View Full Version : Benefitting from Randomness

11-28-2012, 08:00 AM
I thought this book review was interesting. The book may be worth a read.

http://online.wsj.com/article/SB10001424127887323353204578128872051100906.html?m od=djemEditorialPage_h

"we don't put theories into practice. We create theories out of practice." It is a startling insight, which he applies not just to finance but to medicine, science and philosophy.

Discovery is a trial and error process, what the French molecular biologist François Jacob called bricolage. From the textile machinery of the industrial revolution to the discovery of many pharmaceutical drugs, it was tinkering and evolutionary serendipity we have to thank, not design from first principles. Mr. Taleb systematically demolishes what he cheekily calls the "Soviet-Harvard" notion that birds fly because we lecture them how to—that is to say, that theories of how society works are necessary for society to work. Planning is inherently biased toward delay, complication and inflexibility, which is why companies falter when they get big enough to employ planners.

There are things that are anti-fragile, meaning they actually improve when shocked, they feed on volatility. The restaurant sector is such a beast. So is the economy as a whole: It is precisely because of Joseph Schumpeter's "creative destruction" that it innovates, progresses and becomes resilient. The policy implications are clear: Bailouts risk making the economy more fragile.

The body is anti-fragile: Without stress it weakens. To build muscles, you must push them to the point of failure.

As this illustrates, Mr. Taleb doesn't suffer fools, a category in which he includes virtually the entire profession of economics and many other academics. Consider the definition of "touristification," from his glossary: "the attempt to suck randomness out of life. Applies to soccer moms, Washington civil servants, strategic planners, social engineers, 'nudge' manipulators, etc." The opposite, strategy, which he approves, is to embrace "optionality"—like a traveler without an itinerary feeding off randomness by grabbing opportunities as they arise.