I finally finished Antifragile: Things That Gain From Disorder, by Nassim Taleb, and I devoured every page of it, word for word. It’s been some time I enjoyed diving deep into a book. Hence, would like to really share what I took away from it, and later try to apply the key lessons into my work.

We’re finally at the conclusion of the book. At 10 posts, this is probably my most comprehensive and detailed ever series of book notes on a single book. And that’s because I enjoyed it so deeply, ever word felt like treasure. I love that the book went into ethics to round it off, because that’s people benefiting off antifragility at the expense of the fragility of others is how the world is so messed up right now. Hiding behind complexity, making profits private but costs public, these are the people with no soul in the game, unlike heroes of past. I loved how antifragility provided a refreshing clarity and perspective on the global political-economic system.

Sharing them here as reference for myself, and for anyone who might find it useful. This is not a book review, just raw notes lifted directly from the book, with some minor edits, interpretations and categorisations of my own. This is part of my reading list for a new season.

Read past notes:

• (1) Prologue
• (2) Book 1: Intro to antifragility
• (3) Book 2: Antifragility on a systems level and interventionism
• (4) Book 3: Be 90% accountant, 10% rock star - the bimodal strategy of antifragility
• (5) Book 4: Tinker, have options, don’t be axiomatic in business
• (6) Book 4: Education & fragility - How to be an antistudent
• (7) Book 4: Philosophy & fragility - Being ‘right’ is less important than the payoffs
• (8) Book 5: Simple rules to detect fragility/antifragility
• (9) Book 6: Why subtraction adds to your life
• (10) Book 7: Conclusion - the ethics of antifragility ?

-–

Antifragile, Book 7

Antifragility at the expense of others

The worst problem of modernity lies in the malignant transfer if fragility and antifragility from one party to the other, with one getting the benefits, the other unwittingly getting the harm. People use hidden options and harm the collective without anyone realizing. The principal-agent or agency problem is an asymmetry. The solution is in forcing skin in the game.

Heroism is inverse agency problem

There’s a shift away from a certain respect to those who take downside risks for others. Heroism is the reverse of the agency problem: someone elects to bear the disadvantage (risks his own life, or harm to himself, or deprive himself of some benefits) for the sake of others. What we have currently is the opposite: power seems to go to those who steal a free option from society, like bankers, corporate executives, politicians. Heroism is not about wars, it’s more related to sacrifice, where a person is only as respectable and as worthy as the downside he is willing to face for the sake of others, like saints.

The Triad of skin in the game (incentive design)

• No skin in the game = keeps upside, transfers downside to others, owns a hidden option at someone else’s expense 
• Skin in the game = keeps his own downside, takes his own risk
• Skin in the game for the sake of others, or soul in the game = takes the downside on behalf of others, or universal values

Entities arranged in the above order, from no skin in game to soul in the game:

• Bureaucrats - Citizens - Saints, knights, warriors, soldiers
• Cheap talk - Actions, no talk - Expensive talk
• Consultants, sophists - Merchants, businessmen - Prophets, philosophers (of pre-modern times)
• Businesses - Artisans - Artists, some artisans
• Corporate executives - Entrepreneurs - Social impact entrepreneurs/Innovators
• Theoreticians, data miners, observational studies - Laboratory and field experimenters - Maverick scientists like Nikola Tesla
• Centralized government - Government of city-states - Municipal government 
• Editors - Writers - Great writers
• Journalists who analyze and predict - Speculators - Journalists who take risks and expose frauds, powerful regimes/corporations 
• Politicians - Activists - Rebels, revolutionaries
• Bankers - Traders - ____

Hammurabi’s code for symmetry of fragility

“If a builder builds a house and the house collapses and causes the death of the owner—the builder shall be put to death.” The builder knows a lot more than any safety inspector, particularly about what lies hidden in the foundations, and it’s the best place to hide risk. This risk management rule saves lives by providing upfront disincentive in case of harm to others during the fulfilment of one’s profession. These asymmetries are particularly severe when it comes to small probability extreme events like Black Swans.

2 heuristics for skin in the game

First - make sure rewards and punishments are symmetrical 

Second - have a backup/redundancy

Cheap talk is talking with no skin in the game

No opinion without risk. It’s profoundly unethical to talk without doing, without exposure to harm, without having one’s skin in the game. You express your opinion; it can hurt others (who rely on it), yet you incur no liability. Is this fair? Privilege used to come with obligations, status implied you took physical risks. Natural and ancestral systems work by penalties: no perpetual free option given to anyone. Never ask anyone for their opinion, forecast or recommendation. Just ask them what they have—or don’t have—in their portfolio. “Never ask the doctor what you should do. Ask him what he would do if he were in your place. You would be surprised at the difference.” - psychologist Gerd Gigerenzer.

Winning the argument vs winning

Fat Tony was in favour of just making a buck as opposed to being proven right. Suckers try to win arguments, nonsuckers try to win. Decision making in the real world is in deeds, forecasting is in words. For Mother Nature, opinions and predictions don’t count; surviving is what matters. Evolution dislikes the confirmation fallacy, endemic in society. Karl Popper’s ideas on evolutionary epistemology - it’s not ideas that survive, but people who have the right ones, or societies that have the correct heuristics, that lead them to do the good thing. A wrong idea that’s harmless can survive; behaviour that’s irrational can be good if it’s harmless.

The antifragility & ethics of large corporations

Corporations sell junk drinks, artisans sell you cheese and wine - a transfer of antifragility from the small in favour of the large. The commercial world only works by addition (via positiva), not subtraction (via negativa) - pharma companies don’t gain if you avoid sugar. Large companies that provide employment are allowed to wreck the health of citizens with impunity, and benefit from bailouts, whereas artisans don’t get such immunity. Anything that needs to be marketed and advertised heavily to convince people is either an inferior or an evil product. A company doesn’t feel shame, pity, or have a sense of honour, generosity; we humans are restrained by some physical, natural inhibition. All these defects are due to absence of skin in the game—an asymmetry that harms others for their benefit.

The threadmill effect

The threadmill effect is similar to neomania: you need to make more and more to stay in the same place. Wealth doesn’t necessarily make people more independent. The more you earn, the more you spend and the more you become dependent on your job. Greed is antifragile, though not its victims. 

No skin in the game in public office

Former regulators and public officials who were employed by the citizens to represent their best interests can use the expertise and contacts acquired on the job to benefit from glitches in the system upon joining private employment. The more complex the regulation, the more bureaucratic the network, the more a regulator who knows the loops and glitches would benefit from it later, as his regulator edge would be a convex function of his differential knowledge. This is a franchise, an asymmetry one has at the expense of others. 

Complex regulations are easy game

The more complex the regulation, the more prone to arbitrages by insiders. A few hundred pages of regulation will be a gold mine for former regulators. The incentive of a regulator is to have complex regulation. Moreover, the difference between the letter and the spirit of regulation is harder to detect in a complex system. The point is technical, but complex environments with nonlinearities are easier to game than linear ones with a small number of variables. Lastly, officials get the implicit promise to work for the bank at a later date with a sincere offering, and such activities are easily not regulated. 

Solution to no skin in public office

Solution? Anyone who goes into public service should not be allowed to subsequently earn more from any commercial activity than the income of the highest paid civil servant. It is like a voluntary cap (it would prevent people from using public office as a credential-building temporary accommodation, then going to Wall Street to earn millions).

Heuristic to tell if someone’s opinion is worth listening to

You can always find an argument or an ethical reason to defend an opinion ex post. People fit their beliefs to actions rather than fit their actions to their beliefs. If someone has an opinion, we want him invested in it so he is harmed if the audience for his opinion are harmed. But when general statements about the collective are made instead, absence of investment is what is required. One should give even more weight to witness and opinions when they present the opposite of a conflict of interest, e.g. a pharma exec who advocates using less drugs for health.

Big data and spurious correlations

Optionality is everywhere, more data means more information, and more false information. Duped by epiphenomena, fooled by data. The tragedy of big data: the more variables, the more correlations that can show significance in the hands of a “skilled” researcher. Falsity grows faster than information; it is nonlinear (convex) with respect to data. Modernity provides too many variables (but too little data per variable), and the spurious relationships grow much faster than real information, as noise is convex and information is concave. Increasingly, data can only truly deliver via negativa-style knowledge—it can be effectively used to debunk, not confirm.

Conclusion 

Everything gains or loses from volatility. Fragility is what loses from volatility and uncertainty. Innovation is precisely something that gains from uncertainty: and some people sit around waiting for uncertainty and use it as raw material. More technically, we may never get to know x, but we can play with the exposure to x, barbell things to defang them; we can control a function of x, f(x), even if x remains vastly beyond our understanding. We can keep changing f(x) until we are comfortable with it by a mechanism called convex transformation, aka barbelling it.