Tag Archives: Black Swan

Idea Soup, tD

Measuring Antifragility

Nassim Nicholas Taleb, one of our favorite thinkers and writers over here at theDiagonal recently published Antifragile, his follow-up to his successful “black swan” title Black Swan. In Antifragile Taleb argues that some things thrive when subjected to volatility, disorder and uncertainty. He labels the positive reaction to these external stressors, antifragility. (Ironically, this book was published by Random House).

In his essay, excerpted below, Taleb summarizes the basic tenets of antifragility and the payoff that we would gain from its empirical measurement. This would certainly represent a leap forward, from our persistent and misguided focus on luck in research, relationships and business.

[div class=attrib]From Edge.org:[end-div]

Something central, very central, is missing in historical accounts of scientific and technological discovery. The discourse and controversies focus on the role of luck as opposed to teleological programs (from telos, “aim”), that is, ones that rely on pre-set direction from formal science. This is a faux-debate: luck cannot lead to formal research policies; one cannot systematize, formalize, and program randomness. The driver is neither luck nor direction, but must be in the asymmetry (or convexity) of payoffs, a simple mathematical property that has lied hidden from the discourse, and the understanding of which can lead to precise research principles and protocols.

MISSING THE ASYMMETRY

The luck versus knowledge story is as follows. Ironically, we have vastly more evidence for results linked to luck than to those coming from the teleological, outside physics—even after discounting for the sensationalism. In some opaque and nonlinear fields, like medicine or engineering, the teleological exceptions are in the minority, such as a small number of designer drugs. This makes us live in the contradiction that we largely got here to where we are thanks to undirected chance, but we build research programs going forward based on direction and narratives. And, what is worse, we are fully conscious of the inconsistency.

The point we will be making here is that logically, neither trial and error nor “chance” and serendipity can be behind the gains in technology and empirical science attributed to them. By definition chance cannot lead to long term gains (it would no longer be chance); trial and error cannot be unconditionally effective: errors cause planes to crash, buildings to collapse, and knowledge to regress.

The beneficial properties have to reside in the type of exposure, that is, the payoff function and not in the “luck” part: there needs to be a significant asymmetry between the gains (as they need to be large) and the errors (small or harmless), and it is from such asymmetry that luck and trial and error can produce results. The general mathematical property of this asymmetry is convexity (which is explained in Figure 1); functions with larger gains than losses are nonlinear-convex and resemble financial options. Critically, convex payoffs benefit from uncertainty and disorder. The nonlinear properties of the payoff function, that is, convexity, allow us to formulate rational and rigorous research policies, and ones that allow the harvesting of randomness.

OPAQUE SYSTEMS AND OPTIONALITY

Further, it is in complex systems, ones in which we have little visibility of the chains of cause-consequences, that tinkering, bricolage, or similar variations of trial and error have been shown to vastly outperform the teleological—it is nature’s modus operandi. But tinkering needs to be convex; it is imperative. Take the most opaque of all, cooking, which relies entirely on the heuristics of trial and error, as it has not been possible for us to design a dish directly from chemical equations or reverse-engineer a taste from nutritional labels. We take hummus, add an ingredient, say a spice, taste to see if there is an improvement from the complex interaction, and retain if we like the addition or discard the rest. Critically we have the option, not the obligation to keep the result, which allows us to retain the upper bound and be unaffected by adverse outcomes.

This “optionality” is what is behind the convexity of research outcomes. An option allows its user to get more upside than downside as he can select among the results what fits him and forget about the rest (he has the option, not the obligation). Hence our understanding of optionality can be extended to research programs — this discussion is motivated by the fact that the author spent most of his adult life as an option trader. If we translate François Jacob’s idea into these terms, evolution is a convex function of stressors and errors —genetic mutations come at no cost and are retained only if they are an improvement. So are the ancestral heuristics and rules of thumbs embedded in society; formed like recipes by continuously taking the upper-bound of “what works”. But unlike nature where choices are made in an automatic way via survival, human optionality requires the exercise of rational choice to ratchet up to something better than what precedes it —and, alas, humans have mental biases and cultural hindrances that nature doesn’t have. Optionality frees us from the straightjacket of direction, predictions, plans, and narratives. (To use a metaphor from information theory, if you are going to a vacation resort offering you more options, you can predict your activities by asking a smaller number of questions ahead of time.)

While getting a better recipe for hummus will not change the world, some results offer abnormally large benefits from discovery; consider penicillin or chemotherapy or potential clean technologies and similar high impact events (“Black Swans”). The discovery of the first antimicrobial drugs came at the heel of hundreds of systematic (convex) trials in the 1920s by such people as Domagk whose research program consisted in trying out dyes without much understanding of the biological process behind the results. And unlike an explicit financial option for which the buyer pays a fee to a seller, hence tend to trade in a way to prevent undue profits, benefits from research are not zero-sum.

[div class=attrib]Read the entire article following the jump.[end-div]

[div class=attrib]Image: Antifragile by Naseem Nicholas Taleb, book cover. Courtesy of the author / Random House / Barnes & Noble.[end-div]

Idea Soup

Antifragile

One of our favorite thinkers (and authors) here at theDiagonal is Nassim Taleb. His new work entitled Antifragile expands on ideas that he first described in his bestseller Black Swan.

Based on humanity’s need to find order and patterns out of chaos, and proclivity to seek causality where none exists we’ll need several more books from him before his profound and yet common-sense ideas sink in. In his latest work, Taleb shows how the improbable and unpredictable lie at the foundation of our universe.

[div class=attrib]From the Guardian:[end-div]

Now much does Nassim Taleb dislike journalists? Let me count the ways. “An erudite is someone who displays less than he knows; a journalist or consultant the opposite.” “This business of journalism is about pure entertainment, not the search for the truth.” “Most so-called writers keep writing and writing with the hope, some day, to find something to say.” He disliked them before, but after he predicted the financial crash in his 2007 book, The Black Swan, a book that became a global bestseller, his antipathy reached new heights. He has dozens and dozens of quotes on the subject, and if that’s too obtuse for us non-erudites, his online home page puts it even plainer: “I beg journalists and members of the media to leave me alone.”

He’s not wildly keen on appointments either. In his new book, Antifragile, he writes that he never makes them because a date in the calendar “makes me feel like a prisoner”.

So imagine, if you will, how keenly he must be looking forward to the prospect of a pre-arranged appointment to meet me, a journalist. I approach our lunch meeting, at the Polytechnic Institute of New York University where he’s the “distinguished professor of risk engineering”, as one might approach a sleeping bear: gingerly. And with a certain degree of fear. And yet there he is, striding into the faculty lobby in a jacket and Steve Jobs turtleneck (“I want you to write down that I started wearing them before he did. I want that to be known.”), smiling and effusive.

First, though, he has to have his photo taken. He claims it’s the first time he’s allowed it in three years, and has allotted just 10 minutes for it, though in the end it’s more like five. “The last guy I had was a fucking dick. He wanted to be artsy fartsy,” he tells the photographer, Mike McGregor. “You’re OK.”

Being artsy fartsy, I will learn, is even lower down the scale of Nassim Taleb pet hates than journalists. But then, being contradictory about what one hates and despises and loves and admires is actually another key Nassim Taleb trait.

In print, the hating and despising is there for all to see: he’s forever having spats and fights. When he’s not slagging off the Nobel prize for economics (a “fraud”), bankers (“I have a physical allergy to them”) and the academic establishment (he has it in for something he calls the “Soviet-Harvard illusion”), he’s trading blows with Steven Pinker (“clueless”), and a random reviewer on Amazon, who he took to his Twitter stream to berate. And this is just in the last week.

And yet here he is, chatting away, surprisingly friendly and approachable. When I say as much as we walk to the restaurant, he asks, “What do you mean?”

“In your book, you’re quite…” and I struggle to find the right word, “grumpy”.

He shrugs. “When you write, you don’t have the social constraints of having people in front of you, so you talk about abstract matters.”

Social constraints, it turns out, have their uses. And he’s an excellent host. We go to his regular restaurant, a no-nonsense, Italian-run, canteen-like place, a few yards from his faculty in central Brooklyn, and he insists that I order a glass of wine.

“And what’ll you have?” asks the waitress.

“I’ll take a coffee,” he says.

“What?” I say. “No way! You can’t trick me into ordering a glass of wine and then have coffee.” It’s like flunking lesson #101 at interviewing school, though in the end he relents and has not one but two glasses and a plate of “pasta without pasta” (though strictly speaking you could call it “mixed vegetables and chicken”), and attacks the bread basket “because it doesn’t have any calories here in Brooklyn”.

But then, having read his latest book, I actually know an awful lot about his diet. How he doesn’t eat sugar, any fruits which “don’t have a Greek or Hebrew name” or any liquid which is less than 1,000 years old. Just as I know that he doesn’t like air-conditioning, soccer moms, sunscreen and copy editors. That he believes the “non-natural” has to prove its harmlessness. That America tranquillises its children with drugs and pathologises sadness. That he values honour above all things, banging on about it so much that at times he comes across as a medieval knight who’s got lost somewhere in the space-time continuum. And that several times a week he goes and lifts weights in a basement gym with a bunch of doormen.

He says that after the financial crisis he received “all manner of threats” and at one time was advised to “stock up on bodyguards”. Instead, “I found it more appealing to look like one”. Now, he writes, when he’s harassed by limo drivers in the arrival hall at JFK, “I calmly tell them to fuck off.”

Taleb started out as a trader, worked as a quantitative analyst and ran his own investment firm, but the more he studied statistics, the more he became convinced that the entire financial system was a keg of dynamite that was ready to blow. In The Black Swan he argued that modernity is too complex to understand, and “Black Swan” events – hitherto unknown and unpredicted shocks – will always occur.

What’s more, because of the complexity of the system, if one bank went down, they all would. The book sold 3m copies. And months later, of course, this was more or less exactly what happened. Overnight, he went from lone-voice-in-the-wilderness, spouting off-the-wall theories, to the great seer of the modern age.

Antifragile, the follow-up, is his most important work so far, he says. It takes the central idea of The Black Swan and expands it to encompass almost every other aspect of life, from the 19th century rise of the nation state to what to eat for breakfast (fresh air, as a general rule).

[div class-attrib]Read the entire article following the jump.[end-div]

[div class=attrib]Image: Black Swan, the movie, not the book by the same name by Nassim Taleb. Courtesy of Wkipedia.[end-div]