Antifragility

well this week we're gonna be talking about the ideas of Massey Nicholas Taleb and concepts of anti-fertility concepts about of the Black Swan basically concepts of equality volatility and the unexpected I think there's a whole family of ideas here that are very exciting and very interesting and important for understanding organizations however and for that matter important for understanding ethics his books are sweeping they are immensely exciting very creative they're also really hard to summarize and so I was looking for a few pages I could have you read to say all right here's the core of the idea and really I can't identify a few pages for you these ideas are spread over four books and very a very intriguing style exploited for all sorts of contexts so it's just hard to come up with a summary but I thought we would start with the idea of a Black Swan and see if we can work from there what is a Black Swan well the the story goes like this the concept really comes from the traditional thought that swans are white people that encountered white swans they encountered many many white swans and assume that all swans were white though no one really understood why but there's a lot we don't understand about the coloration birds so that's not so surprising in any event it wasn't until I think it was a little more than 100 years ago that someone was in a remote region of Australia and discovered a Black Swan it was a bird that looked very much like a swan and then further research indicated yes it really is biologically a swan but it is black instead of white and so people have been compiling a huge amount of confirmation of the thesis that all swans are white and in fact if you thought okay how how does the inductive evidence go for the claim that all swans are white what would it look like we start at a certain all we think well okay we've seen one white swan that's some evidence but it's not such strong evidence and then we see more and more white swans so our confirmation keeps going up until finally we meet a counterexample and boom probability all swans are white goes to sea okay now the thought is that a Black Swan is a kind of unexpected event an event that appends our concepts of how things were working we can be a little more specific than that so let me talk for a moment about Donald Rumsfeld and a useful division so I talked about in the business ethics class we can talk about things I know and things I don't that's sort of the first order distinction but then we can also distinguish the things that I know that I either know or don't know nothing I don't know but I know okay so this is all first order but second order we can think well do I know it so I might be it hey I know that right or here I don't presumably there are things in all of those categories there is an epistemological thesis known as the KK thesis which is that if I know something that I know that I know which would imply that this is actually empty but I think that thesis is pretty obviously false there are things I know that I don't know that and it also seems to me there can be things I don't know and I don't know that I don't know them so let's start with these there are things that I know that I know that I know what's an example of something you're not only know but you know that you know sorry commit aa Cartesian here okay I know that I am I know that I know that I am actually Descartes really doesn't make explicit the taint here but Agustin does we're just merely big hearts getting all of that they Agustin refutes the skeptic by saying look I know and I know that I know that I am and I know that I know that I have and I know that I know that I know moreover he says I I think that I am and so I know that I think that I have and I think that I know and I think that I am and somehow I can keep adding those up and moreover he says I love it that I am and so I love it that I love it that I am and I know that I love it I love it I am and so loving and loving and know if Vicki could all be some filed on for what about it okay so that's an example but there there are lots of other things you know you know two plus two is four okay you can think yeah I know that 2+2 4 okay I know that I know that I know other examples all squares have four sides you say I know that I know that I know that okay there are things that you don't know but you know that you don't know now what's an example of something like that yeah good how did derive triggers equations you could say I yeah I I know that there are such equations I don't know what they are I know that I don't know what they are I know that I can't derive them I you know and so you could say look there are a lot of things I know I don't know other examples of things you know you don't know how to drive a stick shift yeah best anti-theft device these days just have a manual transmission it's getting getting harder and harder to find those I've usually driven cars with manual transmissions my older daughter loves them and that was one of her main criteria when she went shopping for a car recently if you want a new car that's amazing it's really hard to fit I mean there are few brands that still make quite a few but most it's sort of rare enough and you know you might know I don't know how to drive that kind of car so that's that's something you might know that you don't know so what about these categories they're the trickier ones I know something but I don't know that I know it now it's hard to answer that one in the first person right they can't really fill it in for yourself so think about something that someone you know knows but they don't know that they know it yeah okay yes so there might be things that you know that you don't know that you know because you don't realize that this is entailed by something you already do know that that am i understanding yeah yeah so you've got this piece of information this piece of information if you were prompted you could actually let's say put them together you've never thought about them together and so you don't realize you already know that it's like you've got the pieces the puzzle you haven't yet gone like this so that could be an example others yeah ha okay yes yes so there might be yeah it might be that you know something but the situation where you have to actually make that knowledge explicit to yourself or to someone else has never come up so it's just not something you've ever thought about no this can sometimes happen in trivia contests which I tend to participate in much to my humiliation it's good for my sense of humility really to find out how little I know because I when I started this I thought I'm gonna get a bastard that's right I've got a great memory of it I know all that you find out though yeah there's a huge amount that you don't know but you will also find out there are a lot of things I know that I didn't know that I think something happens and your brain immediately associated this it never came up before right but it turns out hey that's somewhere hidden in there was the knowledge of that I think practical things are even more like this you all sorts of things you've never had to do you probably know how to do it's just that it's never come off so you don't know that you know how to do that it's maybe part of your biology you know how to do that actually being a parent is like that they're all sorts of books on parenting and there's some parents when they're about to have a child read all these books think you know I've got to figure all this out my view is look humanity survived for thousands and thousands of years before anybody read these books and so you already largely know how to be a parent don't worry about okay evolution is smarter than the authors of these books and you'll tend to do if not exactly the best thing at least something that will keep everybody alive now you know I I do get these Facebook postings about things that happen in Florida so this is not universally applicable but in general you know it's true so yeah I don't know if you saw this story I shouldn't distract it with the latest of these but but the woman who was with her son in Walmart and he ended up stripping naked while she let a dog groom all around I said well oh my god well well all of them this whole thing is less this was all the distraction so that she could steal something and in the end all she got away with by starting up in the parking lot was one little box of jiffy corn muffin mix you can buy it for like 30 cents so anyway but there are things you know you don't know you know however there are also things you don't know but you don't know that you don't know them now that is the fear of the unknown unknown that's wrong small foot and he said this is what you have to be afraid because as you're going into making a decision there are things you know and you know that you know them and so it's like okay we've got this established we've got this established now be careful because you might know that all swans are wise has been sore just waiting for this situation but a you think you know this you know that you know it let's say there are things that you are where you don't know like AHA we're going to introduce this product but we know a couple of other people are working on similar ideas are they going to beat us to market or are we gonna be the first one to market we don't know that and so we know that we don't know it and we know that makes a difference we know certain things that we don't even know that we know but we're we trust our organization there we have a strength so we haven't really thought about but this is the scary bit there are things we don't know that are relevant to this decision and we don't even know that we don't know why because we haven't even thought about right this is unanticipated this is unpredictable so now some of these might be unknown unknowns just because oh for example there might be things we don't know but we think we do we think we know all swans are white and we're wrong about that but it can also be that this is something that is rare it is unpredictable and it's going to have a big effect so among these not all of them are like this but among these are things that telegraphers do with black swans these are events that are rare they are unpredictable in advance so often retrospectively you can give some explanation for them and make some sense of them and they have a huge impact extreme on the way things go now why worry about those well he says look the most important human events followed at this category think about the things that have happened over the past century that have had the greatest impact on the world what are some 911 good example okay the September 11th attacks had a huge impact that was a great example of a Black Swan a rare event one that was unpredictable though retrospectively you can look back and say oh we should have been anticipating this but the fact is at the time nobody did predict and in advance you might say there's just this fog of a massive information but most of that information is irrelevant it was impossible for anyone to predict it and it has a huge impact on the history of the world so that's a great example of this sort of Black Swan now what are some other examples of things that have had a huge impact over the past century yeah well it's not in the past century but yes okay luther dales his 95 theses to the church door in Wittenberg that's something that has a huge impact on world history but it was unpredictable it wasn't as if the Catholic Church yeah now later they can maybe explain it and historians can explain it but it's not as if in 1500 people could have said no you know what do we think of the biggest problems facing the church some people count somebody well you know I think there's this one guy in Germany right now he's a child looks he's gonna grow up and he's coming up problem no nobody fought them right nobody had any basis for thinking about that so so yeah that's something that had a huge impact on the world history and it's not something that was really and it's pretty rare I mean that something has that kind of impact you might be able to explain it later you're not gonna be able to really date in the future yeah good these things aren't always terrible the rise of the Internet is that something that could have been predicted it's easy in retrospect to say well you know gosh I Nina I was on email as early as 1982 because I was part of the DARPA net or at the arcon method I think created by DARPA that was a way for researchers to communicate with each other and so you know I guess gosh should I have foreseen the Rison why didn't I get it great Amazon but the fact is nobody really saw the potential for this it seemed like this Oh nifty way for defense installations and researchers to communicate with one another nobody's sort of thought oh it's gonna be something used by almost everybody in the globe to order you know various kinds of things on line ID to buy birthday presents at trade greeting cards look at pictures of other people's cats nobody thought about that and so that's had a huge impact but it's the kind of thing that was sparkling unpredictable yeah good Great Depression same kind of thing that a recession is going to happen that's predictable although people often joke oh yes economists have predicted nine of the last four recessions so you know it's it's hard to get those right - but to have something huge that like that that comes out of nowhere and so you might say yeah you might go back and try to explain it but at the time no one could break - yeah well it's not yeah I mean I'm gonna drop this predict what will happen okay you might not predicted that I would catch it but but you could break that it's gonna fall right even though that was a future event so it's not like the future is completely unpredictable or you're at a baseball game batter comes to the plate and you think I'm gonna make a prediction I realized this is very risky future is essentially unfinished but I'm gonna go up all in the picture it's gonna throw the ball it's like well yeah do you think he's gonna get hit oh I don't know I predict you'll stand there we'll pitch the ball that's pretty safe British right so it's not as if all of the future just consists of the unknown unknown the black swans and so on but a lot of the big events are the day-to-day stuff matters much less so one point is look this is what really has the largest impact on events yeah well yes in fact one of the things that really inspires tulips analysis is Mandelbrot's theory fractals so yes in fact he wants you to say stop thinking in terms of bell curves and Gaussian distributions stop thinking in terms of sort of the ordinary expected outcomes of probability theory roughly he would say the utilitarian is somebody who is going after and for that matter the traditional decision theorist is thinking in these terms basically saying well look I realized things can be far out on the tail of the bell curves but but you know what's the time we're in here he refers to that area of the bell curve as media first and okay and it describes sometimes his theory is the theory of things with fat tails in other words where a lot of things and most important things are out here and so indeed fractals are one way of thinking about this kind of structure when we realize that's the case sometimes the same structures reproduced in a way that makes less and less difference but sometimes it's reproduced in a way made ways that make larger and larger differences and so this is something that suggests that you have to look at the tails of the distribution rather than the mean to really now here there are two different strategies you could think well look I'm gonna worry about the day to days and I'm gonna try to get that right of course we can't foresee extreme events but hey I'm not gonna worry about that I'm gonna try to do well day today so imagine two traders on the floor of extra I saw a stock exchange one has all sorts of charts and theories and explanations and says I'm gonna try to maximize my day to day returns that's the key to long-term success another trader says yeah I don't worry about any of that I just want to be in a position that when the market makes a big move I can probably okay which is the more rational strategy now most investment houses most brokerages and so on they take that first strategy and they have huge research divisions that are dedicated to that but for traders and that's what to let did for a lot he got a PhD in management and then he worked on the floor as a trader and he realized these guys I'm working with Muslim don't even not only did they not have degrees in finance or economics or anything most of them haven't even gone to college a lot of them aren't really high school graduates but nevertheless they're very good trainers on earth there was one guy who made a fortune selling and buy green lumber well Talib went to talk to him he realized this guy doesn't know what green lumber is he thinks it's lumber that's painted greasy okay in fact it's you know raw lumber it's so like just been cut downs before it's dried and cured and all of that but he didn't really know anything about lumber he just was good at trading things and he specializes in that and he could read the signals of the marketplace extremely well but he had no idea what's going on and then he looked at people selling and buying oil in the lead up to the Iraq war and they were I mean the big investment houses had huge divisions they had people studying the geopolitics of the Middle East they knew all about which wells were where and what were possible so political and economic volatility and these guys on the floor of one the one guy he who is the best oil trader in this but somebody who didn't actually know where Iraq was I don't know who cares the difference where it is or what's going on there his sense was yeah people were too concerned about this war thing a war and oil not the same thing don't worry about any of that just follow what's happening the price and as the price went up before the war people anticipating war and they thought man the price is gonna soar if war breaks out and so instead he positioned himself so that he would profit immensely when the price drops and a deep war broke out with the result price of oil dropped because people's anticipation was actually worse than the actual event and so this guy made a fortune okay but he couldn't he did not only didn't understand the Middle East even though that Iraq was in the minute just like just know people are being irrational and so the point was really this you don't have to understand it you have to understand their effects and you have to understand what happens if there is one of these black swans you're not gonna be able to predict this you're not gonna be able to understand it and your day to day profits can be wiped out in one black swan of it you can be doing great all the way along suddenly like Friday hits on October of 1929 you lose everything somebody else can be positioned where like day to day they're not doing so well maybe they're hardly trading at all but they've got themselves position so there's an extreme event they win big so talib develops the idea from this that what we really want in a system and what we want in an individual pattern of decision making or living but also what we want for an organization is to be able to cope these situations okay doesn't matter really so much what you're doing today except insofar as it helps you deal with these extreme events so he categorizes this in three categories there are things that are trafficked other things that are robust and then some things that are anti crashing what's the difference well basically the fragile hates volatility it stands to lose from volatility from change from uncertain most artificial things are like this this piece of chalk is artificial what happens if I drop it not just into my hand but on the floor it might well break maybe it will survive but it might break even if it doesn't break it might weaken the bonds so that the next time it's more likely to break suppose I take a glass and I toss it into the fireplace people see movies real life but suppose somebody does that they drink the champagne then you throw the glass in the fireplace is that good for the glass no right it breaks the glass and so these are things that santol lose from volatility a robust thing tends not to lose from it can switz stand volatility can withstand risk it is not harmed on the other hand it doesn't really improve either if I take a piece of steel and I drop it it's not gonna break on the other hand it's not gonna get stronger right it's just not effective like an anti fragile thing actually gains revolvers from volatility it gains from stress it gains from at least some degree of resistance of shock so what are some things that aren't just well we talked about what's fragile what are some things that neither gain nor lose they're just unaffected - okay yeah yeah something that is sort of strong let's say some cement if I drop this on the cement will the cement be injury no it'll take a really pretty big force to harm when we think about building buildings so they can withstand earthquakes we're talking about making them less fragile more robust on the other hand it's not as if an earthquake is going to take even one of those very strong fortified buildings and make it any better off right it just won't really harm it what are some things that actually gained grow stress gain from having shocks applied to them yeah exactly right hella despite away a bodybuilder well that's what he does lift weights okay and weightlifting is a good example what happens when you lift weights well you're actually stressing muscle fibers you're maybe even tearing down muscle cells well what is the body do up to a certain point now nothing is gonna gain from extreme shocks right you say oh you think you will gain from 15 weights yeah take this thousand pound all better right that's that's not gonna help me but but what happens is the muscle is stressed but then it rebuilds and it strengthens itself so eventually or well yeah yeah you can do better there are there are limited things you can do when you start weight with the after age 40 which is what I did but anyway yeah you a muscles gain probably some degree of stress they get stronger other things that gets stronger reserves oh yeah good humans in general in fact organisms so if the artificial tends to be in this category and it's hard to make artificial things strong to within with resist shocks well the organic tends to be in this category Nietzsche said what doesn't kill me makes me stronger right and there are limits to that obviously but in general yeah suppose you take a child and you never put them in a situation of stress actually parents these days do along with this it's amazing how this is change when I was a kid especially in summertime when we didn't have schoolwork to worry about you know early in the day just say hi mom I'm gonna go play with my friends and you just disappear for the day it would often be a long way from anybody's house and so on well I used to live for a while on the edge of the woods would all just go off to the woods and would play various games and so forth and we were gone all day well one of our parents knew where we were nobody cared and you know we dealt with things on our own we have enough fistfights and stuff like that no-nobody sort of intervened people came home with bloody noses how'd that happen or easily with like sticks stuck through their hand that happened to be but that I mean nobody so wasn't very pleasant but anyhow you know is that we just dealt with those stresses on our own they made us stronger the thought was look if you predict protect somebody for any kind of stress it's kind of like what happens to all muscle let's say you are lying in bed you're you know you're in traction after an accident a friend of mine was in a motorcycle accident and was actually three weeks what happens to the muscle there's lying there for three weeks they atrophy you get a lot weaker so in general organic thing is rely on a certain amount of stress to get stronger well that's one way of thinking about this distinction now it is important to realize that in organic systems it's often the system that gains even though the individual organism loses so sometimes evolution happens not because stresses happen and we all get stronger but because some of us weaker ones die out and the population that's left is stronger but not because we got some stronger B because yeah every night house people have thought about why people who survived prison camps let's say in Nazi Germany or Soviet Russia ended up offing coming out and seeming like incredibly strong people whoa being in prison those years can expect you really strong and till the point said well oh really it's just the weaklings didn't make it and so the survivors are really strong also much because going to prison is a great way to get strong but because the people who were weak in those extreme environments didn't survive so the population ended up coming out very strong and you might think evolution of the whole was like that the population gets stronger and stronger even though each individual might actually perish along the way now if we think about an organization these trends we can ask well okay we'd like for our organization to be over in this category especially if we think the most important things that are gonna really shape our future together are these black swans that are really unpredictable then we want to be able to set ourselves up to gain from those now here errors are dangerous right but here errors are good we want to just keep them small small errors are a good thing over here here and in fact it's fine if they're frequent we want frequent small errors here the danger is rare larger or stiff so we want systems that are going to constantly test out ideas they're going to constantly allow us to play around with things and part of the key will be here a lot of these are gonna be irreversible Humpty Dumpty fell off the wall had a great fall all the king's horses and all the king's men couldn't put him back together again we want small errors that are reversible where we can actually adapt as a result and get stronger through the adaptation so how do we do that go ahead yeah hey I ooh actually yeah okay good think about two different approaches to developing a program that's going to perform a task where you realize this task isn't something as simple as adding a column of numbers or doing a certain computation it actually has to help us with decision making in the real world do we want this complicated system of rules and if something goes wrong we realize huh now what this is complicated and revising the rules is going to be difficult or do we want something like an adaptive Network that allows us to incorporate that information and in effect to revise as we go so you might say in AI terms it's not so much that this is like non-ai and this is this is more like I don't know of Unknowing serial type of system and this is like an envelope this is like distributed parallel processing and it's in that sense like a a sort of normal net this is the way the brain does things it doesn't have a set of rules that it simply applies to new situations it's highly adaptive it has all these networks and they adjust in response to circumstances right and so here you might say look we just got to come up with the right rules and write rules that are going to allow us to encompass all these situations so we think we'd better anticipate everything and have a rule for them here the thought is look we're not going to do that we want something that is adaptive and what are we gonna use instead of rules well we're gonna have certain heuristics we're gonna have certain things that we develop in practice and we continue to refine and practice so think about two different approaches to becoming good at something this approach says well what go to people who are really good what do you do and have them teach you what they do okay say well here the rules and look there's a place for that in fact it's not as if here we're going to ignore books and rules and things like that but we are going to say well that's not the whole thing okay so so let's think about something you actually would like to become good at okay suppose you suppose you're interested and you want to get good at playing an instrument well one way to do that is to say what are the rules for being a good X okay so you might think oh I need to learn the rules for playing jazz piano let's say and you study jazz theory you think oh okay here's what it is so you think here are bunch of chord progressions now in my head and here are the scales I should play over those progressions and blah blah blah blah blah and you practice getting fast at them well that's one way to do it but another way to do it is you just play them and you talk to all and you try things out you think that sounds cool or oh that's terrible right and you know the best thing is probably some combination of those the guys I know who were superb jazz musicians they are playing all the time they have some general heuristics but they adapt they do something and they think that's great or they think yeah that didn't work out let's try something else and that's not to say they aren't aware of all of this but they don't just apply the rules it's not like oh gosh here it is so what chord do I play leads into that half diminished oh here's my answer right they try things out and they sit there and think yeah okay I've got to go back to this after minute or what do I do and they try things and think oh that works and sometimes then they can explain why it works and usually they can come up with some explanation I'm always embarrassed because I think oh that sounds really good why does that works I don't get and they usually turn around to me you tell me what does that work and I usually can't explain it so even when I manage to do something well over here I rarely understand why it's working but now there's a real danger to that kind of retrospective here's why it worked thing because it's tending to push you in this direction the people who use these and try to get by with these alone Tellem refers to as fragile Easton see what about half the vowels in this word so okay they're the people who basically are the you might say intellectuals of fragility he sometimes refers to them as the Harvard Soviet school of understanding things they have elaborate theories oh you want to understand Middle Eastern politics and what's likely to be the next large black swuan emergence well we have elaborate theories we will give you we will give many talks and we create institutions and centers at universities to investigate this and his view is look all events basically pointless it's not that that knowledge is irrelevant though it might be here the real question is all right something weird those people are gonna anticipate is gonna happen and then what so even since September 11th the Arab Spring nobody predicted that and so what you know so what do you do about that well it requires the ability to engage in for a kind of decision-making where you go in admitting look there's a lot here I don't know so the real question is how do you get into a mode of decision-making that allows you to take advantage of responses to these unpredictable events instead of just trying to pretty book and trying to set up a rule for what you do to either prevent them or to respond to them that's a different kind of decision-making and so what we're gonna do next time is try to understand what that kind of decision-making is how do you go about doing it but there are all sorts of dangers and to give you an idea of the dangers think about all of the things that tend to bedevil us when we engage in inductive reasoning we tend to assume that the future is going to be just like the past but that's part of the problem with black swans they change the future in a way that it's not like imagine writing a book in 1910 about what the world will look like in 2010 okay yeah could you have predicted the First World War the Second World War the rise and then southern fall of communism in fact I mean I think about the huge Black Swan events I've lived through surely 1989 then 1991 the collapse of the Soviet Union the fall of the Berlin Wall so all of that nobody was pretty bad and then before that you go back to the Vietnam War nobody predicted that that would be a war that would last so long cause so many lives be so utterly fruitless in the end no one predicted well actually here's the thing that's really embarrassing in the 1950s there was a very popular artistic and literary and in general intellectual move futurism i reflecting an earlier you know italian futurism and so on but but this one much more optimistic oh we have a vision of the future and like the Jetsons with a flying you know where'd that future go there are no flying cars those 1950s conceptions of what the future looks like now look ridiculous why because of that so how do we sensibly make decisions when we really can't anticipate the future that's what we'll talk about Thanks

Channel: Daniel Bonevac

Views: 2,597

Rating: 5 out of 5

Keywords: Nassim Nicholas Taleb, Antifragility, Black Swan, Unknown unknown, Volatility

Id: I23xj-x8Z_o

Length: 41min 52sec (2512 seconds)

Published: Mon Apr 15 2019