I have been wondering a lot about the tradeoff between the standard of living and antifragility. Obviously, you can make yourself more resistant to tail risk to a certain point at little or no cost, but at what point should you stop?
And one of the interesting things about antifragility, when you get into the weeds of it, is that it refers to convex growth *within some range* i.e. benefits from some level of harm/stress, but can be harmed by much higher levels. Notice that the species benefits from natural selection, but is harmed by major environmental shocks; our bones toughen from reasonable loadbearing, but fracture from intense pressure. I bring this up just to note that when an entity (person, business, government, etc) is deciding to be "more antifragile", it doesn't have to mean antifragility to all range of harm (which can be very expensive to attain!); instead, it can mean antifragility to some degree, so that there is at least some room for consideration of cost-benefit analysis.
A good question for sure. I don't have a firm answer, but something that suggests that high expenditures are warranted to clip tail risks is Taleb / Ole Peterson's concept of *ergodicity economics*, which observes that if you retain a fundamental risk of ruin, seeming "growth" & "wellbeing" is arguably illusory. Taleb provides the example of a massively debt-laden economy "growing" at some X% to the delight of policymakers; but when a financial or economic crisis forces a ruinous debt crisis, years of "growth" is wiped away in an instant. If you are "growing" like clockwork, but betting every year that you won't face a shock of some sort, are you really growing? Taleb thinks it may "cost" the economy greatly on a year to year basis if you avoid deficit-financed growth, but it is well warranted.
Of course, this further clarifies that "tail risks" are better thought of as "ruinous" or "existential risks" rather than just "large risks" (which can be absorbed, and thus, need not be guarded against at all cost).
Brilliant. This should be a Ted Talk
🤣🤣
I have been wondering a lot about the tradeoff between the standard of living and antifragility. Obviously, you can make yourself more resistant to tail risk to a certain point at little or no cost, but at what point should you stop?
And one of the interesting things about antifragility, when you get into the weeds of it, is that it refers to convex growth *within some range* i.e. benefits from some level of harm/stress, but can be harmed by much higher levels. Notice that the species benefits from natural selection, but is harmed by major environmental shocks; our bones toughen from reasonable loadbearing, but fracture from intense pressure. I bring this up just to note that when an entity (person, business, government, etc) is deciding to be "more antifragile", it doesn't have to mean antifragility to all range of harm (which can be very expensive to attain!); instead, it can mean antifragility to some degree, so that there is at least some room for consideration of cost-benefit analysis.
A good question for sure. I don't have a firm answer, but something that suggests that high expenditures are warranted to clip tail risks is Taleb / Ole Peterson's concept of *ergodicity economics*, which observes that if you retain a fundamental risk of ruin, seeming "growth" & "wellbeing" is arguably illusory. Taleb provides the example of a massively debt-laden economy "growing" at some X% to the delight of policymakers; but when a financial or economic crisis forces a ruinous debt crisis, years of "growth" is wiped away in an instant. If you are "growing" like clockwork, but betting every year that you won't face a shock of some sort, are you really growing? Taleb thinks it may "cost" the economy greatly on a year to year basis if you avoid deficit-financed growth, but it is well warranted.
Of course, this further clarifies that "tail risks" are better thought of as "ruinous" or "existential risks" rather than just "large risks" (which can be absorbed, and thus, need not be guarded against at all cost).