Chapter 5 The Souk and the Office Building

Two types of Professions

Those self-employed, say, artisans have unstable incomes in short term (monthly, or weekly), but rather consistently annually. How is the annual stability achieved? Either because volatility smooths out over time naturally or because artisans make adjustments using the information embedded in the short-term volatility.  Knowing that their income fluctuates, artisans build mechanisms to cope with it. Moreover, overtime occasional good luck can offset occasional bad luck. Overall,  they are less likely to be hit badly if the economy has a bad turn because they build muscles to handle volatility.

Those working from big corporations seemingly have a stable income until they are laid off when the economy takes a hit because they normally do not anticipate such a drop. They are fragile. However, if they save up like Chinese or Germans, or some FIRE (financially independent retire early) people, then they will become antifragile as well.

This is the central illusion in life: that randomness is risky, it is a bad thing, eliminating randomness is done by eliminating randomness.

One has the illusion of stability but is fragile; the other one has the illusion of variability but is robust and even antifragile.

Nature loves small variations. Error in translating or copying genes lead to mutation which is good for the survival of the species because the mutation contains adaptation to changes in the environment. Human’s attempt to eliminate or reduce small mistakes/variations often makes the large ones more severe. 

Bottom-Up Variations

The same rule applies to political systems. A bottom-up dictator system (Switzerland) is superior to a top-down dictatorship because the aggregate of the political volatility of the municipalities is smaller. As a matter of fact, a cluster of municipalities with charming provincial enmities, their own internal fights, and people out to get one another aggregates to a quiet benign and stable state. In other words, the political system is locally noisy but globally stable.

Small is more beautiful for a number of reasons. The increase in the number of persons in a given community alters the quality of the relationship between parties. The internal dynamics of a social group is not scalable. Additionally, the way people handle local affairs is vastly different from the way they handle large, abstract public affairs. One is lively, visceral; the other abstract and statistics. We are more easily swayed by a crying baby than by thousands of people dying elsewhere that do not make it to our living room through the TV set. The one case is a tragedy, the other a statistics. We have traditionally lived in small units and tribes and managed rather well in small units.

Away From Extremistan

Mediocristan–plenty of variations of natural systems (not a single one of which is extreme) tend to cancel out with each other over time or in aggregate. Extremistan—few variations, but those take place are extreme (rare and unpredictable event). Financial or other economic matters tend to be from Extremistan just as history, which moves by discontinuities and jumps from one state to another.

The Great Turkey Problem

A turkey is fed for a thousand days by a butcher; every day confirms to its staff of analysts that butchers love turkey “with increased statistical confidence” until a few days before Thanksgiving when it is really not a very good idea to be a turkey. The story illustrates the mother of all harmful mistakes: mistaking absence of evidence of harm for evidence of absence–by distinguishing true stability from the manufactured one we can avoid being a turkey.

Twelve Thousand Years

A tightly controlled centralized nation-state does not work well, as evidenced by the ancient Egyptian empire. The Roman or Ottoman dynasties had relied on local elites, allowing the city-states to prosper and conserve some effective commerce autonomy (not military). The autonomy the Ottomans gave to the city-states was commercial, not military. In reality, the Ottomans did these vassals and suzerains a favor by preventing them from involvement in warfare—this took away militaristic temptations and helped them thrive; it allowed locals to focus on commerce rather than war. It protected them from themselves–as argued by David Hume in his <History of England>. He is in favor of small states, as large states get tempted by warfare.

A combination of empire and semi-independent regions provide more stability than the middle: a centralized nation-state with flags and discrete borders. Due to technology backward in ancient time, even centralized states were run like semi-autonomous states because the low speed of transmitting information—local provincial rulers was king for a large number of matters, even though he was not so nominally. As a Chinese saying, “将在外君命有所不受“—-It is legitimate for generals who are based in a hinterland  not to follow the emperor’s command.” (added by me)

Michaelvali has the same argument in <discourse on Livi>, ” it seemed that in the midst of murders and civil wars, our republic became stronger and its citizens infused with virtues…. A little bit of agitation gives resources to souls and what makes the species isn’t peace, but freedom.”

War or No war

 Until the creation of nation-states (of Germany and Italy), there was a fissiparous and amorphous mass of small statelings and city-states in constant tension but shifting alliances.  Because the states are small, cannot handle more than one enemy, tension was always present somewhere but without large consequences, like precipitation in the British Isles; mild rain and no floods are vastly more manageable than the opposite: long droughts followed by intense rainfall.

The contagious creation of nation-states in the late nineteenth century led to what we saw with two world wars and their sequels: more than sixty million (and possibly eighty million) victims. The difference between war and no war becomes huge with marked discontinuity. This is no different from a switch to a “winner take all” effect in the industry, the domination of rare events. A collection of statelings is similar to the restaurant business: volatile, but you never have a generalized restaurant crisis–unlike, say, the banking business or auto business in the U.S. . Why? Because it is composed of a lot of independent and competing small units that do not individually threaten the system and make it jump from one state to another. Randomness is distributed rather than concentrated. They are never too big to fail. Their failure is inconsequential.

Likewise, lt is naive to think that the world is getting safer and safer as proposed by Steve Pinker. The fact is that the world is subjected to fewer and fewer acts of violence, while wars have the potential to be more criminal thanks to the invention of large-scale massacre weapons such as nuclear bombs and missiles.

Chapter 6–Tell Them I Love Some Randomness

Preventing randomness in an antifragile system often backfires.

Trying to control the speed of steam engines by compensating for abrupt variations brought about capricious behavior and crashes–increased randomness.   Maxwell mathematically showed that tightly controlling the speed of engines leads to instability. The finding can be generalized to other domains and help debunk pseudo-stabilization and hidden long-term fragility.

In finance, “noise traders” (market-makers, or speculators) are necessary for markets to function smoothly. Fixing prices, eliminating speculators provide an illusion of stability, with periods of calm punctuated with large jumps. Under price control, players are not used to volatility, the slightest price variation will be attributed to insider information or to the changes in the state of the system, thus will cause panic. Even if control succeeded in seemingly taming variation, the absence of fluctuations in the market causes hidden risks to accumulate with impunity. The longer one goes without a market trauma, the worse the damage when commotion occurs.

Small variations are good. They purge failing businesses, just as small forest fires periodically cleanse the system of the most flammable material so to prevent bigger forest fires. For similar reasons, stability is not good for the economy, firms become very weak during long periods of steady prosperity devoid of setbacks, and hidden vulnerabilities accumulate silently under the surfaces–delaying a crisis is not a good idea. 

 

Hungry Donkeys

There are situations in which adding randomness has been a standard operating method, as the needed fuel for an antifragile system is permanently hungry for it. A donkey equally famished and thirsty caught at an equal distance between food and water would unavoidably die of hunger or thirst. But he can be saved thanks to a random nudge one way or the other.

When some systems are stuck in a dangerous impasse, randomness and only randomness can unlock them and set them free. You can hear that absence of randomness equals death. 

The idea of injecting random noise into a system to improve its functioning has been applied across fields. Stochastic resonance–adding random noise to the background makes you hear the sounds with more accuracy. Adding the ticking noise of the clock makes a quiet environment even quieter (added by me)

Political Annealing:

Consider the method of annealing in metallurgy, a technique used to make the metal stronger and more homogeneous. It involves the heating and controlled cooling of a material, to increase the size of crystals and reduce their defects.  As with Buridan’s donkey, the heat causes the atoms to become unstuck from their initial positions and wander randomly through states of higher energy; the cooling gives them more chances of finding new, better configurations.

Similarly in baking, kneading and folding, and hitting dough hard make bread chewier and fluffier.  In making mochi, the traditional way is to put steamed sticky rice in a huge stone mortar and have a strong man hit the rice repeatedly till the rice becomes chewy and sticky. As a matter of fact, this kind of annealed sticky rice was used in building the Great Wall, an ancient version of organic concrete mix. 

A form of political annealing is to randomize the job of ruling, i.e., naming them by raffles and removing them at random. The ancient had been doing it. The members of the Athenian assemblies were chosen by lot, a method meant to protect the system from degeneracy. A computer simulation by Alessandro Pluchino and his colleagues showed how adding a certain number of randomly selected politicians to the process can improve the functioning of the parliamentary system. 

Me:  The advocacy of diversity in today’s U.S. universities in a way contributes to the annealing of our society as a whole—increasing the randomness of the middle and upper spectrum of the societies. Companies like to hire fresh graduates from colleges rather than near-retirement old people often support their age discrimination by claiming to “add fresh blood into their organization”. Although this practice is against age discrimination law, it has some bases.  This principle may invigorate an organization as the younger generation epitomizes the zeitgeist of the time.   In China, it is a common practice that employers (public or private) put strict age limits on almost all positions including those not requiring the physical strength of the youths 

Me: In the realm of social animals, say, lions, in each territory, the current king must be strong to keep its top position in its domain for there are young lions vying for its position every year. In mafia don, the standard procedure for succession is murder. In other domains such as academics, politicians, to make room for younger generations, in China, there is a sort of unspoken rule that after 45, any middle or upper managers will semi-retire, retaining certain benefits, but giving up authoritative roles.

Me: in modern societies, the terms of the presidency are limited. The maximum number of presidency terms is two in the U.S.. Additionally,  randomizing can be due to natural causes.  The premature death of Chairman Mao’s son ( killed in the Korean war by a bomb) is a blessing for the Chinese although it is a tragedy for the Mao’s family.  This incident changed the history of China. Otherwise, it is highly likely that China would be like North Korea–the highest leader would be occupied by Mao’s descendent, given that China and Korea have common cultural and political characteristics.

Me: The same is true with the political system. With tight social media and news censorship, any irregularity will cause wild rumors and guesses. The detaining of Bo Xilai (a mostly likely successor of Hu Jintao then) caused a tsunami in Chinese politics in 2011. All outlandish rumors died down one year later after Bo and his wife were sentenced to prison.

Me: for daily lives, Motorists need the stressors and tension coming from the feeling of danger to feed their attention and risk controls, rather than some external regulators.  Similarly, those who are drowned often can swim. Over self-confidence and lack of the feeling of danger cost their lives.

 

That Time Bomb Called Stability

Some kind of forced, constrained, non-natural peace-maybe costly in livers. The absence of political instability, even war, lets explosive material and tendencies accumulate under the surface just as the absence of fire lets highly flammable material accumulate.

The problem with artificially suppressed volatility is not just that the system tends to become extremely fragile; it is that, at the same time, it exhibits no visible risks because volatility is information. In fact, these systems tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface. Although the stated intention of political leaders and economic policymakers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite.

Me: For American policymakers, the more they intervene in other countries for the sake of stability, the more they bring instability (except for emergency-room-style cases).  The most recent case is the mess in Afghanistan after the US retreated its army completely after occupying it for twenty years in the name of fighting Taliban after 911 in 2011. conclusion: no stability without volatility.

Chapter 7  Naive intervention

Intervention and Iatrogenics

In medicine: there is a term for native intervention” iatrogenics”-risks of harm by the healer. Example 1, The famously mistreated Austro-Hungarian doctor Ignaz Semmelweis, a whistleblower that doctors can reduce the death rate of women giving birth at clinics by washing their hands before treating patients. Example 2: unnecessary tonsillectomies procedure in 1930s in NYC, example 3: the death of George Washington in December 1799–his doctor helped or at least hastened his death due to the then-standard treatment that included bloodletting. The source of harm lies in the denial of antifragility, and the impression that we humans are so necessary to make things function.

Me: in 2019, patients in Wuhan who stormed to hospitals to get a test for Covi19 infection did more harm to themselves because people who had potentially caught the virus gathered in hospitals. The same applies to patients who were hospitalized. They would have survived outside hospitals. The tragic life of Semmelweis showed that one should not expect laurels for bringing the truth.  

Me: The opposite of Iatrogenice—歪打正着 （someone who ends up helping while trying to cause harm).  In capitalism, the system facilitates the conversion of selfish aims (or to be correct, not necessarily benevolent ones) at the individual level into beneficial results for the collective.

Me: when my brother and  I grew up, my grandparents usually did not make a fuss about a fever my brother and I got occasionally as fever usually went away on its own without the help from a doctor. Nor did they like to feed us with pills. My grandparents were wise in recognizing the human body’s natural healing power and knew when it was a good time to see a doctor; that is, only when fever continued after a night’s sleep.

Me: My father was wise to some extent too. he had colon cancer in 2007. After surgery, doctors suggested four chemotherapy treatments as it is the standard practice.  He refused adamantly after two treatments.  He lives today, healthy and cancer-free.  His insistence saved himself from Iatrogenic–health detrimental and severe side effects.

Me: Overprotection in parenting is tantamount to iatrogenic in medicine. Professors have used “parachuting parents” to address parents who call in to check how their kids are doing in college. Actually overprotective–i.e., iatrogenic in parenting can exist throughout all stages of a child starting from a baby to a toddler to a teenager. I saw once my toddling one-year-old niece was trying to reach a floating balloon about one arm above her head. She resourcefully brought a stool and stood on it, then tiptoed trying to grasp the balloon. her grandma nearby almost stepped in to help, only deterred by the mom, my sister, “she is having fun trying to get the balloon.”

Iatrogenic in High Places

Two areas have been particularly infected with the absence of awareness of iatrogenic: socioeconomic life and the human body, matters in which we have historically combined a low degree of competence with a high rate of intervention and disrespect for spontaneous operation and healing. Support to this claim?  Errors in physics get smaller from theory to there, while social science seems to diverge from theory to theory.

Not doing nothing

The main source of the economic crisis that started in 2007 lies in the iatrogenic attempt by Alan Greenspan to iron out the “boom-bust” cycle regardless of the actual, delayed cost because in a democracy the incentive is to always promise a better outcome than the other guy. The attempts to eliminate the business cycles lead to the mother of all fragilities.

Ingenuous interventionism is pervasive across professions. It is the same with the editorial process. In order to do his/her work, an editor will intervene by imposing “corrections”. 

Non-naive interventionism:

Me: in quality management; there are two types of variations: natural causes of variation and assignable causes of variation. Management should not try to control or temper the 1st type of variation; otherwise, it will make the system worse off–higher variations and thus a higher rate of defective products. Instead, management should only try to eliminate the second type of variation. Like quality control methods, it is important to have a systematic protocol to determine when to intervene and when to leave systems alone. To key is the intellectual ability to distinguish noise from signal to avoid over-intervention.

In praise of procrastination–“making haste prevent arrival”

It is easier to sell “Look what I did for you” than ” look what I avoided for you.” The doctor who refrains from operating on a back instead of giving it a chance to heal itself will not be rewarded and judged as favorable as the doctor who makes the surgery look indispensable, then brings relief to the patient while exposing him to operating risks, while accruing great financial rewards to himself. The corporate manager who prevents a loss will not often be rewarded. 

Procrastination turns out to be a way to let events take their course and give the activists the chance to change their minds before committing to irreversible policies.

“Make hast slowly” waiting for the right time to intervene; or time will make intervention unnecessary as Laozhi’s Wu-wei–no-doing.

Me: sometimes, the naivete is on the patient side on medicine. Unlike my wise parents and grandparents,  many patients equalize doctors’ service with their prescribing “drugs”. this is especially pervasive among Chinese patients.  Many Chinese students who come to the U.S. to study including me initially thought seeing a medical doctor in the U.S. are useless especially for minor ailments such as cold or fever since doctors do nothing, you leave doctors’ office without pills in hand.   This is in drastic contrast to the common practice in China, you will leave doctors’ offices with something, a few cold drops and a few pills.  Now I realized, those drops and pills do not cure cold or fever, merely suppressing or lessening the symptoms, which may reduce the suffering but may actually slow the recovery as they may interfere with the body’s natural defense system.

Neuroticism in industrial proportions

The supply of information to which we have been exposed thanks to modernity is transforming humans into neurotics who reacts to noises not just signals. The personal or intellectual inability to distinguish noise from signal is behind over intervention.

Rich people with access to all medical care die just as easily as regular people because of overmedication and excessive medical care because to prove themselves that they have a modicum of work ethic, doctors have to do something, “doing nothing” does not satisfy.

Me:  The same is true incorporation, in policymaking. An oversized administrative system will do an institution or an organization more harm than good because to show their usefulness, these people will do things that are not unnecessary or harmful.  Even if harmless, they take productive time and resource away.  In business and economic decision-making, reliance on short-term data causes severe side effects because short-term data are mostly noise, few signals. The best solution is to only look at very large changes in data or conditions, never at small ones.

The State Can  help–When incompetent

A larger than expected share of famine over the past century has occurred in economies with central planning due to its inflexibility in the distribution/procurement system, like the famine in China that killed 30 million between 1959 and 1961. 

Often it is the state’s incompetence that can help save us from the grip of statism and modernity–inverse iatrogenic. In the 60s and 70s, private trades are prohibited. many poor rural populations with craftmanship (such as blacksmiths, tinsmiths, coppersmiths, shoe-repairers) in my hometown in China relied on small loopholes in the system to survive—they wandered to distant provinces and countrysides to sell their services stealthily to make some extra money to support families.

Catalyst-as-Cause Confusion

People often confuse catalysts with causes. The riots in Tunisia and Egypt were initially attributed to rising commodity prices not to stifling and unpopular dictatorship. It is the system and its fragility, not events, that must be studied-what physicists call” percolation theory”, in which the properties of the randomness of the terrain are studied, rather than those of a single element of the terrain. Political and economic “tail events” are unpredictable, and their probabilities are not scientifically measurable. No matter how many dollars are spent on research, predicting revolution is not the same as counting cards; humans will never be able to turn politics and economics into the tractable randomness of blackjack.

Chapter 8: Prediction as a child of modernity.

Forecasting can be injurious to risk-takers; it is not neutral. There are ample empirical findings to the effect that providing someone with a random numerical forecast increases his risk-taking, even if the person knows the projection is random.

Social, economic, and cultural life lies in the Black Swan domain, physical life much less so. Further, the idea is to separate domains into those in which these Black Swans are both unpredictable and consequential and those in which are events are of no serious concern, either because they are predictable or because they are inconsequential.

Because of modernity or technology advancement, the share of extremistan is increasing. Winner-take-all effects are worsening: success for authors, a company, an idea, a musician, and an athlete is planetary, or nothing. our sophistication continuously puts us ahead of ourselves, creating things we are less and less capable of understanding.

What makes life simple is that the robust and antifragile don’t have to have as accurate comprehension of the world as the fragile ones, and they do not need forecasting.

Further, after the occurrence of an event, we need to switch the blame from the inability to see an event coming to failure to understand fragility, namely, “why did we build something so fragile to these types of events?” Not seeing a tsunami or an economic event coming is excusable; building something fragile to them is not.