Transcription
Anything that gains from a little bit of variation is antifragile. So religions understand that very well. They impose fasts whether Ramadan or I'm Greek Orthodox, so we have a lot of uh fast where you can't have protein for about 200 days a year or something like that, 170 days a year.
So, you have uh it forces you have to force variation. Uh break your routine. Uh have uh intense periods of uh workout followed by intense long periods of rest. Uh pretty much like our ancestors, we're made for an environment that has variability. So if you don't have variability in food intake, you develop diabetes.
And now a lot of people have discovered that you need thermal variation. Like in other words, you can't stay spend your whole life at 68°. You need to episodes of cold and episodes of heat. Um, you need starvation, you need thirst. And and think about it even from an existential standpoint. No water tastes better than nothing. There's no liquid in the world that money can buy that's better than a glass of water after spending some time in the Sahara desert. You see? So when you you're you're you're parched.
So the the variations in your life, don't fear them. And in fact, they make you stronger and and more stable in the long run. That's what people don't say. Apply to economic life. Avoid bailouts. It applies to your own life. Uh don't shoot for mega comfort.
And and and and I'm discovering more and more things particularly now that people have been writing to me a lot of scientists there's something mathematically called Jensen's inequality which is when a system gains more from having 50% of a dose one day and 150% the other day than 100% of the dose each day it's called uh convex uh uh exposure it's called and I call it justice inequality and people are are giving me uh examples in in so many fields that that now if I had to uh put a second edition of the book it'd be 200 pages of these you know uh things that I've discovered after where where for example if you look at a wall uh you look at modern architecture it's a smooth wall it doesn't have a lot of variation it's not as comforting for your brain as when you look at the lush uh uh you know uh forest have a lot more information more variation for the eye and somehow it's more comfortable when you walk on a smooth surface it hurts you if you walk on a surface of variation it spreads uh you know it spreads the the the stress stressors and and it works better.
So, so have more stressors of small stressors, have more episodes of uh hunger, have more episodes of fast. Um, and there's a lot of things that in a book about how to control your downside risk. What you need to do is control the extreme risks. I'm saying that for yourself have episode hunger. I'm not saying that you should impose hunger on others. And I from the beginning explained to clip the extremes by giving people a safety net. Worry about the very ill, the very and and in the book I explain how we should the problem of overintervening we have by governments that they don't intervene enough where it's needed. We have a lot of uh elective surgeries, a lot of elective medicine, not enough emergency room and we have we don't protect the very weak unless you have a structure like Switzerland which was the most successful place in the world. bottom up decision- making. Uh uh errors are decentralized. Okay, you have the conon the budget is at a conon level. What's what's left over goes up to the federal. Uh we need this bottom up system in government.
So how can we achieve it? I mean that was initially how the United States you know of this country was built. You you you need to start uh uh by decentralizing as much as possible. And of course we spoke about skin in a game. People at the local level will have more skin in a game. You cannot and you know you can't ask people to give up uh their privilege having more upside than downside like bankers uh we tried to ask them not to uh give themselves these large bonuses and in fact they insulted us in 2010 by giving themselves the largest bonuses in banking history. So the idea is to have a structure of a system that uh forces naturally skin in the game. So when you decentralize politicians will have skin in the game. And I have some heristics in daily life. In my book, I don't tell people what to do. I tell people what I do. So therefore, if I make a mistake, I'm harmed. Um, same thing in investments. Uh, I don't tell people where where to invest. I I don't tell them what I predict. I tell them what I've done, what I'm doing, what exposure I have. So, and because I find it unethical to predict without being harmed.
My idea is is that uh this is why I was uh I'm sort of have libertarian tendencies. uh you know like everybody believes things bottom up uh but I don't don't like the banks uh to be to operate the way they operate. So I said we should have nationalized the banks or uh have a following rule. If you are deemed uh you to be bailable out by the taxpayer should you fail then automatically you're de facto a civil servant and your employees are all civil servants and you should not pay yourself bonuses. So that would force that rule would force companies to be small enough not to be bailed out that if they fail and and and very small rules like these this is the one of the rules. Another rule to prevent Washington from playing with us and I call it Tony Blair rule is to prevent public office from being an investment policy. See you don't go become a Catholic priest because later on uh it would be good and you get a job at Goldman Sachs. you know, you be you you have to if you go work for the government and at a lower pay than than than other people in the economy uh visibly should be because you have a sense of mission and you should not be allowed to use it as to leverage it as an investment strategy. Uh now a very very drastic rule that would give us better civil servants would be to say okay you're not any any penny you make more than a ci civil servant after you leave civil service for should revert to the taxpayer. It's drastic, but it will clean up.
I don't engage on social media too much except uh when I have a book except for uh one instance in which I only post uh uh parts of uh my writings on on a certain certain forum. But the uh the problem with high frequency information is that in fact it uh is very destructive for a system. Too much information is bad because if you if you depend on social media for your uh source of information you will uh be completely mixed up where you get a lot more sensational the ratio of noise to signal is very high. So uh normally in social setting uh you get uh you have a natural filter. people will talk about something if it's important whereas front of a computer you don't know what's important and and you tend to have these uh contagions of nonsense uh uh flow flowing around. So I have the impression that people understand uh less and less what's going on uh and and I've sort of model uh uh modeled it in in um recently. Uh the more your your your data is high frequency the the less likely you are to know what's going on around you. to me information you probably will get uh one serious piece of information per month. You see you you may miss the elephant in the room. This is why people have are missing the elephant in the room. There's something I talk about a lot in the book called less is more in the sense that life is not about adding information. Life is removing information. When I cross the street I follow a very simple heristic. I don't look at the eye color of every person walking around. Otherwise I'd be run over by truck. I look for large objects that are moving. Two pieces of information. So, so the being on on uh on this high frequency mode is definitely confusing for people.
Option traders tend to view the world in two categories. Things that gain from volatility and things that are harmed by volatility. And there's no word in English for things that gain from volatility. And I tried to introduce this. So it took me about 20 years of mulling the concept because you you know it's it's it's not easy to to to try to identify what really gains from disorder and I also needed to have a good definition of fragility. There's a big misunderstanding that started you know to come about after the enlightenment. Um, it's one of the ills of the enlightenment. We got a lot of good things from it. But uh the side effect is that we started looking at the world like a machine. A machine doesn't like volatility. You know, first of all, let me define the fragile as what does not like volatility, doesn't like uh disruption, doesn't like earthquakes, doesn't like things. So you're you're so we made the mistake of of of confusing the engineered with the organic. The organic needs volatility and and take your body, the human body. If you uh you know spend 6 months in bed, uh the human body will be weakened. the the the anything everything organic needs volatility needs stressors and that's how the organic communicates with it environment so the big mistake has been to confuse the organic and the engineered and I call the mistake of uh of uh confusing your cat for a washing machine you see the washing machine doesn't selfheal your your body self-heals up to a point of course and if you deny the organic if you deny uh the organic the needed volatility and stressor or or and variations that are sort of like part of its essence that then you kill it. And and and this is what people fail to understand. And there was no word for that category of object that require uh these objects that that require volatility, stressor, some kind of randomness and even benefit from errors. If you if you spend 6 months in bed, you're not going to have any problem. You're not never going to break a limb. But the minute you go outside, you know, of course you're going to be exposed to germs and you may not survive an encounter with, you know, after 6 months in a sterilized room, you not survive an encounter with, you know, >> with people in the subway, for example.
>> So you have, so the economy, so people think that stabilizing something artificially makes it weaker in the long run. Preventing small forest fires causes the big one to be vastly more exacerbated. It's the same thing with the economy. If you prevent mistakes, you want to smooth like as Mr. Greenspan did, try to smooth a cycle by having absolutely zero uh variation and effectively Mr. Greenspan would have eliminated the seasons if he couldn't, you know, maintain temperature at 68.7°. So, so if you if you do that eventually the the economy is going to be very weak. People don't understand that volatility cleans up the system from the weak material continuously. We've had since Mr. Greenspan is a stronger federal government and more concentration of errors. So over the past years we made two large mistakes. The first mistake concentration uh with Mr. Bush, President Bush, you know, who got us into a war that cost between 40 140 times estimates and then the other one is Greenspan who by by st over overstabilizing the economy made it a lot more fragile. So we made two mistakes. What do these mistakes come from? They come from forget fiscal cliff. come from over centralization of errors. You want your errors to be spread out. So we need decentralization.
And let me explain what an organic system should look like and we can apply to the economy. >> Take the transportation industry. Every every plane crash makes the next plane crash less likely. You see, so the system learns from its mistakes. It's sort of like what doesn't kill me makes makes sorry, what kills me makes others stronger. The system benefits from mistakes. Every mistake. Same with California, with Silicon Valley. The mistakes are recycled to make the system better. So nothing goes in vain. You see, no mistake goes in vain. That's a good system. A bad system is the one we have now where a bank failure make the other bank failure another bank failure more likely. That's a bad system. It doesn't look learn from mistakes and it's a very fragile system. And this comes uh you know from a combination of things. Number one, more and more federal government with with more mistakes concentrated in the hands of few. And the other one is what I call the moral hazard is argument which is no skin in a game on a part of participants.
Let me explain antifragility first. And an an antifragile system or situation that has more upside than downside from random event and and a fragile situation has more downside than upside from random event. So the the hallmark of antifragility is what I call trial and error. you know where you play with something you have uh very little to lose by making a mistake and a lot to gain from you know the discovery. So if you look at the history of technology, you realize that it's entirely driven almost entirely like 99% driven by trial and error. And then later on the thing gets recycled because we're like a narrative and and and and written by by uh uh people called science writers this horrible category of people or uh academics really recycle it. So you try to debunk a few things by doing some uh uh rigorous investigation into claims and I call it lecturing birds how to fly that effectively most things are derived by trial and error later on claimed by academia as being you know coming from theory. So in fact if you look at trial and error they call the intelligence of antifragility or I call it convexity in a way having more upside than downside you realize that you can you can have uh uh so much I mean you it's like the equivalent of having 2,000 IQ points you see most of history all these discoveries come and all you need the rigor of to retain you know discovery if it's better than what we had before we don't even have it and in spite of that it looks like if you look at the history of technology ology it looks like except for pockets here and there to be bottom up tinkering trial and error driven and and trial and error benefits from uncertainty because you're not harmed by an uncertain event and it can be a bonus.
So, so this is and I call it optionality and and you can of course make a policy based on that and and I compare the narrative business plan all of these to getting on a highway with no exits and uh tinkering is it's like getting on a highway but you have so many exits you can exit whenever you want if you discover something new top down thing is isn't based on mistakes and the systems that have worked very well are systems that were able to control and recycle their own mistakes by having small mistakes situation as I explained uh uh with the airline transportation industry every mistake is used as fuel for growth. So you use mistakes volatility randomness as fuel for growth and and and these systems don't like to be controlled top down and anything top down because Soviet Harvard because you saw what the Soviet did control things top down and uh uh uh have a plan and think have this what I call the era of rationalism think that that we humans understand everything that's going on so we could put it all in a plan. uh the the the the organic nature of things uh by by recycling mistakes seems to work a lot better. The problem is that it's obvious from you know if you do a a a rigorous investigation it's all obvious and a lot of people have done it and not not just uh uh uh it's not just in my book but the the problem is that academia wants is like don't never ask a barber if you need a haircut. academia is necessarily going to justify itself to overcharge you for education you know by telling you that you need all these academic uh uh you know uh environments for that but in fact things thrive outside academia the industrial revolution or California look at it they're all high school dropout in California and not high school dropout college dropouts all the big guys we need some a little bit of volatility in things anything that gains from a little bit of variation is antifragile so religions understand that very Well, the imposed fasts whether Ramadan or I'm a Greek Orthodox, so we have a lot of uh fast where you can't have protein for about 200 days a year or something like that, 170 days a year. So, you have uh it forces you have to force variation. Uh break your routine. Uh have uh intense periods of uh workout followed by intense long periods of rest. Uh pretty much like our ancestors, we're made for an environment that has variability. So if you don't have variability in food intake, you develop diabetes. And now a lot of people have discovered that you need thermal variation. Like in other words, you can't stay spend your whole life at 68°. You need to episodes of cold and episodes of heat. Um, you need starvation, you need thirst. And and think about it even from an existential standpoint. No water tastes better than nothing. There's no liquid in the world that money can buy that's better than a glass of water after spending some time in the Sahara desert. You see? So when you you're you're you're parched. So the the the variations in your life, don't fear them. And in fact, they make you stronger and and more stable in the long run. That's what people don't say. Apply to economic life. Avoid bailouts. It applies to your own life. Uh don't shoot for mega comfort.