Nassim Nicholas Taleb Quote
To see how transfer of antifragility works, consider two scenarios, in which the market does the same thing on average but following different paths. Path 1: market goes up 50 percent, then goes back down to erase all gains. Path 2: market does not move at all. Visibly Path 1, the more volatile, is more profitable to the managers, who can cash in their stock options. So the more jagged the route, the better it is for them. And of course society—here the retirees—has the exact opposite payoff since they finance bankers and chief executives. Retirees get less upside than downside. Society pays for the losses of the bankers, but gets no bonuses from them. If you don’t see this transfer of antifragility as theft, you certainly have a problem. What is worse, this system is called incentive-based and supposed to correspond to capitalism. Supposedly managers’ interests are aligned with those of the shareholders. What incentive? There is upside and no downside, no disincentive at all.
To see how transfer of antifragility works, consider two scenarios, in which the market does the same thing on average but following different paths. Path 1: market goes up 50 percent, then goes back down to erase all gains. Path 2: market does not move at all. Visibly Path 1, the more volatile, is more profitable to the managers, who can cash in their stock options. So the more jagged the route, the better it is for them. And of course society—here the retirees—has the exact opposite payoff since they finance bankers and chief executives. Retirees get less upside than downside. Society pays for the losses of the bankers, but gets no bonuses from them. If you don’t see this transfer of antifragility as theft, you certainly have a problem. What is worse, this system is called incentive-based and supposed to correspond to capitalism. Supposedly managers’ interests are aligned with those of the shareholders. What incentive? There is upside and no downside, no disincentive at all.
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About Nassim Nicholas Taleb
Taleb is the author of the Incerto, a five-volume work on the nature of uncertainty published between 2001 and 2018 (notably, The Black Swan and Antifragile). He has taught at several universities, serving as a Distinguished Professor of Risk Engineering at the New York University Tandon School of Engineering since September 2008. He has also been a practitioner of mathematical finance and is currently an adviser at Universa Investments. The Sunday Times described his 2007 book The Black Swan as one of the 12 most influential books since World War II.
Taleb criticized risk management methods used by the finance industry and warned about financial crises, subsequently profiting from the Black Monday (1987) and the 2008 financial crisis. He advocates what he calls a "black swan robust" society, meaning a society that can withstand difficult-to-predict events. He proposes what he has termed "antifragility" in systems; that is, an ability to benefit and grow from a certain class of random events, errors, and volatility, as well as "convex tinkering" as a method of scientific discovery, by which he means that decentralized experimentation outperforms directed research.