ANTI-FRAGILITY AND BEHAVIOR

By Karl Arnold Belser
10 April 2014



I am still struggling to determine how to capitalize on anti-fragility which I have written about before in my post Anti-Fragility.. What sort of behavioral changes might I make given the following definition by Nassim Taleb?

Anything that has more upside than downside from random events (or certain shocks) is anti-fragile; the reverse is fragile.

Shane Parish's recent post on Anti-fragility: A Definition gives several long quotes, like this excerpt above, from the book Antifragile.  Although Shane does not say it, I suspect that he is incorporating the concept of anti-fragility into his everyday behavior by writing the Farnam Street blog. Writing a blog takes a small amount of effort that may in turn result in the awareness of a lot of upside potential.

Consider the following Taleb quote that I think is important because if associates anti-fragility with life, and I have an interest in understanding what constitutes "being alive".

And anti-fragility determines the boundary between what is living and organic (or complex), say, the human body, and what is inert, say, a physical object like the stapler on your desk.

I wonder if anti-fragility is an intrinsic property of life? Could it be that life is the way nature has evolved in order to deal with Black Swan events that are impossible to predict?  If so, Taleb's observation is profound.  

Adaptability of individuals allows a society to do an enormous amount of investigation by trial and error that taps into anti-fragility because some of the trials will work. The polar opposite, the attempt by government to set up institutions and laws to protect it citizens against the unknown might cause fragility, or the inability to adapt when necessary.  The reason for the lack of adaptability would be because the feedback from the citizens of a nation is completely cut off by governmental edict.

Central governmental control might lead to the collapse of nations. This is essentially what happened to the Soviet Union during the 1980s. Today it looks like France is going down the central control path to its detriment. Since this is not a political blog, I will limit my comments.

Let me get back to talking about anti-fragility and behavior.

My first observation is that the government is currently not your friend. It trys to do good but inadvertently causes fragility which is not good. Hence, the opportunities might be the opportunities opened up by government mis-management. For example, many banks have been able to capitalize on governmental mistakes to the point that, even though banks are not productive in the sense of creating something useful, they have become great wealth accumulation machines.

Here is another Taleb quote about what he recommends.

You have to avoid debt because debt makes the system more fragile. You have to increase redundancies in some spaces. You have to avoid optimization. That is quite critical for someone who is doing finance to understand because it goes counter to everything you learn in portfolio theory. … I have always been very skeptical of any form of optimization. In the black swan world, optimization isn’t possible. The best you can achieve is a reduction in fragility and greater robustness.

My second observation is lack of debt and the availability of cash is a key to being anti-fragile. You do not want to be unhorsed by black swan events such as a downturn in any market or if civil unrest occurs. Rather, you might have the opportunity to buy distressed quantities.

Thirdly,  you might want to be as aware of what is happening in the world as possible. I am writing this blog for this purpose.

Fourthly, your health is of utmost importance. It is advisable to live in an area where there are good medical facilities. There tends to be much poorer medical practice in poorer areas.

Next,you might want to make sure that your living conditions are secure (paid for) and that your life partners won't be able to double-cross you with divorce or a law suit.

Lastly, you might want to take on a low profile in society. In other words, don't flaunt wealth, do any criminal activity, or write controversial political commentary that can be seen on the Internet. It might make you a target.

If luck is when opportunity meets a prepared mind then the corollary is that financial success is possible when opportunity meets a prepared wallet provided that a person is in a secure, low profile situation.

   
Last updated April 18, 2014
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