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Taleb's Dilemma: The Orchid and the Weed

March 9th, 2014, 2:21 pm

Today Nick posted the following in a different forum:"ON THE BENEFITS OF FRAGILITYNeckties are fragile and delicate; they force people into a tame social behavior; they get damaged in fights and when one rolls in the mud."That prompts my gentle response below:"The title of this post of Nassim's is "On the benefits of FRAGILITY"Is it possible this is NOT tongue-in-cheek?Let's assume that Nassim is trying to make the discussion more subtle by asking if there are ANY benefits to being fragile.Perhaps there are. Perhaps there is a bit of nuance here.I adore Nick's work Antifragility. It has helped both me and my marriage immeasurably. It will benefit humanity. It is profound and elegant.But I pose what I call "Taleb's Dilemma".I call Taleb's Dilemma "The Orchid and the Weed".Weeds are antifragile. They grow anywhere and thrive in areas of maximum natural disturbance; cracks in the sidewalk, construction sites, tarnished ecosystems that were once pristine, etc.Contrast that with the orchid. Delicate. Beautiful. Romantic and erotic. And often so fragile. Some species of orchids die when touched by brutish human hands.My uninformed conception of Nassim is that he prefers orchids to weeds. Hence "Taleb's Dilemma".How to extract ourselves from this dilemma?One line of inquiry may well be a blind alley, but I nonetheless ponder it incessantly as of late.Nick refers to antifragility as being gamma positive. I get that. And his concepts of optionality are both liberating and profound.But being long options also means exposing yourself to non-linear theta risk. Your option decays at a non-linear rate, known as its theta, which is a function of the time remaining till expiration. The closer you are in time to the expiration of your option, the steeper that nonlinear slope.So being long optionality may pose nonlinear risks that are non-trivial caused by our theta exposure.Is this related to Taleb's Dilemma?I'm not sure. But I know that, despite adoring, treasuring and savoring every word of his masterpiece Antifragility, I tend to prefer the orchid to the weed."
Last edited by mdubuque on March 8th, 2014, 11:00 pm, edited 1 time in total.
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Taleb's Dilemma: The Orchid and the Weed

March 11th, 2014, 9:14 am

Orchids clearly aren't fragile in their natural environments. At least not so fragile that it impedes their survival.

PW by JB has been "Serving the Quantitative Finance Community" since 2001. Continued...

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