Antifragile: Things That Gain from Disorder (72 page)

We mentioned earlier how the political philosopher Raymond Aron sounded uninteresting in spite of his predictive abilities, while those who were wrong about Stalinism survived beautifully. Aron was about as
colorless as they come: in spite of his prophetic insights he looked, wrote, and lived like a tax accountant while his enemy, say, Jean-Paul Sartre, who led a flamboyant lifestyle, got just about everything wrong and even put up with the occupying Germans in an extremely cowardly manner. Sartre the coward looked radiant, impressive, and, alas, his books survived (please stop calling him a Voltaire; he was no Voltaire).

I got nauseous in Davos making eye contact with the fragilista journalist Thomas Friedman who, thanks to his influential newspaper op-eds, helped cause the Iraq war. He paid no price for the mistake. The real reason for my malaise was perhaps not just that I saw someone I consider vile and harmful. I just get disturbed when I see wrong and do nothing about it; it is biological. It is guilt, for Baal’s sake, and guilt is what I do not have to put up with. There is another central element of ancient Mediterranean ethics:
Factum tacendo, crimen facias acrius:
For Publilius Syrus, he who does not stop a crime is an accomplice. (I’ve stated my own version of this in the prologue, which needs to be reiterated: if you see fraud and don’t say fraud, you are a fraud.)

Thomas Friedman was a bit responsible for the Iraq invasion of 2003, and not only paid no penalty for it but continues to write for the op-ed page of
The New York Times,
confusing innocent people. He got—and kept—the upside, others get the downside. A writer with arguments can harm more people than any serial criminal. I am singling him out here because, at the core, the problem is his promotion of the misunderstanding of iatrogenics in complex systems. He promoted the “earth is flat” idea of globalization without realizing that globalization brings fragilities, causes more extreme events as a side effect, and requires a great deal of redundancies to operate properly. And the very same error holds with the Iraq invasion: in such a complex system, the predictability of the consequences is very low, so invading was epistemologically irresponsible.

Natural and ancestral systems work by penalties: no perpetual free option given to anyone. So does society in many things with visible effects. If someone drives a school bus blindfolded, and has an accident, he either exits the gene pool the old-fashioned way, or, if for some reason he is not harmed by the accident, he will incur enough penalties to be prevented from driving other people ever again. The problem is that the journalist Thomas Friedman is still driving the bus. There is no penalty for opinion makers who harm society. And this is a very bad practice.
The Obama administration was after the crisis of 2008 populated with people who drove the bus blindfolded. The iatrogenists got promoted.

Words are dangerous: postdictors, who explain things after the fact—because they are in the business of talking—always look smarter than predictors.

Because of the retrospective distortion, people who of course did not see an event coming will remember some thought to the effect that they did, and will manage to convince themselves that they predicted it, before proceeding to convince others. There will be after every event many more postdictors than true predictors, people who had an idea in the shower without taking it to its logical conclusion, and, given that many people take a lot of showers, say, nearly twice a day (if you include the gym or the episode with the mistress), they will have a large repertoire to draw from. They will not remember the numerous bath-generated ideas they had in the past that were either noise, or that contradicted the observed present—but as humans crave self-consistency, they will retain those elements of what they thought in the past that cohere with their perception of the present.

So opinion makers who were so proudly and professionally providing idle babble will eventually appear to win an argument, since they are the ones writing, and suckers who got in trouble from reading them will again look to them for future guidance, and will again get in trouble.

The past is fluid, marred with selection biases and constantly revised memories. It is a central property of suckers that they will never know they were the suckers because that’s how our minds work. (Even so, one is struck with the following fact: the fragilista crisis that started in 2007–2008 had many, many fewer
near-predictors
than random.)

Since they have the option, the fragilistas are personally antifragile: volatility tends to benefit them: the more volatility, the higher the illusion of intelligence.

But evidence of whether one has been a sucker or a nonsucker is easy to ferret out by looking at actual records, actions. Actions are symmetric, do not allow cherry-picking, remove the free option. When you look at the actual history of someone’s activities, instead of what thoughts he will deliver after the facts, things become crystal clear. The option is gone. Reality removes the uncertainty, the imprecision, the vagueness, the self-serving mental biases that make us appear more intelligent. Mistakes are costly, no longer free, but being right brings actual rewards. Of course, there are other checks one can do to assess the b***t component of life: investigate people’s decisions as expressed through their own investments. You would discover that many people who claim to have foreseen the collapse of the financial system had financial companies in their portfolios. Indeed, there was no need to “profit” from events like Tony and Nero to show nonsuckerness: just avoiding being hurt by them would have been sufficient.

You cannot sit and moan about the world. You need to come out on top. So Tony was right to insist that Nero take a ritual look at the physical embodiment of the spoils, like a bank account statement—as we said, it had nothing to do with financial value, nor purchasing power, just symbolic value. We saw in
Chapter 9
how Julius Caesar needed to incur the cost of having Vercingetorix brought to Rome and paraded. An intangible victory has no value.

Verba volent,
words fly. Never have people who talk and don’t do been more visible, and played a larger role, than in modern times. This is the product of modernism and division of tasks.

Recall that I said that America’s strength was risk taking and harboring risk takers (the right kind, the Thalesian king of high-failure, long-optionality type). Sorry, but we have been moving away from this model.

There is something more severe than the problem with Thomas Friedman, which can be generalized to represent someone causing action while being completely unaccountable for his words.

The phenomenon I will call the Stiglitz syndrome, after an academic economist of the so-called “intelligent” variety called Joseph Stiglitz, is as follows.

Remember the fragility detection in
Chapter 19
and my obsession with Fannie Mae. Luckily, I had some skin in the game for my opinions, be it through exposure to a smear campaign. And, in 2008, no surprise, Fannie Mae went bust, I repeat, costing the U.S. taxpayer hundreds of billions (and counting)—generally, the financial system, with similar risks, exploded. The entire banking system had similar exposures.

But around the same period, Joseph Stiglitz, with two colleagues, the Orszag brothers (Peter and Jonathan), looked at the very same Fannie Mae. They assessed, in a report, that “on the basis of historical experience, the risk to the government from a potential default on GSE debt is effectively zero.”
¹
Supposedly, they ran simulations—but didn’t see the obvious. They also said that the probability of a default was found to be “so small that it is difficult to detect.” It is statements like these and, to me, only statements like these (intellectual hubris and the illusion of understanding of rare events) that caused the buildup of these exposures to rare events in the economy. This is the Black Swan problem that I was fighting. This is Fukushima.

Now the culmination is that Stiglitz writes in 2010 in his
I-told-you-so
book that he claims to have “predicted” the crisis that started in 2007–2008.

Look at this aberrant case of antifragility provided to Stiglitz and his colleagues by society. It turns out that Stiglitz was not just a nonpredictor (by my standards) but was also part of the problem that caused the events, these accumulations of exposures to small probabilities. But he did not notice it! An academic is not designed to remember his opinions because he doesn’t have anything at risk from them.

At the core, people are dangerous when they have that strange skill that allows their papers to be published in journals but decreases their understanding of risk. So the very same economist who caused the problem then postdicted the crisis, and then became a theorist on what happened. No wonder we will have larger crises.

The central point: had Stiglitz been a businessman with his own money on the line, he would have blown up, terminated. Or had he been in nature, his genes would have been made extinct—so people with such
misunderstanding of probability would eventually disappear from our DNA. What I found nauseating was the government hiring one of his coauthors.
²

I am reluctantly calling the syndrome by Stiglitz’s name because I find him the smartest of economists, one with the most developed intellect for things
on paper
—except that he has no clue about the fragility of systems. And Stiglitz symbolizes harmful misunderstanding of small probabilities by the economics establishment. It is a severe disease, one that explains why economists will blow us up again.

The Stiglitz syndrome corresponds to a form of cherry-picking, the nastiest variety because the perpetrator is not aware of what he is doing. It is a situation in which someone doesn’t just fail to detect a hazard but contributes to its cause while ending up convincing himself—and sometimes others—of the opposite, namely, that he predicted it and warned against it. It corresponds to a combination of remarkable analytical skills, blindness to fragility, selective memory, and absence of skin in the game.

There are other lessons here, related to the absence of penalty. This is an illustration of the academics-who-write-papers-and-talk syndrome in its greatest severity (unless, as we will see, they have their soul in it). So many academics propose something in one paper, then the opposite in another paper, without penalty to themselves from having been wrong in the first paper since there is a need only for consistency
within
a single paper, not
across
one’s career. This would be fine, as someone may evolve and contradict earlier beliefs, but then the earlier “result” should be withdrawn from circulation and superseded with a new one—with books, the new edition supersedes the preceding one. This absence of penalty makes them antifragile at the expense of the society that accepts the “rigor” of their results. Further, I am not doubting Stiglitz’s sincerity, or some weak form of sincerity: I believe he genuinely thinks he predicted the financial crisis, so let me rephrase the problem: the problem
with people who do not incur harm is that they can cherry-pick from statements they’ve made in the past, many of them contradictory, and end up convincing themselves of their intellectual lucidity on the way to the World Economic Forum at Davos.

There is the iatrogenics of the medical charlatan and snake oil salesperson causing harm, but he sort of knows it and lies low after he is caught. And there is a far more vicious form of iatrogenics by experts who use their more acceptable status to claim later that they warned of harm. As these did not know they were causing iatrogenics, they cure iatrogenics with iatrogenics. Then things explode.

Finally, the cure to many ethical problems maps to the exact cure for the Stiglitz effect, which I state now.

We now know that many innocent retirees have been harmed by the incompetence of the rating agencies—it was a bit more than incompetence. Many subprime loans were toxic waste dressed as “AAA,” meaning near-government grade in safety. People were innocently led into putting their savings into them—and, further, regulators were forcing portfolio managers to use the assessment of the rating agencies. But rating agencies are protected: they present themselves as press—without the noble mission of the press to expose frauds. And they benefit from the protection of free speech—the “First Amendment” so ingrained in American habits. My humble proposal: one should say whatever he wants, but one’s portfolio needs to line up with it. And, of course, regulators should not be fragilistas by giving their stamp to predictive approaches—hence junk science.

The psychologist Gerd Gigerenzer has a simple heuristic. Never ask the doctor what
you
should do. Ask him what
he
would do if he were in your place. You would be surprised at the difference.

Recall that Fat Tony was in favor of just “making a buck” as opposed to being “proven right.” The point has a statistical dimension. Let us return to the distinction between Thalesian and Aristotelian for a minute
and look at evolution from the following point of view. The frequency, i.e., how
often
someone is right is largely irrelevant in the real world, but alas, one needs to be a practitioner, not a talker, to figure it out. On paper, the frequency of being right matters, but only on paper—typically, fragile payoffs have little (sometimes no) upside, and antifragile payoffs have little downside. This means that one makes pennies to lose dollars in the fragile case; makes dollars to lose pennies in the antifragile one. So the antifragile can lose for a long time with impunity, so long as he happens to be right once; for the fragile, a single loss can be terminal.