Antifragility

Nassim Nicholas Taleb is quite well known for his book the Black Swan. It describes the events that no one expects to happen. The probability of these events occurring is impossible to compute.

His latest book is called Antifragile: Things that Gain from Disorder. In this book, he divides things into three categories: fragile, robust, antifragile. Fragile things need tranquillity, but they rarely get it. The antifragile grows stronger through disorder. The robust does not care, but it tends to be unattainable.

Antifragile systems are weakened, if they are derived of variation. Interventionists often do this. They aim to make things more robust, but because variation is reduced, they actually increase fragility.

Absence of fluctuations from a market causes hidden risks to accumulate with impunity. The longer it goes on without a market trauma, the worse the damage when a commotion occurs.

The problem with artificially suppressed volatility is not just that the system tends to be extremely fragile, it is that at the same time, it exhibits no visible risk. Also remember that volatility is information. In fact, these systems tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface. Although the stated intention of political leaders and economic policy makers is to stabilise the system by inhibiting fluctuation, the result tends to be the opposite. These artificially constrained systems, become prone to Black Swans. Such environments eventually experience massive blowups, catching everyone off guard and undoing years of stability, or, in almost all cases, ending far worse than they were in their initial volatile state. Indeed, the longer it takes for the blowup to occur, the worse the resulting harm to both economic and political systems (p.106).

United Stages policy makers assume that they are creating stability in the world. They are actually eliminating antifragility.

In spite of what is studied in business schools concerning “economy of scale”, size hurts you at times of stress; it is not a good idea to be large during difficult times. Some economists have been wondering why merging corporations do not appear to play out. The combined unit is so much larger, hence more powerful, and according to theories of economies of scale, it should be more “efficient”. But the numbers show at best, no gain from such increase in size-that was already true in 19789, when Richard Roll voiced the “hubris hypothesis”, finding it irrational for companies to engage in mergers given their poor historical record. Recent data, more than three decades late, still confirm both the poor record of mergers and the same hubris as mangers seem to ignore the bad economic aspects of the transaction. There appears to be something about size that is harmful to corporation.

As with the idea of having elephants as pets, squeezes are much more expensive relative to size of large corporations. The gains are visible, but risks are hidden. This leads to fragility (p. 279).

During the season that we are going into, we will need churches that are antifragile. They will not be megachurches.