Nassim Nicholas Taleb, Antifragile

Taleb’s views in 2006 on the fragilities of global financial markets catapulted him into the spotlight when they proved right in the sub-prime crash of 2008; “Black Swans” became a buzzword for the “unknown unknowns” and have been misunderstood to mean de-risking  institutions that are too big to fail. Antifragile, however, makes an even greater contribution to the discussion of ethical accountability for public institutions such as Fannie Mae, Freddie Mac, and – in Switzerland – the UBS.

In Antifragile: Things that Gain from Disorder, NNT takes great pains to show areas of endeavor in human activity that can be defined as fragile (banks, economists), by which he means exposed to harmful downsides without being held responsible for them: Bank bonuses, for example, can generate revenue through acquisitions, but there are no penalties if those acquisitions bust the bank – the government / taxpayer can always bail them out. He then shows how robustness contrasts to this: for example, start-ups are robust in the sense that they succeed or fail on their own without dragging the government / taxpayer into the equation. His third category – the main argument of the book – is antifragility: things that benefit from turbulence. Here he cites the airline industry, which benefits from each crash since steps are taken across the industry to correct whatever caused the problem – one person’s tragedy improves the safety of flying for the rest of us.

While Mr Taleb can be very long-winded, his ideas and scholarship are first-class and always challenging. For the mathematically minded, he also offers mathematical proofs for his statements. Read this for its importance in ethics and asymmetries between risks and benefits: his insights on moral hazard and the agency problem (i.e. spending other people’s money and experts airing their views with no accountability) are the true gems of this book. His next, Skin in the Game, will follow up this point; excerpts can be found here.