Taleb and Kahneman: Antifragility vs. common-man attitudes

[VictoriaF]

A friend has alerted me to the discussion between Taleb and Kahneman at the New York Public Library (NYPL) on 5 February 2013.

Some of the most interesting parts of the discussion are where Taleb's Black Swan (TBS) and Antifragility (AF) ideas are contrasted with the general perceptions and attitudes. Daniel Kahneman, a renown psychologist and a winner of the 2002 Nobel Memorial Prize in Economic Sciences, is known for starting the field of Heuristics and Biases, developing the Prospect Theory, demonstrating the impact of framing, exploring experienced and remembered happiness, and explaining distinctions between System-1 and System-2 operation of the human mind. In the discussion, Kahneman evaluates Taleb's ideas through the prism of psychology and highlights the contrasts. Here are some examples.

Tourist vs. Adventurer (or Flâneur)
A tourist is fragile; he suffers when a flight is delayed or a restaurant is closed. An adventurer is antifragile; for her a deviation from a plan is a fodder for a good story. A tourist's memory of a clogged toilet spoils his travel plans for years. An adventurer learns from past mishaps and dares to undertake greater adventures.

Hot, cold and in-between
The evolution has exposed us to numerous stressors to enhance our antifragility. Our bodies have capacity to experience a rather wide range of temperatures without structural damage. But instead of exercising our temperature tolerance, we move between air-conditioned and heated environments so that we could maintain that perfect 69.7 degrees. This is a psychologically natural but physiologically fragilizing behavior.

Optionality vs. Prospect Theory
The essence of Taleb's (past) option trading success was prolonged bleeding of small amounts of money in exchange for getting outsized payoffs during unique events that were positive Black Swans for Taleb and negative Black Swans for virtually everyone else. It worked for Taleb rather well, but it goes against the human brain (human grain). In the Prospect Theory, Kahneman and Tversky discovered that people strongly prefer to make money in small increments and lose money all at once.

Thanksgiving turkey vs. experienced happiness
Kahneman reminded the listeners the story of a Thanksgiving turkey described in The Black Swan. For two years, the turkey was engaged in the inductive reasoning that her owner was her benefactor by lovingly meeting all her (turkey's) needs. On the T-2 day (two days before Thanksgiving), the turkey was slaughtered. The inductions worked against her; the longer she was fed, the more she was trusting the owner--the greater was the owner's resolve to have her for dinner. Here is the rub. From Taleb's point of view, turkey was shortsighted, to say the least. From Kahneman's perspective, the turkey had two years of superb experienced happiness. Taleb emphasizes events, extreme events that is; Kahneman brings us back to the periods between events.

Trying to predict future vs. foregoing predictions
Most people are trying to predict future; many people are engaged in making forecasts for others. Predictions and forecasts are notoriously imprecise, and the deviation from the reality increases tremendously with the passing time and new factors affecting the course. And, of course, no planning can account for the Black Swans. Antifragility frees people from the need to predict. If one is antifragile (health, freedom, money, diversification), one is largely protected from extreme events.


Victoria

[Fallible]

A friend has alerted me to the discussion between Taleb and Kahneman at the New York Public Library (NYPL) on 5 February 2013....

Wow, yet another reason to live in NYC, or at least close to it to attend events like these. Haven't yet listened to it, but had a couple stray thoughts after reading your nice summary. One, the tourist is fragile indeed, but a true adventurer may not even have a plan. From O. Henry: "The true adventurer goes forth aimless and uncalculating to meet and greet unknown fate." When I first read that in the late '60s, I realized I was not quite the adventurer I thought I'd been; I always had a plan, although I was happiest when it went awry and true, even sometimes scary, adventuring began. (Also, to me, an adventurer is not necessarily a flâneur, although I know the latter has many definitions always growing broader.) Two, the turkey story neatly showed a difference between Taleb and Kahneman that I can't quite explain. But with Taleb seeing extremes and Kahneman seeing the in-betweens, the difference seems basic.

[VictoriaF]

Wow, yet another reason to live in NYC, or at least close to it to attend events like these.

Hi Fallible,

Taleb actually recommends living in large cities. When people mingle they catch positive Black Swans.

From O. Henry: "The true adventurer goes forth aimless and uncalculating to meet and greet unknown fate." When I first read that in the late '60s, I realized I was not quite the adventurer I thought I'd been; I always had a plan, although I was happiest when it went awry and true, even sometimes scary, adventuring began.

Would you say that journalism is also an antifragile endeavor, because any news is good news, and experiences of reporting news enhance further experiences of reporting news? Paparazzi probably have the best of it.

Victoria

[livesoft]

I enjoyed listening to the discussion. My opinion of Taleb has not changed and my esteem for Kahneman is even higher.

Taleb recommends a lot of things that sane people would not follow. Is living in NYC one of them?

Taleb has made his millions, dissed academics and particularly economists, and self-funded his "academic" job to do what he pleases. I believe there is someone reading this who would find that an ideal job.

[xzhou]

Thank you VictoriaF for posting such scintillating ideas. This is one of the best reasons I can use to justify my hours browsing the web

[VictoriaF]

Taleb recommends a lot of things that sane people would not follow. Is living in NYC one of them?

Yup. A few major market kills enhance the experience .

Victoria

[LadyGeek]

This thread is now in the Investing - Theory, News & General forum (theory, behavioral finance).

[Calm Man]

Thank you for this wonderful post Victoria. Had I known of this event I might have gone. Unfortunately I think I am a commoner and intrinsically antifragile. However, as I am getting older my fragility is decreasing and I hope to continue in that direction. But I don't like to travel because of plane delays, TSA and other things that upset the status quo.

[livesoft]

I got this from the audio: Antifragility is not resilience or robustness. It is actually benefitting from a bad event (black swan event). If one is fragile, one suffers from a bad event. If one is resilient or robust, then a bad event causes little or no harm. If one is antifragile, then one makes a killing when a black swan event occurs.

[6miths]

Thank you very much for posting this. Very enjoyable.

[VictoriaF]

Had I known of this event I might have gone.

If you are interested, Daniel Kahneman will be giving a lecture at Yale on 20 February.

Victoria

[Fallible]

Wow, yet another reason to live in NYC, or at least close to it to attend events like these.

Hi Fallible,

Taleb actually recommends living in large cities. When people mingle they catch positive Black Swans.

From O. Henry: "The true adventurer goes forth aimless and uncalculating to meet and greet unknown fate." When I first read that in the late '60s, I realized I was not quite the adventurer I thought I'd been; I always had a plan, although I was happiest when it went awry and true, even sometimes scary, adventuring began.

Would you say that journalism is also an antifragile endeavor, because any news is good news, and experiences of reporting news enhance further experiences of reporting news? Paparazzi probably have the best of it.

Victoria

Hi Victoria,

After listening to the discussion, I appreciated both men and their ideas and differing styles more than ever, but wish Kahneman had continued to develop his thoughts when Taleb interrupted. Could we say that Kahneman thinks slowly while Taleb thinks fast? But what did you think? Any new thoughts about either? Surprises?

Re your reply to me on NYC, I remember Taleb's comment on large cities in Black Swan because the key word was "serendipity" and I have encountered it a few times myself (that I'm aware of) and think it's almost magical though not easy to immediately recognize. It ties in beautifully with true adventuring - not with taking deliberate chances, but taking advantage of unexpected opportunities.

Re your question of me on journalism, bear with me but I didn't understand what you meant by it being antifragile because any news is good news (though I can see a journalist being antifragile).

Fallible

[VictoriaF]

Would you say that journalism is also an antifragile endeavor, because any news is good news, and experiences of reporting news enhance further experiences of reporting news? Paparazzi probably have the best of it.

Victoria

Hi Victoria,

After listening to the discussion, I appreciated both men and their ideas and differing styles more than ever, but wish Kahneman had continued to develop his thoughts when Taleb interrupted. Could we say that Kahneman thinks slowly while Taleb thinks fast? But what did you think? Any new thoughts about either? Surprises?

I was impressed with the reverence Kahneman has to Taleb. He said that Nassim has changed how he sees the world by making him realize the true unpredictability of our lives. He added that The Black Swan "is insightful, deeply profound and uniquely original" (at about 47:50 mark on the clock). It changed how Kahneman thinks about uncertainty. Making such an impact on a world's leading psychologist who was contemplating these matters for over fifty years is a huge achievement.

Kahneman has observed that two Taleb's characters, Fat Tony and Nero Tulip, are very different and each carries a bit of Nassim himself. I noted to myself that Nero has Taleb's initials (NT) and even Fat Tony has the "T". This resonates with some research I've seen that people gravitate to other people, places and things that have their initials.

The discussion of trial-and-error was very good, “Trial and error is not trial and error. Trial and error is trial with small errors," said Taleb.

When someone in the audience asked why it is difficult for people to compute true probabilities, Kahneman had an interesting answer. I expected something along the lines of innumeracy. Instead, he said, "to compute probabilities you need to keep several possibilities in your mind at once. It’s difficult for most people. Typically, we have a single story with a theme. People have a sense of propensity, that the system is more likely to do one thing than the other, but it’s quite different from the probabilities where you have to think of two possibilities and weigh their relative chances of happening."

But the most profound statement, from my point of view, came at the end. In response to a question about education and universities, Taleb responded that "historically individual scholars had a huge advantage over the institutional ones." I would like to engage in individual scholarship (in some sense I already do), and Taleb's statement implies that instead of feeling inferior to academic scholars I may have some advantages over them.

Re your question of me on journalism, bear with me but I didn't understand what you meant by it being antifragile because any news is good news (though I can see a journalist being antifragile).

Fallible

I meant that the contents of the news could be positive or negative, but the journalist's experience grows with each report. Gathering news is probably more art than science, and it requires quick thinking including Taleb's trial-and-error.

Victoria

[LawProf]

Taleb has had an enormous influence on me and is the reason I use market timing in my investments (a modified 10 month SMA system). The problem with buy and hold is that it works until it doesn't. I say this as a former buy and hold adherent. The Black Swan terrifies me.

[VictoriaF]

Taleb has had an enormous influence on me and is the reason I use market timing in my investments (a modified 10 month SMA system). The problem with buy and hold is that it works until it doesn't. I say this as a former buy and hold adherent. The Black Swan terrifies me.

What is SMA? According to Taleb, if you are antifragile the impact of Black Swans on you will be dampened.

Victoria

[bobcat2]

The only review of the Taleb-Kahneman discussion by someone who was there that I can find is this article by CFA Jason Voss writing for a publication of the CFA Institute.

Here is a link to the article by Voss.
http://blogs.cfainstitute.org/investor/2013/02/06/nassim-taleb-and-daniel-kahneman-black-swan-shows-fragility-under-heavy-weight-of-anchoring/

BobK

[livesoft]

Thanks for posting link to Voss's review. I took the NY Public Library discussion to be an interview with Taleb about his recent book Antifragile and with Kahneman as the Taleb-selected interviewer, but named the interlocutor by the host. Thus Kahneman's books and works were not really the central subject of the discussion. I guess Voss didn't take it the way I did.

[Ranger]

What is SMA? According to Taleb, if you are antifragile the impact of Black Swans on you will be dampened.

Victoria

Not LawProf, but he meant this
SMA = Simple Moving Average

10 month SMA timing model is explained here.
http://www.mebanefaber.com/timing-model/

In my view, that model can not help in Black Swan event. By the time price falls below 10 month SMA, you have already lost considerable market value. On the other hand, not many can not invest like Taleb also.

[VictoriaF]

The only review of the Taleb-Kahneman discussion by someone who was there that I can find is this article by CFA Jason Voss writing for a publication of the CFA Institute.

Here is a link to the article by Voss.
http://blogs.cfainstitute.org/investor/2013/02/06/nassim-taleb-and-daniel-kahneman-black-swan-shows-fragility-under-heavy-weight-of-anchoring/

BobK

Hi Bob,

Thank you for the reference. Some of Voss's statements are inaccurate. For example, Kahneman did not accuse Taleb of anchoring. Taleb started describing the wheel-of-fortune experiment, and Kahneman has clarified Taleb's description with the name of the bias involved, that is, anchoring.

It is disingenuous to accuse Taleb and Kahneman in not addressing behavioral finance in a public library and propose to remedy it at a conference for mere $3,500.

Victoria

[EvelynTroy]

Coincidence my library reserve for the Kahneman book came up yesterday - been wanting to read it for a long time.

Someone noted: Prof. Kahneman will be speaking at Yale 2/20 - http://news.yale.edu/2013/02/08/daniel-kahneman-author-thinking-fast-and-slow-speak-yale

I sent the contact person a note - she responded promptly - in turn I'll post when I hear more. (how about that 40" of snow!
Thanks for your interest in Daniel Kahneman's lecture. I'm pretty sure the talk will be taped/possibly streamed live, but I'll let you know.
Best,
Dorie
Yup, lots of snow. Our town got 40"

Evelyn

[protagonist]

With the internet, I'm not convinced that you have to live in New York City any more to be cool or "cutting edge". Some friends of mine in this isolated burg of el Yaque, Venezuela (population a few hundred) are, in ways, more "cutting edge" than many of the New Yorkers I know, simply because when they are not windsurfing, eating or sleeping they have the time (and means) to stay informed. New Yorkers have means galore, but not THAT much more than they would if they lived in el Yaque (I didn't get to see Taleb speak with Kahnemann, but I got the gist of it from you all, and could watch the whole thing on Youtube if I so desired). Plus, due to the complexity of their lives, New Yorkers have way, way, way, way less time...even the few idle rich who need not work. I probably found out that Parisian women can no longer be arrested for wearing pants before most Parisians did. I even found out about Taleb. If I was back in the states, I wonder if I would have taken the time to read this thread (and I am retired). I'd be shoveling snow.

And this is not sour grapes talking. I love New York City.

[livesoft]

^ protagonist, your comments reminded me of the story of the Banker and the Fisherman which I would guess many folks reading this have heard, but here it is again: http://www.ratracetrap.com/the-rat-race ... erman.html

[Cut-Throat]

With the internet, I'm not convinced that you have to live in New York City any more to be cool or "cutting edge". Some friends of mine in this isolated burg of el Yaque, Venezuela (population a few hundred) are, in ways, more "cutting edge" than many of the New Yorkers I know, simply because when they are not windsurfing, eating or sleeping they have the time (and means) to stay informed. New Yorkers have means galore, but not THAT much more than they would if they lived in el Yaque (I didn't get to see Taleb speak with Kahnemann, but I got the gist of it from you all, and could watch the whole thing on Youtube if I so desired). Plus, due to the complexity of their lives, New Yorkers have way, way, way, way less time...even the few idol rich who need not work. I probably found out that Parisian women can no longer be arrested for wearing pants before most Parisians did. I even found out about Taleb. If I was back in the states, I wonder if I would have taken the time to read this thread (and I am retired). I'd be shoveling snow.

And this is not sour grapes talking. I love New York City.

Cool !.....How did you select that locale? .....You don't happen to Fly Fish for Bonefish do you?

[protagonist]

^ protagonist, your comments reminded me of the story of the Banker and the Fisherman which I would guess many folks reading this have heard, but here it is again: http://www.ratracetrap.com/the-rat-race ... erman.html

I love that story. I first heard a version when practicing medicine in the Seychelles in 1982.

But truly, when it comes to being informed about whatever you want to learn about or experience, the global change is no more than 3-5 years old. Way back in the primitive Bush era, people in el Yaque really WERE isolated. I would come down here and they would eagerly ask me about movies that came out ten years earlier, for example. Now EVERYBODY with a phone or a laptop is an internet pirate and they pass it all around. It would be hard to find a person at least partially fluent in English who has not watched all of Season 2 of Game of Thrones. Yesterday a friend gave me a copy of a new Quentin Tarrantino movie I had never heard of. Every day I get the New York Times, London Guardian, Al Jazeera, China Daily, Atlantic, Harper's and others delivered on my Kindle, free and legal. Maybe I will watch it tonight after practicing my sax, playing along with Miles and Monk and Coltrane on my iTouch. It's a little like what I might do if I were home, except for the fact that I have more time to actually read some of that stuff, and a three course dinner of steak au poivre or fresh tuna carpaccio will only set me back about five bucks, plus another three for a bottle of Chilean cabernet.

[protagonist]

Cool !.....How did you select that locale? .....You don't happen to Fly Fish for Bonefish do you?

Windsurf. It's a world-class windsurfing destination. But not different than countless others from a cultural standpoint. I wouldn't recommend it particularly to non-windsurfers or kitesurfers at this point, given the political mess. And I also don't mean to distract the thread from the interesting discussion about Taleb and Kahneman. Just trying to address Taleb's (imho elitist) point about living in cities. Back to OP's discussion please....

[Fallible]

Cool !.....How did you select that locale? .....You don't happen to Fly Fish for Bonefish do you?

Windsurf. It's a world-class windsurfing destination. But not different than countless others from a cultural standpoint. I wouldn't recommend it particularly to non-windsurfers or kitesurfers at this point, given the political mess. And I also don't mean to distract the thread from the interesting discussion about Taleb and Kahneman. Just trying to address Taleb's (imho elitist) point about living in cities. Back to OP's discussion please....

Taleb's point about large cities had to do with increasing the odds of serendipity, but I also read it (Swan) that serendipity can be maximized anywhere - it's up to the individual to seize it. Like windsurfing? BTW, if NYC had windsurfing par excellence, wouldn't you go and put up with the downsides (which are everywhere you go?).

[VictoriaF]

The word elitist has a negative connotation when it is applied to the hereditary or financial exclusivity. In contrast, it is a high accomplishment to belong to a scientific, cultural, literary, athletic, or intellectual elite. Manhattan-project scientists, Nobel Prize laureates, Pulitzer and Man Booker Prize winners are members of elites.

Victoria

[livesoft]

In contrast, it is a high accomplishment to belong to a scientific, cultural, literary, athletic, or intellectual elite. Manhattan-project scientists, Nobel Prize laureates, Pulitzer and Man Booker Prize winners are elites.

But only in a very narrow sense. All those folks put their pants on one leg at a time. More importantly, they are just ordinary people even in their own profession.

[market timer]

But truly, when it comes to being informed about whatever you want to learn about or experience, the global change is no more than 3-5 years old. Way back in the primitive Bush era, people in el Yaque really WERE isolated. I would come down here and they would eagerly ask me about movies that came out ten years earlier, for example. Now EVERYBODY with a phone or a laptop is an internet pirate and they pass it all around. It would be hard to find a person at least partially fluent in English who has not watched all of Season 2 of Game of Thrones. Yesterday a friend gave me a copy of a new Quentin Tarrantino movie I had never heard of. Every day I get the New York Times, London Guardian, Al Jazeera, China Daily, Atlantic, Harper's and others delivered on my Kindle, free and legal. Maybe I will watch it tonight after practicing my sax, playing along with Miles and Monk and Coltrane on my iTouch. It's a little like what I might do if I were home, except for the fact that I have more time to actually read some of that stuff, and a three course dinner of steak au poivre or fresh tuna carpaccio will only set me back about five bucks, plus another three for a bottle of Chilean cabernet.

As someone about to relocate from NYC to a developing country, this life sounds ideal. I agree that the internet has made the world much flatter; however, based on rents in Manhattan, there still seems to be no shortage of people who want to live in cultural capitals. It will be an incredible relief not to have this $2400 monthly payment, and to have time to enjoy life.

[Cut-Throat]

Windsurf. It's a world-class windsurfing destination. But not different than countless others from a cultural standpoint. I wouldn't recommend it particularly to non-windsurfers or kitesurfers at this point, given the political mess. And I also don't mean to distract the thread from the interesting discussion about Taleb and Kahneman. Just trying to address Taleb's (imho elitist) point about living in cities. Back to OP's discussion please....

I grew up in Worthington, Minnesota....They held the National Windsurfing Championships there a few years back, because it is so consistently windy there. Ever heard of it? Trust me, you wouldn't want to live there. And right now you definitely would be shoveling snow there.

[protagonist]

BTW, if NYC had windsurfing par excellence, wouldn't you go and put up with the downsides (which are everywhere you go?).

The reason I don't live in NYC (or in other similar way cool world-class cities) is not windsurfing....it's the ability to live well and relatively stress-free, easily and economically. I know New Yorkers who pay more for their parking space than people pay for their mortgage in my nearby (and cool, but not world-class cool) Northampton, MA. That limits their options. And (as we got a glimpse after Hurricane Sandy) I am not so sure that living on a crowded island nearly totally dependent on commerce and city services, and connected to the rest of the world by tunnels and bridges which, if inoperable, makes evacuation impossible, leaves one more resilient to black swan events, serendipity or no serendipity. Many would argue the opposite. But certainly reducing the cost of basic living has to make you more "anti-fragile".

I love New York. With what I save financially by NOT living there, I am able to partake of many of its appealing charms at my leisure in a way that I would not be able to afford if I lived there.

And no, I never heard of Worthington, MN...but that's interesting, Cut.....

[protagonist]

The word elitist has a negative connotation when it is applied to the hereditary or financial exclusivity. In contrast, it is a high accomplishment to belong to a scientific, cultural, literary, athletic, or intellectual elite. Manhattan-project scientists, Nobel Prize laureates, Pulitzer and Man Booker Prize winners are members of elites.

Victoria

Yes, I agree, Victoria. It can have positive or negative connotations, but to say that one is the member of an elite group is different than calling one "elitist" (which I think is usually a pejoritive term). But I re-read the above and I may have been mistaken. There is only reference in your thread to his idea of "serendipity" , which , if I read it right, he believes increases proportionally with the number of people you associate. That may well be true. But making that cool "serendipity" resulting from being surrounded by the intellectual and cultural elite a higher priority than what happens when it all hits the fan due to a black swan event and you have a $5000/month-plus mortgage payment due on your two bedroom Manhattan flat (what my friend is struggling to pay for a pretty modest one with 4 kids on a college prof's salary) seems like a luxury only a multimillionaire like Taleb could afford without sacrificing her "anti-fragility". Thus my "elitist" comment. I should read his actual words before passing unfair judgement. Mea culpa.

[LawProf]

What is SMA? According to Taleb, if you are antifragile the impact of Black Swans on you will be dampened.

Victoria

Not LawProf, but he meant this
SMA = Simple Moving Average

10 month SMA timing model is explained here.
http://www.mebanefaber.com/timing-model/

In my view, that model can not help in Black Swan event. By the time price falls below 10 month SMA, you have already lost considerable market value. On the other hand, not many can not invest like Taleb also.

I use a modified version of 10 month SMA to increase protection against the Black Swan. I check 2x/month instead of once, and if there is any drop of 3% or more between any 2 week checkpoint, I will sell, regardless of the 10 month SMA. I'm willing to give up some higher returns for greater safety (although testing of this system shows it generates a higher return historically, but I don't count on that going forward).

Will this ultimately protect me? I don't know, but it does offer me more protection than buy and hold and regular SMA. Reading Taleb really rocked my world in this regard. So much of the planning we do in regards to investments rests on historical performance and trends. But history repeats itself, until it doesn't, like the Thanksgiving turkey.

Part of my calculus is that I'm going to have plenty of enough money to retire on, unless something Black Swanish happens. Because of that I would like to be more conservative with my money than I am, but there is simply no safe place to park money and generate meaningful return given the current interest rate environment.

[Cut-Throat]

Part of my calculus is that I'm going to have plenty of enough money to retire on, unless something Black Swanish happens. Because of that I would like to be more conservative with my money than I am, but there is simply no safe place to park money and generate meaningful return given the current interest rate environment.

If you have 'Plenty of enough money to retire on', maybe you shouldn't be concerned with a 'meaningful return'. Maybe trying to achieve a zero or -1% real return should be the goal.

Parking your money into a CD that gets 1.5% return would suddenly look like genius, if the stock market dropped by 50%.
I often think of the statement that "More money has been lost chasing yield, than at the point of a gun'.

I am retired, I have 'Won the Game', why should I be influenced by the people that like to 'Compete' for return on their money. I am all about "Not Losing' a Big percentage of my Nest Egg rather than trying to 'shoot for the moon'. BTW - I am in Florida, in a Lanai while I type this, while the entire Northeast is Shoveling out from a Snowstorm. Most of them will tell you I'm stupid for Shooting for a Zero Percent Real Return.

[LawProf]

Part of my calculus is that I'm going to have plenty of enough money to retire on, unless something Black Swanish happens. Because of that I would like to be more conservative with my money than I am, but there is simply no safe place to park money and generate meaningful return given the current interest rate environment.

If you have 'Plenty of enough money to retire on', maybe you shouldn't be concerned with a 'meaningful return'. Maybe trying to achieve a zero or -1% real return should be the goal.

Well, I do not have it yet, but I will have it when I retire if only I earn modest returns like 4-5%, hence my need for some type of meaningful return. Once I get my "number," I will go hyper conservative like yourself, in large part because of Taleb's writings.

[MP173]

I havent listened to the link, nor will I as it is way above my intellegence level, but this thread has been outstanding.

My favorite new quote "history repeats itself...until it doesnt". Ah, beware of the black swans.

A world class city with a number of opportunities to enhance one's antifragility sounds exciting, my midwestern community with low cost of living, while a bit boring, is very stable.

Ed

[Fallible]

BTW, if NYC had windsurfing par excellence, wouldn't you go and put up with the downsides (which are everywhere you go?).

The reason I don't live in NYC (or in other similar way cool world-class cities) is not windsurfing....it's the ability to live well and relatively stress-free, easily and economically. I know New Yorkers who pay more for their parking space than people pay for their mortgage in my nearby (and cool, but not world-class cool) Northampton, MA. That limits their options. And (as we got a glimpse after Hurricane Sandy) I am not so sure that living on a crowded island nearly totally dependent on commerce and city services, and connected to the rest of the world by tunnels and bridges which, if inoperable, makes evacuation impossible, leaves one more resilient to black swan events, serendipity or no serendipity. Many would argue the opposite. But certainly reducing the cost of basic living has to make you more "anti-fragile"....

You have done what's right for you (a type or degree of antifragile?) and as you've nicely shown, you don't need to be in NYC (the so-called "great American experiment in density") to find serendipity. Still, there are many reasons for living there, or so many wouldn't.

[VictoriaF]

But making that cool "serendipity" resulting from being surrounded by the intellectual and cultural elite a higher priority than what happens when it all hits the fan due to a black swan event and you have a $5000/month-plus mortgage payment due on your two bedroom Manhattan flat (what my friend is struggling to pay for a pretty modest one with 4 kids on a college prof's salary) seems like a luxury only a multimillionaire like Taleb could afford without sacrificing her "anti-fragility".

Anecdotes do not prove anything. I know New Yorkers who live much cheaper than your friend, because they have lived in NYC for a long time and either purchased in a low market or got into rent-controlled apartments. Taleb's main point is that intellectually interesting people tend to aggregate around metropolises. They run into one another at organized events but also on the street, in a library, in a park, at a party. Being at a hub makes it easy and a different experience from having to drive to the hub or take a train. A friend once observed that if you live in London, even when you are going to a laundromat you are in London.

I agree with you that living in a major city at the expense of financial fragility is a wrong choice. Antifragility implies having options, many different options to suit various scenarios. While today New York and London are not generally affordable, Berlin and Bratislava are. It is also the case that many interesting people cannot afford New York or London, either. Knowing where they aggregate could provide an optimal solution.

Victoria

[VictoriaF]

Well, I do not have it yet, but I will have it when I retire if only I earn modest returns like 4-5%, hence my need for some type of meaningful return. Once I get my "number," I will go hyper conservative like yourself, in large part because of Taleb's writings.

Your strategy resembles Taleb's barbell, a combination of high- and low-return investments being preferable to medium ones. Except that you stratify your investments in time: high now, low later.

Victoria

[webslinger]

VictoriaF,
Thank you for posting the link to the Taleb and Kahneman conversation at the NY Public Library. I found it quite fascinating as I have not been previously exposed to such ideas and concepts.
I was trying to think of practical (pragmatic) applications or uses of such concepts or perhaps where they may not make sense. Here are some that come to mind.
For me there seemed to be some parallels to antifragility in computer science in the field of machine learning in which algorithms can evolve and adapt by being exposed to external stimuli. Usually these work well when there is a lot of data or stimuli.
For investors, we have been taught to think of risk in terms of "your age in bonds" and broad diversification. If I understood Taleb, would he would suggest his barbell and that one bifurcate their holdings into one bucket containing investments in say CDs and a second into something highly speculative as timber (or whatever the net timber will be)?
Just some initial thoughts.
Webslinger

[VictoriaF]

VictoriaF,
Thank you for posting the link to the Taleb and Kahneman conversation at the NY Public Library. I found it quite fascinating as I have not been previously exposed to such ideas and concepts.
I was trying to think of practical (pragmatic) applications or uses of such concepts or perhaps where they may not make sense. Here are some that come to mind.
For me there seemed to be some parallels to antifragility in computer science in the field of machine learning in which algorithms can evolve and adapt by being exposed to external stimuli. Usually these work well when there is a lot of data or stimuli.
For investors, we have been taught to think of risk in terms of "your age in bonds" and broad diversification. If I understood Taleb, would he would suggest his barbell and that one bifurcate their holdings into one bucket containing investments in say CDs and a second into something highly speculative as timber (or whatever the net timber will be)?
Just some initial thoughts.
Webslinger

If you are interested in Taleb's ideas read his books. I read The Black Swan half dozen times, and each time I discovered something new. Getting exposed to Taleb's and Kahneman's ideas also stimulates one's own thinking in other fields. Taleb has a page on his website where he lists books and papers from various fields that expand on Black Swans.

A barbell of investing is composed of ~90% in ultra-safe investments (such as Treasuries) and ~10% in risky ones associated with positive Black Swans, e.g., venture capital. Taleb mentions this in The Black Swan and in some later interviews.

Victoria

[cinghiale]

Picking up on what Victoria just wrote...

For those who have already read The Black Swan and might want to dip back in, let me suggest the audio version. I have found that encountering an author and his/her work via a different "gate" (in this case, the ear rather than the eye), yields new perspectives and insights. I have read The Black Swan twice and listened once, and the slower, more focused delivery of an audio book allowed me to stop, deliberate, and replay a key thought or idea. Yes, you can re-read those same lines. But the mixture of print and audio seems to be a better way to fight the good fight of actually retaining what we take in.

FWIW

[protagonist]

But making that cool "serendipity" resulting from being surrounded by the intellectual and cultural elite a higher priority than what happens when it all hits the fan due to a black swan event and you have a $5000/month-plus mortgage payment due on your two bedroom Manhattan flat (what my friend is struggling to pay for a pretty modest one with 4 kids on a college prof's salary) seems like a luxury only a multimillionaire like Taleb could afford without sacrificing her "anti-fragility".

Anecdotes do not prove anything. I know New Yorkers who live much cheaper than your friend, because they have lived in NYC for a long time and either purchased in a low market or got into rent-controlled apartments. Taleb's main point is that intellectually interesting people tend to aggregate around metropolises. They run into one another at organized events but also on the street, in a library, in a park, at a party. Being at a hub makes it easy and a different experience from having to drive to the hub or take a train. A friend once observed that if you live in London, even when you are going to a laundromat you are in London.

I agree with you that living in a major city at the expense of financial fragility is a wrong choice. Antifragility implies having options, many different options to suit various scenarios. While today New York and London are not generally affordable, Berlin and Bratislava are. It is also the case that many interesting people cannot afford New York or London, either. Knowing where they aggregate could provide an optimal solution.

Victoria

Yes, I agree with you, Victoria. And with Fallible. There are a lot of good reasons to live in a place like NYC, and it can certainly be done on a budget. My only point is that living there is more financially fragile than living elsewhere, which seems at odds with Taleb's principle of planning for unpredictable black swans, unless you are wealthy. (My friend actually wound up in her financial predicament in NYC because of a black swan event...her husband left her for a younger woman....or perhaps the correct term for such an event is "blonde human event" rather than "black swan event", since, though arguably somewhat unpredictable, it is not so rare).

Perhaps Bratislava is a good balance between serendipity and planning for potential financial black swan events. I don't know Bratislava, but from your posts it seems to make sense.

[VictoriaF]

My only point is that living there is more financially fragile than living elsewhere, which seems at odds with Taleb's principle of planning for unpredictable black swans, unless you are wealthy.

Taleb frequently advocates barbell solutions. While living in an expensive city leaves less resources for other pursuits, it should not impoverish one and make her life fragile. More fragile is not the same as fragile. But if a compromise is impossible, then a particular city should not be considered. The other end of the barbell is that serendipity is not just something nice to have. Chance encounters may bring with them tremendous opportunities.

Victoria

[SGM]

Thanks for the link VictoriaF and for the link to the Voss review BobK. I bought the book today as I was near B&N to look at a new art auction preview.

Sometimes the forum functions similar the happenings about town section of the New Yorker magazine, pointing out interesting events that one might otherwise miss. Taleb and Kahneman have added greatly to my way of looking at the world. Taleb's emphasis on what entities will be affected by black swans and to what degree in order to make his fortune as an options trader has applications to investors. He has put a name on some concepts that have been out there. The statement of Kahneman's that Taleb has fu money reminds me of Bogart's attitude towards his work in the theater and movies early on. Fu money is a great thing to have.

February is not my time to drive to New Haven, although I am tempted. I went to school with a former dean in the economics department at Yale and would love to run into her there. We will probably wait until the spring or summer and then go up to Yale's terrific art museums instead. I am looking forward to someone on the forum pointing out the location of the video or transcript of Kahneman's talk.

I find Taleb and Kahneman's to both be a blast and am looking forward to reading the book, and maybe getting my copy of Kahneman's back from my daughter.

[Ranger]

A barbell of investing is composed of ~90% in ultra-safe investments (such as Treasuries) and ~10% in risky ones associated with positive Black Swans, e.g., venture capital. Taleb mentions this in The Black Swan and in some later interviews.

Victoria

Ideas like these, are the reasons why his advise is generally not investable ideas for most of the investors.

How can general investor invest in Venture Capital? Even his original trade of buying 2-3 standard deviation out of the money puts needs lots of patience. Most of the investors/traders will run out of money before he is profitable.

Equity markets provides wonderful opportunity for most of the investors, as long they are prudent with risk, diversified and have enough time horizon. One can not invest fearing black swan all the time.

[market timer]

Even his original trade of buying 2-3 standard deviation out of the money puts needs lots of patience.

In his latest book, Taleb says he does not recommend buying out-of-the-money options anymore. He says something to the effect that the options market prices in fat tails.

[telemark]

Kahneman reminded the listeners the story of a Thanksgiving turkey described in The Black Swan. For two years, the turkey was engaged in the inductive reasoning that her owner was her benefactor by lovingly meeting all her (turkey's) needs. On the T-2 day (two days before Thanksgiving), the turkey was slaughtered. The inductions worked against her; the longer she was fed, the more she was trusting the owner--the greater was the owner's resolve to have her for dinner. Here is the rub. From Taleb's point of view, turkey was shortsighted, to say the least.

It's not clear to me what a more farsighted turkey would be expected to do in this situation.

[VictoriaF]

Kahneman reminded the listeners the story of a Thanksgiving turkey described in The Black Swan. For two years, the turkey was engaged in the inductive reasoning that her owner was her benefactor by lovingly meeting all her (turkey's) needs. On the T-2 day (two days before Thanksgiving), the turkey was slaughtered. The inductions worked against her; the longer she was fed, the more she was trusting the owner--the greater was the owner's resolve to have her for dinner. Here is the rub. From Taleb's point of view, turkey was shortsighted, to say the least.

It's not clear to me what a more farsighted turkey would be expected to do in this situation.

Learn to sing at parties, develop an eating disorder, prepare a Stalag Luft III-like great escape.

Victoria

[Fallible]

...

Re your question of me on journalism, bear with me but I didn't understand what you meant by it being antifragile because any news is good news (though I can see a journalist being antifragile).

Fallible

I meant that the contents of the news could be positive or negative, but the journalist's experience grows with each report. Gathering news is probably more art than science, and it requires quick thinking including Taleb's trial-and-error.

Victoria

To respond to your good insight here, whether journalism is an art or science or some of both (there is the writing side but also a bit of the scientific method to it) has been debated for a long time and the quick thinking and actions on constant deadline definitely incorporate Taleb's trial and error - those "many small errors."