequality 14


So uncertainty causes flying time to increase, not decrease. Or to

just decrease by minutes, and increase by hours. Anything

unexpected is likely to increase flying time. This comes from the

same effect of Jensen's inequality.

This also explains the irreversibility of time, in a way, if you

consider the passage of time as an increase in disorder.

Some Errors Go One Way

These examples showing that under nonlinearities, the average

is meaningless illustrate the type of errors stemming from a

reduction: in situations of fragility, a simplification goes in one

direction, typically causing Procrustean bed-style the

underestimation of randomness and fragilizes (or ignores

antifragility). And remarkably, as I said earlier, those we deem

intelligent, as they tend to succeed in classes (particularly

mathematics) and do well on SAT-style exams, then make it to, say,

MIT, in other words, the nerds, are even more vulnerable to this

mental distortion, since the very definition of intelligence we use is

grounded on their ability to focus, hence contract and simplify, deal

with the average instead of a richer set, and become blind to these

small nuances. And the core of things —of life— can reside in these

nuances.

Do not cross a river if it is six feet deep, goes the adage. Let me

repeat. Simply whenever you are estimating something that depends

on a nonlinear variable, the average does not matter, and the

information gotten from it may be irrelevant. So "for simplification",

telling your grandmother that she can expect "70 degrees" will

certainly kill her. And a model, a mathematical model, is precisely

what does simplifications. Yet this estimation —and use— of the

average is what economists do for a living. We will see why modeling

is doomed in many cases whenever you hear "optimal" owing to such

sensitivity to error.

I said that the average does not matter in some situations. It

overestimates the benefits (underestimates the dangers) in the event

of fragility; it overestimates it in the case of antifragility.

Social Fairness

The same phenomena explains very vicious incentives by the

pseudocapitalistic system we currently have in place, with managers

having incentives without disincentives —which the general public

doesn't quite get. There is a difference between a manager running a

company that is not his and the owner-operated business in which

the manager does not need to report numbers to anyone but himself.

At the time of writing the stock market is lower between 25%

and 50% over the last decade, so retirees are poorer in the aggregate

(particularly that they were expecting the exact opposite outcome)

while managers of the companies composing the stock market,

thanks to the asymmetry of the stock option, are richer in the

aggregate. Even more outrageous is the fate of the banking industry:

banks have lost more than they ever made in their histories, with

their managers being paid trillions in compensation.

Now let me use the sense of outrage of the reader to give a sense

of how Jensen's inequality works: these managers get much more

upside than downside. They have the opposite of "don't cross the

river if it is on average four feet deep": volatility benefits them since

they only get one side of the payoffs. They too benefit from variations

—the more variations, the more value to this asymmetry. Consider

two scenarios, in which the market does the same thing on average

but following different paths.

Path 1: market goes up 50% then goes back down to erase all

gains.

Path 2: markets does not move.

Visibly Path 1 is more profitable to the managers who can cash

in their stock options. So the more jagged the route, the better it is

for them.

Thales of Miletus 15


And of course society —here the retirees —has the exact

opposite payoff. Retirees get less upside than downside. Society pays

for the losses of the bankers, but gets no bonuses from them. If you

don't see this as theft, you have a problem.

Next, let us see how all of Jensen's inequality links with

knowledge.

Chapter 3 . Thales ' Secret

THALES OF MILETUS v

An anecdote appears in Aristotle's Politics concerning the story

of the presocratic philosopher and mathematician Thales of Miletus.

It is the center of both this entire idea of antifragility and its

denigration. And the remarkable aspect of this story is that Aristotle,

arguably the most influential thinker of all times, got the central

point of his own anecdote backwards. I am not saying that to

denigrate Aristotle, but to assert the main idea of this book:

intelligence makes you denigrate antifragility. And, as we said,

knowledge is less important than its payoff.

Thales was a Greek-speaking Ionian-Phoenician philosopher

from the coastal town of Miletus in Asia Minor, and like some

philosophers, enjoyed what he was doing. Miletus was a trading post

and had a mercantile spirit. But Thales, as a philosopher, was

characteristically poor. So he got tired of his buddies with more

transactional lives telling him that "those who can, do, and others

philosophize". He set to prove that he could both “do” and

philosophize, and that he chose to philosophize out of love and

respect for the occupation, not because he had no other option. So he

performed the following prowess: he put a down payment on every

olive press in the vicinity of Miletus and Chios which he got at low

rent. The harvest turned out to be extremely bountiful and there was

demand for olive presses, so he let the owners of olive presses on his

own terms, realizing large sums of money. He did indeed collect very

large, perhaps not enough to become massively wealthy, but enough

to make the point that he could talk the talk and was truly above, not

below, wealth.

The story has many morals, all of which permeate this book.

But the central one is Aristotle's accountvi: "But from his knowledge

On Innovation and Intelligence 16


of astronomy he had observed while it was still winter that there was going to be a large crop of olives..." So for Aristotle, the reason

was Thales' superior knowledge.

If we look at it with the eyes of antifragility, the story is

altogether different. Thales was in a position to take advantage of

Jensen's inequality. The key to this book is that he did not need to

understand too much the messages from the stars.

Simply, he had an asymmetric payoff, like a financial option,

which he bought cheap: there was no need to be right on average —so

long as you pay a low price that allows you to have greater upside

than downside. His payoff was so large that it afforded him to be

wrong very, very often and still make a bundle in the long run.

This is the center of my ideas about knowledge. We don't need

to know what's going on when we buy cheap.

The giant of rationalism, the Medieval philosopher Averroes

(Ibn Rushd) considered Aristotle the supreme expression of human

intellect —rationalism, reason. And visibly this is the very reason

Aristotle missed the point, because he overestimated human

rationalism—the reason of Thales' success was imparted to

knowledge about the stars, or about the future coming from the stars,

not from the nature of the bet.vii

Which brings me to how we got to be where we are today.

ON INNOVATION AND INTELLIGENCE

To see how overvalued our notion of human intelligence as a

director of human activities, consider the story of the wheeled

suitcase. I carry a large wheeled suitcase filled with books in all my

travels. It is heavy (books that interest me when I travel are always

hardcover —I don't use eReaders for hedonic and intellectual reasons

as I remember much better what I read in books).

In March 200x, I was rolling that generic, heavy, book filled,

suitcase outside the JFK international terminal and, looking at the

small wheels at the bottom of the case and the metal handle that

helps pulling it, I suddenly remembered the days when I had to haul

my book-stuffed luggage through the very same terminal, with

regular stops to rest and let the lactic acid flow out of my sore arms. I

could not afford a porter and, even if I did, I would not have felt

comfortable doing so. I have been going through the same terminal

for three decades, with and without wheels, and the contrast was

eerie. It struck me how lacking in imagination we are: we had been

putting our suitcases on top of a cart with wheels, but nobody

thought of putting tiny wheels directly under the suitcase.

Can you imagine that it took close to six thousand years between

the invention of the wheel ( by, we assume, the Mesopotamians) and

this brilliant implementation (by some luggage maker in a drab

industrial suburb). And billions of hours spent by travelers like

myself lifting luggage through corridors full of rude custom officers

(often French).

Worse, this took place three decades after we put a man on the

Moon. And consider all this sophistication used in sending someone

on the Moon, and its totally negligible impact on my life, and

compare it to this lactic acid in my arms, pains in my lower back, and

sense of helplessness in front of a long corridor. Indeed, though

extremely consequential, we are talking about something trivial: a

very simple technology.

But it is only trivial retrospectively –not prospectively. All those

brilliant minds you see at conferences who discuss Gödel, Shmodel,

Riemann’s conjecture, quarks, shmarks, had to carry their suitcases

through airport terminals, without thinking about applying their

brain to such an insignificant transportation problem. And even if

they did, they probably would not have gotten anywhere. So just by

intelligence we cannot go very far. You need action, antifragile action.

This tells us something about our mapping of the future. We

humans lack imagination, to the point of not even knowing where

tomorrow’s important things look like. We use randomness to spoon-

feed us with discoveries —which is why antifragility is necessary.

Creative and Uncreative Destructions 17


The story of the wheel is even more humbling than that of the

suitcase: we keep being reminded that the Mesoamericans did not

invent the wheel. They did. They had wheels. But the wheels were on

small toys for children. It was just like the story of the suitcase: the

Mayans and Zapotecs did not make the leap to the application. They

used vast quantities of human labor, corn maize, and lactic acid to

move these gigantic slabs of stone in the flat spaces ideal for

pushcarts and chariots where they build their pyramids. They even

rolled them on logs of wood. Meanwhile, their small children were

rolling their toys on the stucco floors (or, perhaps, not even doing

that as the toys might have been solely used for mortuary purposes).

Something sneaky in the process of discovery and

implementation –something people usually call evolution. We are

managed by small little (or large) accidental changes, more

accidental than we admit. We talk big but hardly have any

imagination, except for a few visionaries. We need some randomness

to help us out —with a double dose of antifragility. And randomness

plays a role at two levels: the invention and the implementation. The

first point is not overly surprising, though we play down the role of

chance, especially when it comes to our own discoveries. But I was

shocked that it took me a lifetime to figure out the latter:

implementation does not necessarily proceed from invention. It too

requires luck and circumstances. The history of medicine is littered

with the strange sequence of discovery of a cure followed, much later,

with the implementation –as if the two were completely separate

ventures. Just taking something to market requires struggling

against a collection of naysayers, bureaucrats, empty-suits,

mountains of details that invite you to drown, and one’s own

discouraged mood on the occasion. This is where all you need is

wisdom to realize what you have on your hand.

Another element to retain for now: the simplest "technologies",

or perhaps not even technologies but tools, such as the wheel, are the

ones that seem to run the world — what we call technologies have a

very high mortality rate. Just consider that of all the means of

transportations that have been designed in the past 3000 years since

the attack weapons of Hyksos and the drawings of Philo of

Alexandria, individual transportation is limited to bicycles and cars.

CREATIVE AND UNCREATIVE DESTRUCTIONS

Another one who got a version of the point, but without

understanding the nature of the process is the economist Joseph

Schumpeter. He vaguely understood that some things need to break

for the system to improve —what is labeled as creative destruction —

a term coined by Karl Marx. But a reading of Schumpeter shows that

both he and his detractors (the Harvard economists who thought that

he did not know mathematics) missed both the notions of

antifragility as convex, the consequences of Jensen's inequality, and

the opposition between tinkering and top-down planning. Indeed

there is a pattern: whenever you hear some economist accusing

another for being not mathematical enough, you can be sure of the

sweet irony that he himself got into a Procrustean bed. He most

probably missed the central point of Jensen's inequality because of

his simplification.

The Fallacy Of Aggregation

Let me report a paradox. Business life, that is the economy, is

antifragile when left on its own. But, for that, a single business is

necessarily fragile, exposed to breaking —evolution needs organisms

(or their gene) to die when supplanted by others. But a businessman

is not too interested in suicide; he is therefore necessarily interested

in seeking antifragility or, at least, some level of robustness.

So there is a problem of aggregation, in which the property of

the sum (the aggregate) varies from that of each one of the parts.

Now what is the solution? There is none. People come to me for

advice that is local to them, that is their own career; they go to

business school to learn how to survive while taking low risks —but

the economy wants them to take a lot, a lot of risks themselves.

The Charlatan, the Academic, and the Showman 18


Government interventions to save companies fragilizes. But wait,

there is a solution: overconfidence on the part of individual economic

agents, the overestimation of their chances of success and

underestimation of risks in their businesses. In other words, foolish

risk taking is healthy for the economy —provided people don't take

the same risks —and foolish for the person involved.

Now, a bit of history to tie matters together.

THE CHARLATAN, THE ACADEMIC, AND THE SHOWMAN

Our misunderstanding of tinkering, antifragility and how to

tame randomness is weaved into our institutions --though not

consciously and explicitly.

There has been a conflict between two classes of people and

methods, two opposite ways of doing things and attaining

knowledge: those who rely on thinking and theorizing and those who

rely on experience, with or without thinking and theorizing –and use

that option. The first category include those called the rationalists,

the Platonists, the classicists, the Weberian rationalists and

rationalo-bureaucratists, the top-down social engineers, the

orthodox economists, the social planners, the venerable members of

the various academies of sciences, etc. The second one includes the

empirics, or empirical skeptics, the doers, and that is about it --we do

not have many names for them as they have not written a lot of

books. Many of their works were destroyed or hidden from cultural

consciousness, and their memories have been treated very badly by

history. Formal thinkers and theorizing theorizers tend to write

books; seats-of-the-pants people tend to be practitioners who are

often content to make the money and make discourses at the bar.

Their experiences are often formalized by the academics. So

surviving history has been written by the rationalists because of a

mental disease –our search for order and thirst for theories-- that

gives us the illusion of design. Take the discovery of chemotherapy

for the treatment of cancer. People do not realize that it came out of

the side effects of mustard gas, not the “progress of medicine”. The

rationalists –all academics tend to be – want you to believe that

reasoning has a monopoly on the production of knowledge.

So the final point here is about those called charlatans. For a

long time official medicine had to compete with the crowd of the

flashy showmen, mountebanks, quacks, sorcerers and sorceresses

and all manner of unlicensed practitioners. Some were itinerant

showmen, going from town to town, in which they carried out their

curative acts in front of a large gathering. They could perform

surgery on the occasion while repeating incantations.

This category included doctors who did not subscribe to the

dominant Graeco-Arabic school of rational medicine, developed in

the Hellenistic world of Asia Minor and later grown by the Arabic

language school. The Romans were anti-theoretical pragmatic

bunch; the Arabs loved everything philosophical and “scientific” and

put Aristotle, about whom nobody seemed to have cared until then,

on a pedestal. Medicine, for the Arabs, was a scholarly pursuit and

founded on the logic of Aristotle and the methods by Galen. The

medical practitioners were the Other.

The medical establishment, whenever we see them regulated,

worried about the empirics for economic reasons as competition

made their incomes drop. So wonder they were bundled with the

thieves, to wit this long title for an Elizabethan treatise: A short discourse, or, Discouery of certaine stratagems, whereby our London-empericks, haue bene obserued strongly to oppugne, and oft times to expugne their poore patients purses.

Charlatan was held to be a synonym of empirick. The word

“empiric” designated someone who relied on experiment and

experience to ascertain what was correct. In other words, trial and

error and tinkering. That was held to be inferior –professionally,

socially, and intellectually. It is still not considered to be very

“intelligent”.

But luckily for us, the empirics enjoyed immense popular

support and could not be uprooted. You do not see their works in the

Summing Up 19


literature because they were not academics. But they left a huge

imprint on medicine.

Now, I agree that most nonacademically vetted medical

practitioners were scoundrels, mountebanks, showmen, quacks. But

let’s hold off jumping to the wrong consequences. Formalists, to

protect their turf, have always played on the logical fallacy that if

quacks are found among nonacademics, nonacademics are all

quacks. They keep doing it: all what is nonrigorous is nonacademic –

yet it does not imply that all that is nonacademic is nonrigorous. The

fight between the “legitimate” doctors and the Others is quite

enlightening, particularly when you note that doctors were silently

(and reluctantly) copying some of the remedies and cures developed

and promoted by the Other. They had to do so for economic reasons.

Also, formal academics, seen in the light of history, were not

better than those they called charlatans –they just hid their fraud

under a weight of more convincing rationalization. They were just

organized quacks.

This closes the loop with the three stories: thinking, particularly

formal thinking, has always been the archenemy of trial and error –

hence a severe handicap for innovation and advancement. I hold that

what has been done by academic life is rather dress up random

discoveries with rationalizations, and claim credit for inventions of

others. In other words, I will show how academia and official sources

are more of a public relations machine rather than a source of

knowledge. Ex cura nascitur teoria, no contra.

SUMMING UP

I have four implications here. that will be explored in the rest of

the book

a) The Importance of Trial and Error. The first thing to comes

to mind is trial-and-error, tinkering, stochastic search, an activity

conducted by an agent who patently does not fully understand what

is going on, but is fully aware of the incompleteness of his grasp of

things. It costs you so little to search; all you need to know is whether

what you found is acceptable to keep (hence, once again, a modicum

of this thing called wisdom). You can do so individually (you have the

option, we will see), or using a set criterion of survivability, as nature

does. We said that nature likes randomness: it is because it sees

various outcomes in the diversity among offspring, picks those it

likes best and discards the rest by dispatching them into genetic

oblivion. The great French biologist Francois Jacob who introduced

the notion of tinkering (under a variant called bricolage) into

science, argued that even within the womb, nature knows how to

select: about half the embryos undergo a spontaneous abortion –

easier to do so than dream of the perfect baby by design. Nature

understands options vastly better than humans, and certainly better

than Aristotle.

b) The Defects of Designed Systems. If trial and error is superior

to knowledge, then a) what you learn in the university lecture is less

valuable than claimed; and what you learn in the streets is

underestimated; b) as we said earlier, academics contributions to

knowledge might be grossly overhyped —as is the role of

"intelligence" (though not what we call "wisdom"). This, we will see,

is overly trivial to show and back-up with reverse evidence, which

tears apart claims of use of taxpayer money and monies directed to

the bureaucrats of the National Cancer Institute. This I've called the

"lecturing birds on how to fly" effect (academics lecturing birds on

flying, then showing you "evidence" of their contribution to the

welfare of the birds).

c) Epistemology (theory of knowledge) is ancillary to decision-theory (what we should do). In other words whether something is

true of false is irrelevant and academic in the worst sense of the

word; what matters is the payoff, the benefits. Being wrong is not

important if it is harmless —or if it benefits us by Jensen's inequality.

Interestingly, that was the ancient's positions (Cicero, Seneca,

Marcus Aurelius, Zeno, the Roman poets, the Greek tragedians —

This Book 20


almost all except those ancients we focus on today such as Aristotle

which incidentally only penetrated the West through Arabic

thought). The reader can see that this book, by going to the very root

of the problem, becomes more a subject of philosophy —what where

it should go, as a field —rather than a discourse on innovation.

d) Primacy of heuristic (rule of thumb) knowledge embedded in traditions. Simply, just as evolution operates on individuals, so it

does act on these tacit, unexplainable rules of thumb transmitted

through generations (or preferences expressed in your genome) —

what Karl Popper has called, in his most brilliant works, evolutionary

epistemology. But my take is that this is not because the idea

survived, but because the person who has it has survived! I will show

evidence that what finance you learn from your grandmother is

vastly superior (empirically, hence scientifically) and to what you get

from a finance class in Business School (and, of course, considerably

cheaper) and what you learn from an old trader is vastly superior —

scientifically— to scientific risk models.

THIS BOOK

This book is about the lack of explicit knowledge in real life,

tinkering, the antifragile process of trial and error, our inhibitions in

accepting chance, optionality and the role of cheap options, and the

costs of rationalization –all in one theme: how to live in a world we don't understand. Tinkering and trial and error is not just the

process by which the process of medical discoveries, technical

innovation, and personal knowledge grow. It is how everything in

cultural life has developed –and will continue to develop. It is

prevalent everywhere: languages, foods on the table, wines from

Chile, chips in California, ideas, even religious beliefs. This book is

about the difference between knowing, in which we are not good at

all, and doing, in which we are rather good –but in which we could be

better.

I’ve been dying to vindicate the unreasonable mavericks, free-

lance entrepreneurs, innovative artists, and the anti-nerd thinkers

that have been reviled by history. Some of them had great courage –

not just courage for their ideas, but the courage to accept to live in a

world they knew they did not understand. And they enjoyed it.

My books are not standalone essays on specific topics, with a

beginning, an end, and an expiration date; they are rather chapters of

a main corpus focused on uncertainty, randomness, disorder, and

what to do in a world we don't understand, that is, decision making

under opacity. They are designed to be accessed in any order. So

while my previous work was mostly on uncertainty and the errors —

and gains— that come from such an environment we don't

understand, this one is about a more central notion: how we should

decide.

how to live in a world we donot understand

Documents