Monthly Archives: March 2013

In Nassim’s recent Ask Me Anything (AMA) on Reddit he was asked about Bitcoin. His response:

Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative.

But I am not familiar with the specific product to assert whether it is the best potential setup.
And we need a long time to establish confidence. I only talk from skin-in-the-game.
If I had money in bitcoin, I would have reported it. But I don’t yet.
I am waiting to understand it better, not with my brain, but with my experience…

http://www.reddit.com/r/IAmA/comments/1aoi0s/iam_nassim_taleb_author_of_antifragile_ama/c8zb3d8/

reddit-logoNassim has just completed a AMA (Ask Me Anything) on Reddit.com

I am interested in decision making under opacity (when we don’t know what’s going on) without being harmed by mistakes, disorder, and volatility, and be potentially helped by them. Antifragility at the gobal level is achieved through the skin in the game rule: people should be harmed by their mistakes if these harm others. At the personal (local) level… let’s discuss. Home Page (Verified on twitter @nntaleb)

http://www.reddit.com/r/IAmA/comments/1aoi0s/iam_nassim_taleb_author_of_antifragile_ama/?sort=confidence

Nassim Taleb’s response to Michael Shermer’s review of Antifragile in the science journal Nature:

In his review of my book Antifragile, Michael Shermer mischaracterizes the concept of ‘antifragility’ (Nature491, 523; 2012).

‘Fragility’ can be defined as an accelerating sensitivity to a harmful stressor: this response plots as a concave curve and mathematically culminates in more harm than benefit from random events. ‘Antifragility’ is the opposite, producing a convex response that leads to more benefit than harm.

We do not need to know the history and statistics of an item to measure its fragility or antifragility, or to be able to predict rare and random (‘black swan’) events. All we need is to be able to assess whether the item is accelerating towards harm or benefit. The relation of fragility, convexity and sensitivity to disorder is thus mathematical (N.N. Taleb and R. Douady Quant. Finance, in the press) and not derived from empirical data,
as Shermer implies.

Shermer’s suggestion that I should offer “a checklist of things companies or countries can do to prepare for black-swan events” overlooks 50 or so such heuristics based on the identification of convex responses.

Nassim N. Taleb Polytechnic
Institute of New York University,
New York, USA.

PDF Link: http://www.fooledbyrandomness.com/nature-definition.pdf
Link on Nature.com: http://www.nature.com/nature/journal/v494/n7438/full/494430e.html
Michael Shermer’s Review: http://www.nature.com/nature/journal/v491/n7425/full/491523a.html

Nassim Nicholas Taleb wrote a book called ‘The Black Swan’ which was about randomness and the inevitability of improbable, unpredictable but hugely disruptive events like the banking crash of 2008. Taleb, a derivatives trader, made a great deal of money out of that and other crashes by prudently investing on the assumption that something would go wrong even though nobody knew what that was. He talks about his follow-up book called ‘Anti-fragile: How to live in a world we don’t understand’

(Taleb)
“Once you define fragility as one who does not like volatility and variability, and for statistical reasons you can, then the exact opposite is something that loves volatility, gains from disorder, variability, stresses and similar phenomena. This category of object doesn’t have a name, it is not resilient, it is not robust, it is something beyond. A lot of things require disorder and variability to function [Beautiful]. And of course we are harming by depriving them of disorder and variability”.

[Systems that appear to be robust, like the banking system, are in fact fragile?]

“Exactly. There are systems where the errors are small and systems where the errors are large. In a transport system, an accident lowers the probability of another accident. We never let an error go to waste. On the other hand the banking system, the failure of a bank makes the next bank failure more likely. It is not a healthy system”.

[In a world of big top-down organisations it is very difficult to organize?]

“It is actually simple. You can come up with single rules. The big thing for me is to transfer fragility from the individual to the system. Skin in the game. You get harmed by your mistake. A bureaucrat in Whitehall is not harmed, but if you live in a village you feel you’ve made a mistake. You have this kind of shame checking you. Decentralisation is a must. Mathematically I show how size compounds mistakes.” [Amazing]

From Nassim Taleb’s Facebook Page…

Friends, the new project: a linear TEXTBOOK on risk and (anti)fragility. I am putting all the relevant technical papers in linear textbook form. To bust current econometrics and similar frauds, and suggest replacement I need to put it in a complete technical textbook-style format targeted at the new generation of students in statistics (econometrics), risk, and social science.

The document will be freely available electronically. I think it will come out at the same time as the U.K. AF paperback in June.
Will post chapters here.

http://www.fooledbyrandomness.com/textbook.pdf