Practical analysis for investment professionals
06 February 2013

Nassim Taleb and Daniel Kahneman: Black Swan Shows Fragility under Heavy Weight of Anchoring

Posted In: Behavioral Finance

The New York Public Library recently hosted a discussion between two of the current era’s leading thinkers about decision making under uncertainty: Nassim Taleb and Daniel Kahneman. Taleb is famous not only for being a retired options trader, but also for his books, The Black Swan: The Impact of the Highly Improbable, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, and Antifragile: Things That Gain from Disorder. Kahneman was awarded the Nobel Prize in Economics in 2002 for his pioneering work in charting out the many precepts of behavioral finance.

Interestingly, each man was asked to write a biography of seven words or less. Taleb described himself as: “Convexity. Mental probabilistic heuristics approach to uncertainty.” Kahneman apparently pleaded with the moderator to only use five words, which were: “Endlessly amused by people’s minds.” Not surprisingly these two autobiographies are descriptive of the two men’s bodies of work. Much of the discussion at this event, however, was not about making decisions under uncertainty, but a sort of tit for tat, with Kahneman asking probing questions and making pointed observations of Taleb. Little of the Nobel laureate’s work was discussed.

Taleb is well known for his description of black swans — events that seem almost impossible, but that nonetheless happen with regularity. Unfortunately, many in life, including financial professionals, often do not include the possibility for black swans in their assessments of the future and of its uncertainties.

Taleb focused on discussing his latest concept, antifragility, a bit of nomenclature legerdemain meant to describe things in life that gain from increasing disorder. Antifragility rounds out a continuum that he labels: resilience. On one end of the continuum are things Taleb describes as fragile — such as glass. In the middle of the continuum is the concept of robustness, and standing opposite fragile is the concept of antifragile.

To describe this idea, Taleb invoked the second derivative of calculus (i.e., acceleration). He stated that you can measure fragility by the acceleration of harm an object may absorb. An example would be hitting an object with a force, x, then measuring the damage done to the object. Next increase the force to 2x. If the damage done is greater than 2 times the amount of damage produced by the original force x , you can say that there is accelerating fragility.

While the concept may seem confusing, essentially Taleb’s antifragility may be distilled down to the idea that all systems need exercise. That is, systems need to suffer, just a little bit, in order to remain fit and ready for the uncertainties of the world. By contrast, though, most people do not seek a little bit of pain to maintain their sharpness, instead pursuing certainty and constancy — a point raised by Kahneman. In fact, Kahneman aptly stated that his own 40-year research career demonstrated that Taleb’s proposals run counter to human nature, and he expressed skepticism that antifragility concepts will be successfully implemented.

Taleb is well known for a parable he tells of a turkey (presumably in the United States) and of a turkey farmer. From the perspective of the turkey, the farmer is an absolutely wonderful character, providing endless food, adequate shelter, and ample opportunities for socializing with its kind — until the day the farmer slaughters the turkey for the upcoming Thanksgiving holiday. Kahneman criticized this story by pointing out that Taleb places extreme emphasis on black swan events. After all, every turkey dies, but these turkeys actually have a very good life for all of their days. Kahneman also thought that an explanation for Taleb’s intense focus on black swan events was due to one of behavioral economic’s chief findings: anchoring. In other words, Taleb is a man with a hammer for whom most problems look like nails.

Unfortunately, despite many such amusing exchanges, neither gentleman offered much practical advice for how to better make decisions under uncertainty or how investment professionals can apply the discoveries of behavioral finance. I recommend that those interested in a deep dive into behavioral finance consider the forthcoming event, Behavioral Finance: From Theory to Practice. Speakers at the 7–10 April event will include Michael J. Mauboussin and Jason Zweig. Early registration for this carefully crafted and curated event expires 15 February.

[Note: Dr. Gerry Wojnar suggested a correction – since applied – regarding the language used to describe Mr. Taleb’s use of calculus to describe how to measure anti-fragility.]

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

About the Author(s)
Jason Voss, CFA

Jason Voss, CFA, tirelessly focuses on improving the ability of investors to better serve end clients. He is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor and the CEO of Active Investment Management (AIM) Consulting. Voss also sub-contracts for the well known firm, Focus Consulting Group. Previously, he was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund to noteworthy returns. Voss holds a BA in economics and an MBA in finance and accounting from the University of Colorado.

Ethics Statement

My statement of ethics is very simple, really: I treat others as I would like to be treated. In my opinion, all systems of ethics distill to this simple statement. If you believe I have deviated from this standard, I would love to hear from you: [email protected]

11 thoughts on “Nassim Taleb and Daniel Kahneman: Black Swan Shows Fragility under Heavy Weight of Anchoring”

  1. Kent Osband says:

    Thanks Jason for this lucid summary. To me the rational core of Taleb’s confusing terminology is “robustness to turbulence”. And while Kahneman is right that people tend to seek pleasure and avoid turbulence, successful systems do make use of turbulence.

    The best example is evolution. Over 80 years ago, Fisher’s “fundamental theorem of evolution” showed that the fittest population in adjusting to environmental stress has the highest variance. Note the contrast to Darwin’s focus on static fitness, where the best population should win out and create more uniformity not less. There is dynamic tension there, but nowadays evolution embraces both concepts without having a conniption or making Fisher’s ghost fight it out with Darwin’s.

    The most vivid illustration of dynamic tension in evolution is sexual reproduction. Think about it. Mother Nature intentionally makes higher organisms reproduce through coupling instead of cloning in order to increase variation. Moreover, Mother Nature forces the base type which we might call X to couple with a less stable type Y, part of whose X has been intentionally chopped off or rendered defective to induce even more random variation. Given Y’s extra riskiness, Mother doesn’t entrust core childbearing to Ys but keeps it with the more stable X side, and makes Ys flaunt their virtues and vices to woo X mates. Granted, as Kahneman said, creatures (not just people) don’t naturally prefer the extra turbulence, so Mother Nature compensates by making sexual intercourse addictively fun.

  2. Hi Kent,

    Thank you for your thoughtful comments, and also for including some of your own views.

    With smiles,


  3. For readers of the above review:

    Nassim Taleb himself has weighed in about the comments I made above. In the interest of encouraging analyst independence I highly encourage you to examine his rebuttal, the stream of which can be found via his Twitter feed, @nntaleb or my Twitter feed, @TheIntuitInvest.

    Additionally, Taleb says that a video of the event will be available. Please trust in your own experiences and assessments.

    With smiles,


  4. manikkam says:

    super -interaction

  5. Deepak Sahay says:

    Terrible analogy. The turkey has exactly the same viewpoint about dying as humans, i.e, it will die one day. No bets on that. But there is uncertainty for how we will die- and the black swan event would be if turkey farmers so fall in love one year that they refuse to sell come Thanksgiving. Low probability events with potentially high impact are ibecoming more frequent, but paradoxically, have lower than expected impacts. Take Eurozone events of the recent past. Greece, Italy, Cyprus- stocks fell, but no strong currency moves! Explainations of past events, specially personal insights of past events, just does not guide for future, as the players, like footballers, quickly absorb lessons. Dr Taleb tells a good tale,though.

  6. Hello Deepak,

    Thank you for your comments and shared insight.

    With smiles,


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