Nassim Nicholas Taleb - The Dark Side Of Optimization

"Pseudo-Optimization" VS. Redundancies

Hello Friend!

For today’s edition I picked a few insights from different interviews of Nassim Taleb, on the topic of Optimization, and more specifically what he calls “pseudo-optimization”.

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👤 Authors

💡Nugget

Nassim illustrates how an increase in apparent “optimization” can actually make the system (the thing you are trying to optimize) much more risky in the long run...

Nassim Nicholas Taleb:

[A] lot of firms concentrated everything on one supplier, instead of being diversified. Where did that lead to? Better bottom-line [revenue], but—what I call—“pseudo-efficiency”. Because if their supplier is in Wuhan… Guess what. You got a problem!

It doesn’t show in the numbers. It shows after it happens.

Scott Patterson: “It’s the dark side of optimization”.

Exactly, what I call “Pseudo-optimization”…

If you drive a 🏎️ Ferrari at 500 Kmh… You are not gonna get there faster than if you ride a 🚴‍♂️ bicycle. A lot of times [driving the Ferrari] you are not gonna get there!

Video Clip → Tim Ferriss w/ Nassim Taleb and Scott Patterson

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Listening to 🍃 Mother Nature...

Mother Nature does not like debt.

The use of Debt is generally considered “optimal” in an Economy.

The opposite of debt is redundancy. I have two lungs, one spare kidney… It’s the opposite of debt!

So if we let economists manage Mother Nature they would give one lung to everyone—it would be the “optimal”.

Mother Nature does not like the Ricardo concept: of one country specializes on 🍷 wine, [while] another country specializes on 👔 Cloth. Because all these concepts that we have inherited from classical economics don’t make sense when you inject some randomness…

• What if the price of wine changes?

• What if people decide not to drink wine anymore?

Well… it’s not a good idea to specialize in wine.

So, Mother Nature does something that’s the opposite of specialization—we call it “functional redundancy” or “degeneracy”. Is doing things that are not efficient, not optimal… But they help evolution. For example, our lips are used for a lot of purposes. Mother Nature amuse your lips to eat, to talk, to taste, etc.

Mother Nature can show us how to build a robust system. A system that can withstand huge deviations and stay standing.

Video Clip → David Cameron in conversation with Nassim Taleb

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Robustness requires some kind of redundancy—to have inventory…

People think it's silly to have cash in the bank. [But] you are more robust if you have cash in the bank! And actually even antifragile because you can capture opportunities that way.

What most people think…

If you have excess inventory people think it is a cost. If you have excess hummus in your basement—the kind of inventory I have in my basement being Lebanese—people think it's a cost…

In reality…

It's not a cost to have extra stockpile for companies because if there's a crisis, there's a squeeze [when you are forced to take an action at any cost/price] and the other people don't have what you need [then] the price of the commodity shoots up massively and you can sell it.

So having inventory is antifragile.

Video Clip → Nassim Taleb in conversation w/ Daniel Kahneman

💭 Reflections

Personally, to not fall into the trap of “pseudo-optimization” for any activity I’m doing, I always remind myself of 2 things:

1. Make the daily actions in function of the total period of the activity/project. If it’s something that Im planning to do for a few decades, I will make decisions that optimize it over that full period of time, instead of just next quarter or next year.

   For instance, I could probably double the production of YouTube videos which could potentially make me more money, but the videos would have less work of research and animation, which would lead to a lower qualification for Fair Use (exception from the Copyright Act Law)—which ultimately leads to the YouTube Channel having more risk of getting copyright strikes and being taken down.

2. Use Common Sense and Independent Thinking. One of the big negatives of school and college is that it tends to substitute your common sense by theories that only work by neglecting outlier events. But in the real world, we need to consider the outlier events—and actually, most of history (as Nassim points out) is driven by these outliers!

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💥 Stuff I Loved

If powerful assholes don’t find you “arrogant,” it means you are doing something wrong.

- Nassim Taleb

Wishing you an awesome weekend 🌈

Julio xx

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