Antifragile: Things That Gain from Disorder (47 page)

The consequences make life simple. But since standard methodologies do not take asymmetries into account, about anyone who studied conventional statistics without getting very deep into the subject (just to theorize in social science or teach students) will get the turkey problem wrong. I have a simple rule, that those who teach at Harvard should be expected to have much less understanding of things than cab drivers or people innocent of canned methods of inference (it is a heuristic, it can be wrong, but it works; it came to my attention as the Harvard Business School used to include Fragilista Robert C. Merton on its staff).

So let us pick on Harvard Business School professors who deserve it quite a bit. When it comes to the first case (the error of ignoring positive asymmetries), one Harvard Business School professor, Gary Pisano,
writing about the potential of biotech, made the elementary inverse-turkey mistake, not realizing that in a business with limited losses and unlimited potential (the exact opposite of banking), what you don’t see can be both significant and hidden from the past. He writes: “Despite the commercial success of several companies and the stunning growth in revenues for the industry as a whole, most biotechnology firms earn no profit.” This may be correct, but the inference from it is wrong, possibly backward, on two counts, and it helps to repeat the logic owing to the gravity of the consequences. First, “most companies” in Extremistan make no profit—the rare event dominates, and a small number of companies generate all the shekels. And whatever point he may have, in the presence of the kind of asymmetry and optionality we see in
Figure 7
, it is inconclusive, so it is better to write about another subject, something less harmful that may interest Harvard students, like how to make a convincing PowerPoint presentation or the difference in managerial cultures between the Japanese and the French. Again, he may be right about the pitiful potential of biotech investments, but not on the basis of the data he showed.

Now why is such thinking by the likes of Professor Pisano dangerous? It is not a matter of whether or not he would inhibit research in biotech. The problem is that such a mistake inhibits everything in economic life that has antifragile properties (more technically, “right-skewed”). And it would fragilize by favoring matters that are “sure bets.”

Remarkably, another Harvard professor, Kenneth Froot, made the exact same mistake, but in the opposite direction, with the negative asymmetries. Looking at reinsurance companies (those that insure catastrophic events), he thought that he found an aberration. They made too much profit given the risks they took, as catastrophes seemed to occur
less often
than what was reflected in the premia. He missed the point that catastrophic events hit them only negatively, and tend to be absent from past data (again, they are rare). Remember the turkey problem. One single episode, the asbestos liabilities, bankrupted families of Lloyd underwriters, losing income made over generations. One single episode.

We will return to these two distinct payoffs, with “bounded left” (limited losses, like Thales’ bet) and “bounded right” (limited gains, like insurance or banking). The distinction is crucial, as most payoffs in life fall in either one or the other category.

Let me stop to issue rules based on the chapter so far. (i) Look for optionality; in fact, rank things according to optionality, (ii) preferably with open-ended, not closed-ended, payoffs; (iii) Do not invest in business plans but in people, so look for someone capable of changing six or seven times over his career, or more (an idea that is part of the modus operandi of the venture capitalist Marc Andreessen); one gets immunity from the backfit narratives of the business plan by investing in people. It is simply more robust to do so; (iv) Make sure you are barbelled, whatever that means in your business.

I end the chapter on a sad note: our ingratitude toward many who have helped us get here—letting our ancestors survive.

Our misunderstanding of convex tinkering, antifragility, and how to tame randomness is woven into our institutions—though not consciously and explicitly. There is a category of people in medicine called the empirics, or empirical skeptics, the doers, and that is about it—we do not have many names for them as they have not written a lot of books. Many of their works were destroyed or hidden from cultural consciousness, or have naturally dropped out of the archives, and their memory has been treated very badly by history. Formal thinkers and theorizing theorizers tend to write books; seat-of-the-pants people tend to be practitioners who are often content to get the excitement, make or lose the money, and discourse at the pub. Their experiences are often formalized by academics; indeed, history has been written by those who want you to believe that reasoning has a monopoly or near monopoly on the production of knowledge.

So the final point here is about those called charlatans. Some were, others were less so; some were not; and many were borderline. For a long time official medicine had to compete with crowds of flashy showmen, mountebanks, quacks, sorcerers and sorceresses, and all manner of unlicensed practitioners. Some were itinerant, going from town to town carrying out their curative acts in front of large gatherings. They would perform surgery on occasion while repeating incantations.

This category included doctors who did not subscribe to the dominant Graeco-Arabic school of rational medicine, developed in the Hellenistic
world of Asia Minor and later grown by the Arabic language school. The Romans were an anti-theoretical pragmatic bunch; the Arabs loved everything philosophical and “scientific” and put Aristotle, about whom nobody seemed to have cared much until then, on a pedestal. For instance we know very, very little of the skeptical empirical school of Menodotus of Nicomedia—we know a lot more about Galen, the rationalist. Medicine, for the Arabs, was a scholarly pursuit and founded on the logic of Aristotle and the methods of Galen; they abhorred experience.
⁶
Medical practitioners were the Other.

The regulation of the medical establishment corresponds to worries about the empirics for economic reasons as competition made their incomes drop. So no wonder these were bundled with the thieves, to wit this long title for an Elizabethan treatise:
A short discourse, or, discouery of certaine stratagems, whereby our London-empericks, haue bene obserued strongly to oppugne, and oft times to expugne their poore patients purses.

“Charlatan” was held to be a synonym for
empirick
. The word “empiric” designated someone who relied on experiment and experience to ascertain what was correct. In other words, trial and error and tinkering. That was held to be inferior—professionally, socially, and intellectually. It is still not considered to be very “intelligent.”

But luckily for us, the empirics enjoyed immense popular support and could not be uprooted. You do not see their works, but they left a huge imprint on medicine.

Note the initial peaking of iatrogenics after the academization—and institutionalization—of medicine with the onset of modernity. It has only recently started to reverse. Also, formal academics, seen in the light of history, were not better than those they called charlatans—they just hid their fraud under the weight of more convincing rationalizations. They were just
organized
quacks. My hope is for that to change.

Now, I agree that most nonacademically vetted medical practitioners were scoundrels, mountebanks, quacks, and often even worse than these. But let’s hold off jumping to the wrong conclusions. Formalists, to protect their turf, have always played on the logical fallacy that if quacks are found among nonacademics, nonacademics are all quacks. They keep doing it: the statement
all that is nonrigorous is nonacademic
(assuming
one is a sucker and believes it) does not imply that
all that is nonacademic is nonrigorous
. The fight between the “legitimate” doctors and the Others is quite enlightening, particularly when you note that doctors were silently (and reluctantly) copying some of the remedies and cures developed and promoted by the Others. They had to do so for economic reasons. They benefited from the collective trial and error of the Others. And the process led to cures, now integrated into medicine.

Now, reader, let us take a minute and pay some respect. Consider our ingratitude to those who got us here, got our disrespect, and do not even know that they were heroes.

CHAPTER 16
 

Let us continue with teleology and disorder—in private life and individual education. Then an autobiographical vignette.

As we saw with the fellow making the common but false analogy to blackjack in
Chapter 7
, there are two domains, the ludic, which is set up like a game, with its rules supplied in advance in an explicit way, and the ecological, where we don’t know the rules and cannot isolate variables, as in real life. Seeing the nontransferability of skills from one domain to the other led me to skepticism in general about whatever skills are acquired in a classroom, anything in a non-ecological way, as compared to street fights and real-life situations.

It is not well advertised that there is no evidence that abilities in chess lead to better reasoning off the chessboard—even those who play blind chess games with an entire cohort can’t remember things outside the board better than a regular person. We accept the domain-specificity of games, the fact that they do not really train you for life, that there are severe losses in translation. But we find it hard to apply this lesson to technical skills acquired in schools, that is, to accept the crucial fact that
what is picked up in the classroom
stays
largely in the classroom. Worse even, the classroom can bring some detectable harm, a measure of iatrogenics hardly ever discussed: Laura Martignon showed me results from her doctoral student Birgit Ulmer demonstrating that children’s ability to
count
degrades right after they are taught arithmetic. When you ask children how many intervals there are between fifteen poles, those who don’t know arithmetic figure out that there are fourteen of them. Those who studied arithmetic get confused and often make the mistake that there are fifteen.