Thursday, January 26, 2023

Antifragile (Updated)

This is an updated version of the Antifragility mental model that were published long time ago. I will continue to update more models during the next year, but the next update may take a while.

Antifragile: ”A thing that is improved by variations, turmoil, stressors, mistakes, etc.” In this model, I use the word shocks as a common word for the aforementioned.

Fragile, robust and antifragile

Shocks harm fragile items and persons. They do not affect the robust, you cannot invert fragile and get resilient. You get antifragile. It gets better with shocks. Antifragile wants you to abuse it within limits. These limits are very high. Antifragile things are common in nature, but rare in man-made inorganic constructs. Genetic code and human bodies are antifragile. Buildings, bridges, and large companies are fragile.

Antifragile systems need shocks to function. They finally die without them. They also communicate with their environment via shocks. These systems work better when you do not change them. Fragile systems get worse without any changes. Bottom-up approaches increase antifragility in these systems. Top-up approaches diminish it or destroy them. Even though antifragile systems get better with shocks, they have limitations, for example with the sizes of shocks. Your body can handle hundreds of small rocks separately, but it cannot handle one rock that has the size of hundreds of small rocks.

Nassim Taleb has put a list with fragile, robust and antifragile properties of some things in his book ”Antifragile”. You can find some of them in the order of fragile, robust, and antifragile:

  • Biological and economic systems: Efficient and optimized, Redundancy, Degeneracy

  • Errors: Hates mistakes, Mistakes are just information, Loves mistakes

  • Science/Technology: Directed research, Opportunistic research, Stochastic tinkering

  • Science: Theory, Phenomenology, Heuristics and practical tricks

  • Regulation: Rules, Principles, Virtue

  • Knowledge: Explicit, Tacit, Tacit with Convexity

  • Knowledge: Academia, Expertise, Erudition

  • Learning: Classroom, Real life, Real life and library

  • Decision making: Model-based and probabilistic, Heuristic-based, Convex heuristics

  • Literature: E-reader, Book, Oral tradition

  • Finance: Public debt, Private debt without bailout, Convertible

  • Finance: Debt, Equity, Venture capital

Noticing fragility and antifragility

Limited gains and unlimited harms are characteristics of the fragile. The opposite is true for the antifragile. For example, flight time is fragile. Your flight´s estimated time of arrival is never hours earlier than it should, but can be days later. Hydra, in Greek mythology, was antifragile. If you cut one of its heads, it grew two more.

Large, stable, and purposeful constructions are fragile. The opposite is true for small, but not too small, volatile, and inorganic systems with small parts like the restaurant business. When one part of the fragile structure breaks, the whole construction breaks. When this happens to the antifragile, it gets stronger. You cannot have antifragility without this characteristic. The acceleration of harm tells about the fragility. For example, when the negative effects of a 2% decline is more than twice of the negative effects of 1% decline of anything, the business is fragile.

Only time will tell you whether something is antifragile. You might have to wait centuries or millennia to find out. The longer something survives the higher the odds that it is antifragile. Books, genetic code, and even the idea of tablets have survived for millennia. Ideas usually remain, even though their executions can change. Models in this book look antifragile now, but nobody can be sure about the future. You cannot notice antifragility with the first order effects. It is noticed only with second or higher order effects.

Inorganic structures are more usually fragile and some of them are man-made. Organic structures have more common antifragile characteristics. Humans have existed only a short time compared to life on earth. Genetic code will thrive on earth long after human societies face extinction. Nature develops bottom-up and humans usually top-down approaches. Nature lets complex systems thrive on their own and humans like to control them. The problem with the latter approach is that humans cannot understand the effects of their actions on complex systems.

Nature adapts to environmental changes, humans try to change the environment. Nature improves systems through elimination and humans through addition. The former creates better adaptability, the latter higher odds of destruction. Nature has adapted to changes countless times without effort, humans do anything to resist them. Nature approves the fact that failures are natural ways to improve the common good, you cannot say the same about humans.

Nothing has 100% efficiency in nature. It is loose and redundant. Both of these characteristics are signs of antifragility. Humans have two kidneys, instead of one they need. Animals have useless body parts. Efficiency creates fragility. Even though there are no systems with 100% efficiency, the ones that aim for it have almost 100% certainty of destruction. All parts of these systems have to stay intact. Therefore, they are fragile. Systems that allow the destruction of some parts are antifragile like the restaurant business. If one restaurant goes bankrupt, others will stay alive. The system as a whole becomes stronger.

How to be more antifragile

You will never be completely antifragile. It is not possible. Your body and brain will eventually decay. Your genetic code can be antifragile, but it depends on your and your offspring´s ability to reproduce. You can become more antifragile, but with opportunity costs. You have to sacrifice efficiency to make it happen. The best way to become more antifragile is to become less fragile. There are many things in life you can do to improve antifragility. There are general and more practical guidelines.

I will start with the general guidelines. There are certain things within certain ranges (not too small or too big) that improve the antifragile in the long run: uncertainty, variations, imperfect and/or incomplete knowledge, chance, chaos, volatility, disorder, entropy, time, the unknown, randomness, turmoil, stressor, error, dispersion of outcomes, and unknowledge. Imposing yourself to them makes you better in the long run when the doses are small enough. They keep the possible upsides larger than the downsides. Waiting for the upsides can take decades. Focusing on the ideas that have survived the test of time makes people less fragile. One must think about the second and higher order effects in order to get the upside.

It is good to increase the exposure to small, short term shocks, variations, stressors, etc. Minimizing exposure to too large short shocks and small constant long-term shocks is the way to go. Deal with things with the negative effects first. Survival is more important than improvement. Incremental changes are better than the large ones. The former have bigger possible positive expected asymmetric returns than the latter. Irreversible actions are more fragile and large changes have lower probabilities of reversion. Trial and error approach to improvement is rational. Making the same mistakes twice means fragility. Learning from errors is antifragile. It is even better to learn somebody else´s mistakes. Favor practical knowledge over theoretical. Practitioners are smarter than theorists.

Favor the simplicity within limits over the complexity. Reducing is mostly harder but mostly better. Beware of all people who suggest the opposite. Natural things are better than man-made things. For example, walk in the woods instead of streets. Fighting against the natural brings smaller expected benefits than possible downsides due to second order effects. Do not remove too many things from the equations, systems, etc. For example, do not build systems that are dependent on the single part unless you have to. Think about dependencies. Never put your survival in the hands of anyone or anything unless you have to. Redundancy is necessary to antifragility. 100% efficiency means fragility and eventually destruction. Avoid dependence on anyone who has no skin in the game.

Now I will focus on the practical advice. Let's start with the body. Increase physical activities in unnatural surfaces. Change the terrain during the activity once in a while. Increase randomness to your exercise schedule. Increase variations like high intensity runs during long walks. Do a few repetitions with large weights instead of many repetitions with small weights during the gym exercise. Put yourself through very short and demanding or very easy and long exercises. Avoid the middle ground. The same applies to duration. Small and frequent doses of some unwanted substances can be good for your health. For example, small doses of aspirin every day can make most people healthier in the long run. Keeping patients in ventilators while changing the amount of oxygen from top to bottom gives better results than even doses.

Variation in meals and drinks can have positive effects on health. Restricting calories during some days and binge-eating in others have better health effects than eating the same amount of food every day. The same applies to timing. Variations in the amount of carbohydrates, fat, and proteins produces better results than no variation. Human bodies still work the same ways as in savannahs millennia ago. They used to have only veggies on most days and meat when they hunted down animals. Small amounts of wine every day is also good for the arteries. It is better to remove types of nutrition than add something to it.

Finding less fragile ideas or data is not easy but they have common characteristics. The survival through long periods of time is one attribute to look out for. Laws of nature are not fragile. They have withstood the test of time. The underlying principles of human behavior have not changed in millennia. Practitioners have less fragile ideas than theorists. People who have lived through wars and other plights or have succeeded to live older than average, have less fragile ideas and behavior. Learn from their example. The most popular fads, fashions, and behavior that have occurred only once in history are the most fragile ideas. Beware of them at all costs. The same applies to all social scientists using Gaussian distribution.

Money is one thing that has a big importance. Long-term surpluses are advisable. They give some slack. They also can improve possibilities to take advantage of shocks. Deficits create fragility. Multiple income streams make anyone or anything dependent on money less fragile. Do not give up your day job in order to move to unsecure profession like author or musician before you can earn a long-term surplus with the latter. Almost nobody earns a living with an insecure profession. Variations of income are not bad. The same applies to durations of workdays. Continuous stress is not good for anyone. Multiple long-lasting days followed by multiple days with complete recovery is better than eight hours of work every day.

Small and frequent profits or returns are signs of fragility in companies and people. They are usually followed by large losses and bankruptcies in the long run. Small and frequent losses are signs of antifragility. Figure out whether the recessions make people, companies or countries stronger or weaker. Check their history to confirm your thoughts. If you want to give your money for someone else to invest, make sure they lose when you lose. Never listen to any forecasters who do not have possible downside in their predictions. Do not ask other investors what they recommend, ask what they own.

  • Do not use statistics to approach power-law events

  • Think about the suckers. If you cannot find them, you are one

  • Have many reliable sources of income and data

  • Keep your projects small

The amazing part of all is that you have to be less smart in most of these cases. You can also be more often wrong and still get higher odds of positive outcomes in life. This happens because payoffs become much higher than harm from losses.

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