Internet of Things - Technology focus

"Five rules that can help us to establish antifragility as a principle of our socioeconomic life."

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Antifragility…is a crucial property of life in general…in the evolution of all things, from cuisine, urbanization and legal systems to our own existence as a species on this planet.

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Rule 1: Think of the economy as being more like a cat than a washing machine.

…Natural or organic systems are antifragile: They need some dose of disorder in order to develop. Deprive your bones of stress and they become brittle. This denial of the antifragility of living or complex systems is the costliest mistake that we have made in modern times. …problems hide in the absence of stressors, and the resulting cumulative harm can take on tragic proportions.

   

…The state should be there for emergency-room surgery.   …In social policy, when we provide a safety net, it should be designed to help people take more entrepreneurial risks, not to turn them into dependents. This doesn't mean that we should be callous to the underprivileged. In the long run, bailing out people is less harmful to the system than bailing out firms…

   

Rule 2: Favor businesses that benefit from their own mistakes, not those whose mistakes percolate into the system.

Some businesses and political systems respond to stress better than others. The airline industry is set up in such a way as to make travel safer after every plane crash. A tragedy leads to the thorough examination and elimination of the cause of the problem. The same thing happens in the restaurant industry, where the quality of your next meal depends on the failure rate in the business—what kills some makes others stronger. Without the high failure rate in the restaurant business, you would be eating Soviet-style cafeteria food for your next meal out.

    

Rule 3: Small is beautiful, but it is also efficient.

…Great size in itself, when it exceeds a certain threshold, produces fragility and can eradicate all the gains from economies of scale.  ...So we need to distribute decisions and projects across as many units as possible, which reinforces the system by spreading errors across a wider range of sources. In fact, I have argued that government decentralization would help to lower public deficits. 

     

Rule 4: Trial and error beats academic knowledge.

Tinkering by trial and error has traditionally played a larger role than directed science in Western invention and innovation. Indeed, advances in theoretical science have most often emerged from technological development, which is closely tied to entrepreneurship. Just think of the number of famous college dropouts in the computer industry.

    

…There is a crucial requirement to achieve antifragility: The potential cost of errors needs to remain small; the potential gain should be large. It is the asymmetry between upside and downside that allows antifragile tinkering to benefit from disorder and uncertainty.

    

Rule 5: Decision makers must have skin in the game.

…The Romans forced engineers to sleep under a bridge once it was completed. …This rule would have saved us from the banking crisis, when bankers who loaded their balance sheets with exposures to small probability events collected bonuses during the quiet years and then transferred the harm to the taxpayer, keeping their own compensation.

   

Antifragility…is a crucial property of life in general, not just in economic life but in the evolution of all things, from cuisine, urbanization and legal systems to our own existence as a species on this planet.

   

Modernity has been obsessed with comfort and cosmetic stability, but by making ourselves too comfortable and eliminating all volatility from our lives, we do to our bodies and souls what Mr. Greenspan did to the U.S. economy: We make them fragile. We must instead learn to gain from disorder.

    

—Mr. Taleb, a former derivatives trader, is a professor of risk engineering at New York University's Polytechnic Institute. He is the author of "Antifragile: Things That Gain From Disorder" (Random House, 2012), from which this is adapted.

 

Via Deb Nystrom, REVELN