Antifragile 15: History Written by the Losers

Following the schedule of our reading calendar.

Taleb, as presented previously, sees that finance strategies are applied by practitioners long before the equations, that supposedly are the basis for that strategies, are discovered and published.

The formation of knowledge is a practical process and only afterwards there is a reinterpretation by intellectuals to pretend that theoretical development were prior and necessary for the practice. Why?

Practitioners don’t write; they do. Birds fly and those who lecture them are the ones who write their story. So it is easy to see that history is truly written by losers with time on their hands and a protected academic position. (p. 220)

Taleb goes beyond financing and presents us with a lot of evidence of how this happens in all types of knowledge. He explains to us how the Industrial Revolution was developed by the work and enthusiasm of a bunch of amateurs with limited theoretical knowledge. He presents the case of medicine where, for centuries, the field was based in a theoretical foundation without sense nor utility while the only progress was made using empirical trial and error by outsiders who where ridiculed and prosecuted. These are heroes.

Now, reader, let us take a minute and pay some respect. Consider our ingratitude to those who got us here, got our disrespect, and do not even know that they were heroes. (p. 248)

So, should we burn universities and sent the intellectuals to labor camps Mao Style? Of course not. There is a place for theoretical knowledge. It can function, and there are lots of examples of it, as a repository of ideas and intuitions that can be useful in the advance of civilization. What Taleb considers as useless is the objective oriented system of financing science. Governments should just give money for research in a shotgun way trying to maximize the number of approaches to give opportunities to serendipity.

We have talked about this idea in our blog previously here (in Spanish) commenting an interesting paper in Plos One. From the abstract of that paper:

We conclude that scientific impact (as reflected by publications) is only weakly limited by funding. We suggest that funding strategies that target diversity, rather than “excellence”, are likely to prove to be more productive.

Already deepening in the concept of uselessness of management, Taleb goes further and labels all management theory (including Taylorism) as pseudoscience. I have to admit that this surprises me. He cites a text: “The Management Myth” by Mattew Stewart, that I have already printed and will be my next reading. I will comment on it soon.

And finally, because Taleb is not Taleb if he doesn’t talk about everything everywhere, a quote from this chapter about the relationship between religion and skepticism.

(…) one can see religion’s effect here in reducing dependence on the fallibility of human theories (…). It has been difficult for people to understand that, historically, skepticism has been mostly skepticism of expert knowledge rather that skepticism about abstract entities like God, and that all the great skeptics have been largely either religious or, at least, pro-religion (that is, in favor of others being religious). (p. 234)

Antifragile 14: When Two Things Are Not the “Same Thing”

Week by week, we discuss a chapter of Nassim Taleb’s Antifragile. According to our reading calendar, it’s time for chapter 14.

In this chapter, Taleb continues ellaborating on probably his most philosophical (in the good sense of the word) and provocative thesis: the superiority of tinkering and doing versus theoretical knowledge.

The chapter is constructed basicly around what Taleb calls “The Big Lumber Fallacy”, inspired on an anecdote described in the book What I Learned Losing a Million Dollars. It is about a trader called joe Sigel who was an expert in the comodity called “green lumber” and despite being very successful selling it, he got the concept all wrong, thinking it was lumber painted in green (instead of what really is:  lumber that is not yet dry).

The Big Lumber Fallacy is the belief that in order to be successful with one subject, you have to have  lots of theoretical knowledge about that subject. To illustrate this, Taleb tells us a personal story when he started working in foreing exchange. To his surprise, what he found there were street people that started doing transfers in the back office of banks, and  with no geopolitical, sociological or economical knowledge. Actually, the best expert in Swiss Franc trading in the world wasn’t able to place Switzerland on a map!

Taleb also discusses at the beginning of the chapter a very annoying fallacy we hear every day: education is key for the economical development of a country. Taleb debunks this thesis with clear arguments and references, and defends that education should be pursued for its own sake, towards reducing inequality and increase freedom, but not in order to pursue economical gain. It won’t work.

As a matter of fact, theoretical knowledge can be counterproductive:

The “right thing” here is typically an antifragile payoff. And my argument is that you don’t go to school to learn optionality, but the reverse: to become blind to it.

The most relevant idea in this chapter, to me, is his discussion on narrative. Doers are very bad at explaining what they do and why, but they get things done. Academics are very good at presenting narratives, but those stories are not aplicable to the real world. Taleb is not against narratives: they are common in those ancients sages he loves so much, but those sages knew that those narratives don’t have to be truth to be effective, they just need to lead you to the proper heuristics to get things done.

Like in the former chapter, Taleb is talking in general terms. Certainly, theoretical knowledge has some value, but we have put so much faith in it that we need to reverse course and start to consider that we can’t really predict what is going to happen based on what happened in the past, and we don’t need to know everything about a subjects to find optionalities.

To sumarize, let me use Taleb’s own words:

We separated knowledge into two categories, the formal and the Fat Tony-ish, heavily grounded in the antifragility of trial and error and risk taking with less downside, barbell-style -a de-intellectualized form of risk takin g(or, rather, intellectual in its own way.) In an opaque world, that is the only way to go.




Antifragile: 13. Lecturing Birds on How to Fly

Following the schedule of our reading calendar.

There is a belief deeply ingrained in our modern world which is the most lasting and poisonous legacy of Enlightenment. Progress comes from the intellectual and scientific understanding of the world. Equipped with that knowledge, we can apply our reason to derive the practical and technological uses of it that creates the innovations that we call progress.

Taleb labels this belief as “naive rationalism” and devotes this whole chapter to (successfully in my opinion) destroy it.

Innovation doesn’t come from rational understanding of the world, it comes from tinkering in a random way using basic heuristics and selecting the best results. Technological evolution happens by the same logic and mechanisms of natural evolution. He gives us a lot of examples, centered in the wheeled suitcase story, about how difficult it is to get to the inventions or the practical uses of them, even when you are close to it. It is only in retrospect that there seems to be a logical and directed path in the steps of the process of discovery.

Consider two types of knowledge (…) The error of naive rationalism leads to overestimating the role and necessity of the second type, academic knowledge, in human affairs -and degrading the uncodifiable, more complex, intuitive or experience-based type. (p. 194)

This naive rationalism which is behind the politics of government institutions in the world (the Soviet-Harvard experts) is maintained and reinforced by a series of interpretation fallacies to which our poor, jungle adapted brains are pray. Selection bias, causation by correlation, historical reinterpretation and others make us belief that our reason is in charge. Academia is really convinced that it is lecturing birds how to fly.

Antifragile 12: Thales Sweet Grapes

We have reached chapter 12 of our reading calendar.

Here Taleb continues ellaborating on how to apply the idea of antifragility in daily life, based on the idea of keeping options.

The concept that strikes me the most is his reinterpretation of the famous story on how Thales used his knowledge to become rich. I found it brilliant how Taleb challenges the usual interpretation by Aristotle, that so far everybody took for granted and gives one that sounds more accurate and twists the idea of rational based decision.

It is quite difficult to believe that Thales was able to predict the weather months in advance. It is a lot more reasonable that what Thales did was to exploit an asimetry of options:

Thales had the right -but not the obligation- to use the olive presses in case there would be a surge in demand; the other party had the obligation, not the right. Thales paid a small price for that privilege, with a limited loss and a large possible outcome.

And that’s the main point of this whole chapter. We can be stupid; we don’t to understand what’s going on, we just need to find options and asymmetry. The best way to do it, is natural selection style, to always choose the outcome that gives as more options and then just watch for assymetries we can use for our profit, without having to understand how the asymmetry came in the first place. All you need is “The wisdom to no do unintelligent things to hurt yourself”.

Next he deals with the idea of dispersion, one of the main properties of options. As as example, he points out how for writers and thinkers, having a small group number of people, dispersed and distributed, that are fanatic about their work is much better than a homogenous grup that fairly like it and how having a majority of people disliking their work doesn’t count -“as there is no such thing as the opposite of buying your book”. A similar thing happens with business based on selling luxury goods: you don’t care about how much money the average people has, your target are the richest ones.

Some of the ideas of this chapter reminded me of the famous post by Kevin Kelly, 1000 True Fans that have it developed from other perspective, but reaching similar conclusions.

He uses the word “tinkering” to refer to this general process of getting as much options as possible with small errores and large gains, without having to understand the reasons behind  in, Thales style. As we’ll see in later chapters this idea of tinkering plays a central role in some deep implications of the book.

Thaleb next takes another incursion against common economics and present us with the ludic fallacy: the idea that random events in real life can be treated with the probabilistic mathematics used for dice and casinos. But, as we readers of Antifragile and The Black Swan know, probabilities and random events in real life are much much different than their domesticated brothers in the casino.