Book Review: Antifragile

There is a (possibly apocryphal) story about space scientist James Van Allen.  A reporter asked why the public should care about Van Allen belts, which are layers of particles held in place by Earth’s magnetic field.    Dr. Van Allen puffed on his pipe a few times, then responded:  “Van Allen belts?  I like them.  I make a living from them.”

One can imagine a similar conversation with Nassim Nicholas Taleb, author of The Black Swan and most recently Antifragile: Things That Gain From Disorder.

Reporter: Why should the public care about Black Swans?

Taleb: Black Swans?  I like them.  I make a living from them.

And indeed he does.   Born in Lebanon, educated at the University of Paris and the Wharton School, Mr. Taleb pursued a career in trading and arbitrage (UBS, CS First Boston, Banque Indosuez, CIBC Wood Gundy, Bankers Trust and BNP Paribas) where he developed the practice of tail risk hedging, a technique designed to insure a portfolio against rare but catastrophic events.  Later, he established his own hedge fund (Empirica Capital), then retired from active trading to pursue a writing and academic career.  Mr. Taleb now positions at NYU and Oxford, together with an assortment of adjuncts.

Antifragile is Mr. Taleb’s third book in a series on randomness.  The first, Fooled by Randomness, published in 2001, made Fortune‘s  2005  list of “the 75 smartest books we know.”   The Black Swan, published in 2007, elaborated Mr. Taleb’s theory of Black Swan Events (rare and unforeseen events of enormous consequences) and how to cope with them; the book has sold three million copies to date in thirty-seven languages.   Mr. Taleb was elevated to near rock-star status on the speaker circuit in part due to his claim to have predicted the recent financial crisis, a claim that would  be more credible had he published his book five years earlier.

I recommend this book; it is erudite, readable and full of interesting tidbits, such as an explanation of Homer’s frequent use of the phrase “the wine-dark sea”.   (Mr. Taleb attributes this to the absence of the word ‘blue’ in Ancient Greek.  I’m unable to verify this, but it sounds plausible.)  Erudition aside, Antifragile is an excellent sequel to The Black Swan because it enables Mr. Taleb to elaborate on how we should build institutions and businesses that benefit from unpredictable events.  Mr. Taleb contrasts the “too big to fail” model of New York banking with the “fail fast” mentality of Silicon Valley, which he cites as an example of antifragile business.

Some criticism is in order.  Mr. Taleb’s work sometimes seems to strive for a philosophical universalism that explains everything but provides few of the practical heuristics which he says are the foundation of an antifragile order.  In other words, if you really believe what Mr. Taleb says, don’t read this book.

Moreover, it’s not exactly news that there are limits to scientific rationalism; the problem, which thinkers have grappled with for centuries, is that it is difficult to build systematic knowledge outside of  a rationalist perspective.   One cannot build theology on the belief that the world is a dark and murky place where the gods can simply zap you at any time for no reason.  Mr. Taleb cites Nietzsche as an antifragile philosopher, and while Nietzsche may be widely read among adolescent lads and lassies, his work is pretty much a cul-de-sac.

One might wonder what the study of unpredictable events has to do with predictive analytics, where many of us make a living.  In Reckless Endangerment, Gretchen Morgenstern documents how risk managers actually did a pretty good job identifying financial risks, but that bank leadership chose to ignore, obfuscate or shift risks to others.  Mr. Taleb’s work offers a more compelling explanation for this institutional failure than the customary “greedy robber baron” theory.  Moreover, everyone in the predictive analytics business (and every manager who relies on predictive analytics) should remember that predictive models have boundary conditions, which we ignore at our peril.

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