Unanticipated events, especially extreme unanticipated events, can harm us or even destroy us. But they can also help us to grow and make us stronger. If they do the former, we tend to fear them and avoid them wherever possible. If they do the latter, our orientation shifts and we tend to welcome them. In the world of the Big Shift, as I suggested in my post last week on resilience, we all need to find ways to harness the power of randomness, volatility and extreme events to help us grow and develop more of our potential.
Focusing on Black Swans
Nassim Nicholas Taleb has been consumed by black swans over three books: Fooled by Randomness, The Black Swan and, now, Antifragile. Black Swans, in Taleb’s parlance, are “large-scale unpredictable and irregular events of massive consequence.’ The latest book focuses on approaches that enable us to thrive from high levels of volatility, and particularly those unexpected extreme events. It’s a profoundly rich and engaging book that will no doubt prove infuriating to most of our economic, educational and political elites, for he argues that these elites have played a major role in making us increasingly vulnerable to volatility and Black Swans.
While Black Swans can have positive and beneficial impact (think of the invention of the computer and the Internet), many of the most well-known Black Swans (think of World War I, the stock market crash of 1929 or the terrorist attacks of 9/11) can have hugely detrimental effects, leading to massive suffering and death. Whether beneficial or detrimental, volatility and Black Swans can prove highly disruptive, leading the best laid plans of mice and men to go awry.
Our natural reaction to such volatility is to focus on refining prediction and risk models so that we can anticipate the events before they happen. Bluntly, Taleb argues in Antifragile that this is a fool’s errand, that the most profound and important of these unexpected events are by their very nature unpredictable. Even worse, he suggests that such efforts lead to a form of complacency and comfort that result in even more disruption when the unexpected events finally occur.
Not content with this, he also attacks the conventional fall back options – building more resilience and robustness into systems. In Taleb’s terms, the resilient “resists shocks and stays the same” while robustness, never fully defined in this book, seems quite similar – indifference to unexpected events. Taleb views resilience and robustness as far too modest, and perhaps even dangerous.
The quest for antifragility
The real opportunity, in Taleb’s view, is to learn and grow from volatility and unexpected events – not to return to where you were, but to become even better as a result of the exposure and experience. This is the essence of antifragility, a term that Taleb feels he has to coin because the English language doesn’t have a word that adequately captures this property of systems. While they may not be perfect synonyms, Taleb is seeking to describe the properties of adaptive or evolutionary systems that become better and reach even higher levels of performance as a consequence of encountering and overcoming challenges. They are dynamic rather than static. They thrive and grow in new directions rather than simply sustain themselves. They actually need random events to strengthen and grow and they become brittle and atrophy in the absence of these random events.
He makes an important point: biological systems in nature are inherently antifragile – they are constantly evolving and growing stronger as a result of random events. In contrast, man-made systems tend to be fragile, they are the ones that have a hard time coping with random events. Taleb highlights a key paradox: our focus in modern times on removing or minimizing randomness has actually had the perverse effect of increasing fragility.
In this context, his perspective is very consistent with the critique of modern push systems that I (and my co-authors) developed in The Power of Pull. Push systems are driven by two concerns: the ability to forecast or predict events and the quest for increasing efficiency by designing systems that are highly standardized and tightly specified to remove any unnecessary activity – everything is arranged to be in the right place at the right time to meet anticipated demand. Scalable efficiency is the ultimate goal.
Virtually all of our contemporary institutions – firms, educational institutions and government – have been designed as push systems. While these systems tend to prosper in highly stable times, they do very poorly in times of rapid change and growing uncertainty. They become highly vulnerable to Black Swans, setting cascades and avalanches into motion that amplify and extend the disruptive effects of the initial event. By seeking to remove unpredictability, we are actually becoming more fragile. As Taleb observes: “When you are fragile, you depend on things following the exact planned course, with as little deviation as possible – for deviations are more harmful than helpful. This is why the fragile needs to be very predictive in its approach, and, conversely, predictive systems cause fragility.”
Digital technology is playing a central role in increasing the frequency of Black Swans by enhancing connectivity, compressing lead-times and increasing the potential for friction as divergent interests become more connected. These are becoming a fact of life and will remain so, unless we try to reverse the deployment or use of digital technology. But we do have another choice: to move beyond the centralized/push-based institutions that heighten both the risk and the adverse impact of Black Swans. We can instead adopt the antifragile systems and practices that will allow us to thrive from the connectivity of digital technology without as much vulnerability.
One consequence of the Big Shift in the global economy is that push-based systems become increasingly dysfunctional and even dangerous. It’s one of the key reasons why we are seeing sustained deterioration in corporate performance – both in terms of profitability and ultimately even survival. The answer is not to suppress the increasing randomness that accompanies the Big Shift. Instead, we need to craft systems that can grow and improve in the face of randomness and to pursue approaches that will help us to thrive in such systems.
In this context, Taleb’s book is a rich source of insight into ways to harness randomness so that we can become better faster. Taleb never develops the distinction, but his book addresses both design principles for systems and strategies that individuals and institutions can pursue to increase antifragility. The key is to systematically reduce the downside from randomness while at the same time increasing the potential upside
System design principles
In thinking about system design, it’s important to avoid the temptation to develop detailed top down blueprints for systems. Taleb observes that “if about everything top-down fragilizes and blocks antifragility and growth, everything bottom-up thrives under the right amount of stress and disorder.” Nevertheless, there are certain design principles that emerge from Taleb’s work that can help reduce the fragility of the systems we design.
(1) Stick to simple rules
Complex systems do not require complicated rules – in fact, the simpler the rules the better. We must resist the temptation to respond to complexity with complex rules – they have a disturbing tendency to produce cascades of unintended consequences.
Decentralized systems are better able to learn from randomness because adverse impacts are contained. Decentralized units can watch and learn from each other as each unit improvises in response to unexpected events. Centralized systems are fragile because they make rules that by necessity are more abstract and theoretical so that they can be broadly applicable but at the same time they are removed from the relevant social context. A small, decentralized political system like Switzerland proves far more antifragile than very large, centralized systems. Taleb repeatedly points to the diseconomies of scale in times of stress.
(3) Develop layered systems
This is in many respects an extension of the second principle. Taleb points out that the antifragility of a system often comes from the fragility of its components, whether we are talking about the failure of firms that drives the overall success of entrepreneurial regions like Silicon Valley or the death of individual organisms that contributes to the antifragility of nature. By differentiating into layers, systems can once again contain adverse impacts and increase the potential for learning by watching what happens to constituent units in the lower layers.
(4) Build in redundancy and overcompensation
Redundancy in systems is a key to antifragility. As Taleb suggests, nature loves to over-insure itself, whether in the case of providing each of us with two kidneys or excess capacity in our neural system or arterial apparatus. Overcompensation is a form of redundancy and it can help systems to opportunistically respond to unanticipated events. What seems like inefficiency or wasted resources like extra cash in the bank or stockpiles of food can actually prove to be enormously helpful, not just to survive unexpected stress, but to provide the resources required to address windows of opportunity that often arise in times of turmoil. This perspective helps to put into context the praise of inefficiency in Bill Janeway’s important new book, Doing Capitalism in the Innovation Economy.
(5) Resist the urge to suppress randomness
Taleb warns against the tendency of planners to try to eliminate volatility or unpredictable disruptions to a system. Sure, they are messy and upset the best laid plans but, as mentioned above, he stresses the paradox that efforts to eliminate this randomness will only intensify the vulnerability of systems to damage from disruption. As he observes, “. . . if antifragility is the property of all those natural (and complex) systems that have survived, depriving these systems of volatility, randomness, and stressors will harm them. They will weaken, die, or blow up. We have been fragilizing the economy, our health, political life, education, almost everything . . . by suppressing randomness and volatility.” Randomness is the root cause of serendipity – a theme that Taleb comes back to repeatedly as a source for most of the great discoveries that have moved our society forward. Without randomness, there can be no serendipity. While I believe we can shape serendipity, the underlying force is the randomness and unpredictability that makes life so interesting.
(6) Ensure everyone has skin in the game
Systems must ensure that all participants have skin in the game – participants must face the consequences of their actions and endure failure as well as enjoy success. This will ensure that each participant will be motivated to learn as rapidly as possible and not take unwarranted risks. Danger arises when a select few – especially those with an abundance of resources or power – are able to capture the upside for themselves while exposing others to downside risks of losses or harm. In other words, bail-outs are highly dysfunctional. As Taleb points out, capitalism is about rewards and punishments, not just rewards.
(7) Give higher status to practitioners rather than theoreticians
Taleb is eloquent in his contempt for theoreticians and his admiration for practitioners. He believes that a lot of society’s troubles come from the fact that we over-estimate the role of research and analysis and downplay the role of practice and experimentation in driving advances in knowledge and material well-being.
In fact, we reverse the real world flow of knowledge building. Most major historians suggest that theory and research lead to new insights that in turn shape our practices. In fact, he makes the case that most of our significant breakthoughs in knowledge came from experimentation and tinkering by practitioners that then got interpreted and codified by theoreticians. “ . . . we don’t put theories into practice. We create theories out of practice.” This is in part the result of “history written by losers,” the title of one of the chapters in Antifragile. Taleb asserts that practitioners are too busy doing, so they don’t have the time to write to write their own story. For Taleb, techne (crafts and know how) trump episteme (book knowledge, know what) every time.
If we want to prosper and cultivate the ability to grow through stress, we need to honor the practitioners and suspect the theoreticians. Practitioners are comfortable with messiness while theoreticians will go to great lengths to try to achieve smoothness and predictability, even if that ultimately results in more stress to the system.
Strategies for antifragility
Each of us can pursue a set of practices and strategies as individuals and as institutions to thrive in times of increasing uncertainty and more frequent Black Swans. In Taleb’s view, the end goal for any antifragile strategy is to achieve convexity. Taleb draws a core contrast between concave and convex strategies. The key question in assessing any strategy is whether it’s likely produce more benefits or harm as the intensity of a shock increases (up to a point). In other words, do you have more upside or downside? If the upside increases, you have positive asymmetry and a convex strategy. If the downside increases, you have negative asymmetry and a concave strategy – something to be avoided at all costs.
(1) Pursue barbell approaches
What does Taleb mean by this? He basically means pursuing a bimodal strategy: play it safe in some areas to mitigate the potential impact of negative Black Swans while at the same time taking a lot of small risks in other areas to enhance the benefit of positive Black Swans. Above all, he cautions against playing in the middle – we need to be both aggressive and paranoid in carefully selected areas while avoiding the complacency that the deceptive middle produces.
(2) Focus on options
As Taleb notes, “an option is what makes you antifragile and allows you to benefit from the positive side of uncertainty, without a corresponding serious harm from the negative side.” An option allows you to take the upside if you want but without the downside. Optionality – the availability of options – reduces the need to understand or know something. Wherever possible, seek out options with open-ended, rather than closed-ended payoffs. Given this emphasis on options, invest in people, rather than plans.
(3) Be curious
“Curiosity is antifragile . . . and is magnified by attempts to satisfy it.” Curiosity and its close cousin, discovery, like disturbances – disturbances create unexpected opportunities to learn more and help us to grow stronger in the face of challenges that we had not anticipated.
(4) Get out of your comfort zone
Taleb is deeply suspicious of comfort – it makes us complacent, weakens the will and fragilizes us. Far better for us to be uncomfortable – it makes us more alert to our environment, more willing to take risks and more humble about our knowledge and abilities.
(5) Focus on the edge
How could I not love this? Taleb observes that “to this day I still have the instinct that the treasure, what one needs to know for a profession, is necessarily what lies outside the corpus, as far away from the center as possible.”
(6) Conduct lots of experiments and tinker
This is part of Taleb’s barbell strategy – you carefully pick the areas for experimentation where there is potential for significant upside. Taleb is a major advocate of experimentation and tinkering in contrast to theorizing. The key is to structure them so that they are small in potential harm and so that you can pursue many of them.
(7) Don’t get consumed by data
Be suspicious of data: “. . . the more data you get, the less you will know what’s going on.”
(8) Focus on building/accessing tacit knowledge rather than rationality and explicit knowledge
As should be clear by now, Taleb is deeply suspicious of abstraction, theorizing and rationality. One of my favorite observations is Taleb’s approving citation of Ernest Renan who observed that “logic excludes – by definition – nuances, and . . . truth resides exclusively in the nuances.” Going back to Nietzche, Taleb clearly highlights the importance of the Dionysian over the Apollonian – the Dionysian “is dark, visceral, wild, untamed, hard to understand, emerging from the inner layers of our selves.” Another one of my favorite social commentators, Camille Paglia, similarly seeks to resurrect the Dionysian.
(9) Focus on subtractive knowledge
Taleb asserts: “. . . we know a lot more what is wrong than what is right . . . negative knowledge (what is wrong, what does not work) is more robust to error than positive knowledge (what is right, what works). So knowledge grows by subtraction much more than by addition . . .”
(10) Collaborate and trade
From Taleb’s perspective, collaboration and trade have an explosive and unpredictable upside – they are some of the most powerful ways to unleash positive Black Swans and help to ensure that the potential upside is far greater than the potential downside.
(11) Respect the old
Taleb argues that “antifragility implies . . . that the old is superior to the new. . . . What survives must be good at serving some (mostly hidden) purpose that time can see but our eyes and logical faculties can’t capture.” Only the antifragile survives and thrives; the fragile is ultimately exposed by time and history.
(12) Beware of wealth, debt and reputation
The key to antifragility is to have less to lose and more to gain; this will make it easier to love the mistakes that often result from experimentation and tinkering, rather than fearing them. If you have wealth, you are more inclined to make big bets with more potential for downside. In general, you have more and more to lose, increasing the potential for fragility. If you feel you are vulnerable to reputational harm, you will be less inclined to make mistakes, so concern about reputation becomes a source of increasing fragility. Similarly, if you depend on a lot of debt, reputation becomes more important and you again will be less inclined to make mistakes.
While at times a frustrating read, I found Taleb’s book to be profoundly inspiring. He is not at all concerned with surviving or “bouncing back” in times of increasing uncertainty. He wants us to do more. Far more. He wants us to find ways to thrive – to turn what may at first seem like challenges into opportunities to grow and learn so that we can become even better. His playbook on systems design and strategies is a rich resource to help us all navigate through the mounting pressure ahead and grow more rapidly as individuals, institutions and a society. Thrivability, in the words of my friend Jean Russell, is ultimately Taleb’s agenda.