Antifragile: Things That Gain from Disorder (19 page)

Every plane crash brings us closer to safety, improves the system, and makes the next flight safer—those who perish contribute to the overall safety of others. Swiss flight 111, TWA flight 800, and Air France flight 447 allowed the improvement of the system. But these systems learn because they are antifragile and set up to exploit small errors; the same cannot be said of economic crashes, since the economic system is not antifragile the way it is presently built. Why? There are hundreds of thousands of plane flights every year, and a crash in one plane does not involve others, so errors remain confined and highly epistemic—whereas globalized economic systems operate as one: errors spread and compound.

Again, crucially, we are talking of partial, not general, mistakes, small, not severe and terminal ones. This creates a separation between good and bad systems. Good systems such as airlines are set up to have small errors, independent from each other—or, in effect, negatively correlated to each other, since mistakes lower the odds of future mistakes. This is one way to see how one environment can be antifragile (aviation)
and the other fragile (modern economic life with “earth is flat” style interconnectedness).

If every plane crash makes the next one less likely, every bank crash makes the next one more likely. We need to eliminate the second type of error—the one that produces contagion—in our construction of an ideal socioeconomic system. Let us examine Mother Nature once again.

The natural was built from nonsystemic mistake to nonsystemic mistake: my errors lifting stones, when I am well calibrated, translate into small injuries that guide me the next time, as I try to avoid pain—after all, that’s the purpose of pain. Leopards, who move like a true symphony of nature, are not instructed by personal trainers on the “proper form” to lift a deer up a tree. Human advice might work with artificial sports, like, say, tennis, bowling, or gun shooting, not with natural movements.

Some businesses love their
own
mistakes. Reinsurance companies, who focus on insuring catastrophic risks (and are used by insurance companies to “re-insure” such non-diversifiable risks), manage to do well
after
a calamity or tail event that causes them to take a hit. If they are still in business and “have their powder dry” (few manage to have plans for such contingency), they make it up by disproportionately raising premia—customers overreact and pay up for insurance. They claim to have no idea about fair value, that is, proper pricing, for reinsurance, but they certainly know that it is overpriced at times of stress, which is sufficient to them to make a long-term shekel. All they need is to keep their mistakes small enough so they can survive them.

Variability causes mistakes and adaptations; it also allows you to know who your friends are. Both your failures and your successes will give you information. But, and this is one of the good things in life, sometimes you only know about someone’s character after you harm them with an error for which you are solely responsible—I have been astonished at the generosity of some persons in the way they forgave me for my mistakes.

And of course you learn from the errors of others. You may never know what type of person someone is unless they are given opportunities to violate moral or ethical codes. I remember a classmate, a girl in high school who seemed nice and honest and part of my childhood
group of anti-materialistic utopists. I learned that against my expectations (and her innocent looks) she didn’t turn out to be Mother Teresa or Rosa Luxemburg, as she dumped her first (rich) husband for another, richer person, whom she dumped upon his first financial difficulties for yet another richer and more powerful (and generous) lover. In a nonvolatile environment I (and most probably she, too) would have mistaken her for a utopist and a saint. Some members of society—those who did not marry her—got valuable information while others, her victims, paid the price.

Further, my characterization of a loser is someone who, after making a mistake, doesn’t introspect, doesn’t exploit it, feels embarrassed and defensive rather than enriched with a new piece of information, and tries to explain why he made the mistake rather than moving on. These types often consider themselves the “victims” of some large plot, a bad boss, or bad weather.

Finally, a thought. He who has never sinned is less reliable than he who has only sinned once. And someone who has made plenty of errors—though never the same error more than once—is more reliable than someone who has never made any.

We saw that antifragility in biology works thanks to layers. This rivalry between suborganisms contributes to evolution: cells within our bodies compete; within the cells, proteins compete, all the way through. Let us translate the point into human endeavors. The economy has an equivalent layering: individuals, artisans, small firms, departments within corporations, corporations, industries, the regional economy, and, finally, on top, the general economy—one can even have thinner slicing with a larger number of layers.

For the economy to be antifragile and undergo what is called evolution, every single individual business must
necessarily
be fragile, exposed to breaking—evolution needs organisms (or their genes) to die when supplanted by others, in order to achieve improvement, or to avoid reproduction when they are not as fit as someone else. Accordingly, the antifragility of the higher level may require the fragility—and sacrifice—of the lower one. Every time you use a coffeemaker for your morning cappuccino, you are benefiting from the fragility of the coffeemaking
entrepreneur who failed. He failed in order to help put the superior merchandise on your kitchen counter.

Also consider traditional societies. There, too, we have a similar layering: individuals, immediate families, extended families, tribes, people using the same dialects, ethnicities, groups.

While sacrifice as a modus is obvious in the case of ant colonies, I am certain that individual businessmen are not overly interested in hara-kiri for the greater good of the economy; they are therefore necessarily concerned in seeking antifragility or at least some level of robustness for themselves. That’s not necessarily compatible with the interest of the collective—that is, the economy. So there is a problem in which the property of the sum (the aggregate) varies from that of each one of the parts—in fact, it wants harm to the parts.

It is painful to think about ruthlessness as an engine of improvement.

Now what is the solution? There is none, alas, that can please everyone—but there are ways to mitigate the harm to the very weak.

The problem is graver than you think. People go to business school to learn how to do well while ensuring their survival—but what the economy, as a collective, wants them to do is to
not
survive, rather to take a lot, a lot of imprudent risks themselves and be blinded by the odds. Their respective industries improve from failure to failure. Natural and naturelike systems want some overconfidence on the part of individual economic agents, i.e., the overestimation of their chances of success and underestimation of the risks of failure in their businesses, provided their failure does not impact others. In other words, they want local, but not global, overconfidence.

We saw that the restaurant business is wonderfully efficient precisely because restaurants, being vulnerable, go bankrupt every minute, and entrepreneurs ignore such a possibility, as they think that they will beat the odds. In other words, some class of rash, even suicidal, risk taking is healthy for the economy—under the condition that not all people take the same risks and that these risks remain small and localized.

Now, by disrupting the model, as we will see, with bailouts, governments typically favor a certain class of firms that are large enough to require being saved in order to avoid contagion to other business. This is the opposite of healthy risk-taking; it is
transferring fragility from the collective to the unfit
. People have difficulty realizing that the solution is building a system in which nobody’s fall can drag others down—for
continuous failures work to preserve the system. Paradoxically, many government interventions and social policies end up hurting the weak and consolidating the established.

Time to debunk a myth.

As an advocate of antifragility I need to warn about the illusion of seeing it when it is not really there. We can mistake the antifragility of the system for that of the individual, when in fact it takes place
at the expense
of the individual (the difference between hormesis and selection).

Nietzsche’s famous expression “what does not kill me makes me stronger” can be easily misinterpreted as meaning Mithridatization or hormesis. It may be one of these two phenomena, very possible, but it could as well mean “what did not kill me
did not
make me stronger, but spared me
because
I am stronger than others; but it killed others and the average population is now stronger because the weak are gone.” In other words, I passed an exit exam. I’ve discussed the problem in earlier writings of the false illusion of causality, with a newspaper article saying that the new mafia members, former Soviet exiles, had been “hardened by a visit to the Gulag” (the Soviet concentration camps). Since the sojourn in the Gulag killed the weakest, one had the illusion of strengthening. Sometimes we see people having survived trials and imagine, given that the surviving population is sturdier than the original one, that these trials are good for them. In other words, the trial can just be a ruthless exam that kills those who fail. All we may be witnessing is that transfer of fragility (rather, antifragility) from the individual to the system that I discussed earlier. Let me present it in a different way. The surviving cohort, clearly, is stronger than the initial one—but not quite the individuals, since the weaker ones died.

Someone paid a price for the system to improve.

This visible tension between individual and collective interests is new in history: in the past it was dealt with by the near irrelevance of individuals. Sacrifice for the sake of the group is behind the notion of heroism: it is good for the tribe, bad for those who perish under the fever of war. This instinct for heroism and the fading of individual interests in favor
of the communal has become aberrant with suicide bombers. These pre-death terrorists get into a mood similar to an ecstatic trance in which their emotions drive them to become indifferent to their own mortality. It is a fallacy that suicide bombers are driven by the promise of a reward of some Islamic paradise with virgins and other entertainment, for, as the anthropologist Scott Atran has pointed out, the first suicide bombers in the Levant were revolutionaries of Greek Orthodox background—my tribe—not Islamists.

There is something like a switch in us that kills the individual in favor of the collective when people engage in communal dances, mass riots, or war. Your mood is now that of the herd. You are part of what Elias Canetti calls the
rhythmic and throbbing crowd
. You can also feel a different variety of crowd experience during your next street riot, when fear of authorities vanishes completely under group fever.

Let us now generalize the point. Looking at the world from a certain distance, I see a total tension between man and nature—a tension in the trade-off of fragilities. We saw how nature wants herself, the aggregate, to survive—not every species—just as, in turn, every single species wants its individuals to be fragile (particularly after reproduction), for evolutionary selection to take place. We saw how such transfer of fragility from individuals to species is necessary for its overall survival: species are potentially antifragile, given that DNA is information, but members of the species are perishable, hence ready to sacrifice and in reality designed to do so for the benefit of the collective.

Antifragility shmantifragility. Some of the ideas about fitness and selection here are not very comfortable to this author, which makes the writing of some sections rather painful—I detest the ruthlessness of selection, the inexorable disloyalty of Mother Nature. I detest the notion of improvement thanks to harm to others. As a humanist, I stand against the antifragility of systems at the expense of individuals, for if you follow the reasoning, this makes us humans individually irrelevant.

The great benefit of the Enlightenment has been to bring the individual to the fore, with his rights, his freedom, his independence, his “pursuit of happiness” (whatever that “happiness” means), and, most of all, his privacy. In spite of its denial of antifragility, the Enlightenment and the political systems that emerged from it freed us (somewhat) from the domination of society, the tribe, and the family that had prevailed throughout history.

The unit in traditional cultures is the collective; and it could be perceived
to be harmed by the behavior of an individual—the honor of the family is sullied when, say, a daughter becomes pregnant, or a member of the family engages in large-scale financial swindles and Ponzi schemes, or, worst, may even teach a college course in the charlatanic subject of financial economics. And these mores persist. Even as recently as the late nineteenth century or early twentieth, it was common in, say, rural France for someone to spend all his savings to erase the debts of a remote cousin (a practice called
passer l’éponge,
literally, to use a sponge to erase the liability from the chalkboard), and to do so in order to preserve the dignity and good name of the extended family. It was perceived as a duty. (I confess having done some of that myself in the twenty-first century!)

Clearly the system needs to be there for the individual to survive. So one needs to be careful in glorifying one interest against others in the presence of interdependence and complexity.
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