BROWSING through my library during the holidays, I came across a book on
comparative Western and Chinese philosophy that had an old saying: “Every
Chinese person is a Confucian when everything is going well; he is a Taoist when
things are falling apart; and he is a Buddhist as he approaches death.”
Chinese culture is like ancient pyramids of different worldviews built over one
another. The earliest was animism, where one believed different gods; the Book of
Changes taught two sides to every story; Confucianism was about knowledge of self;
Taoism about following the natural Way; Legalism about ruthless pragmatism and
order; Buddhism about letting it go. In the 20th century, China imported Western
influences from Marxism to science and technology.
It is commonly believed that the Chinese think very differently from Westerners.
Western minds are considered logical and scientific, whereas the Chinese mind is
supposed to be elliptical, contextual and therefore relational. One possible reason is
the ideogramatic nature of the Chinese language, based on pictures rather than
alphabets, which positions everything in relation to everything else.
The Chinese word for crisis is both risk and opportunity; for contradiction an
impenetrable shield facing an unstoppable spear. Chinese thinking tends to sees
things within systemic context and history, probably because the fount of Chinese
philosophy is the I Ching or the Book of Changes, circa 1049 BC, which is essentially
dialectic in tradition, seeing the world as emerging from the conflict, synthesis and
evolution from contradictory opposites.
Western science and intellectual tradition stems primarily from Greek Aristotlean
logic, which is reductionist and linear, reducing complex ideas into simple theories
and principles that could deduce, explain and predict the future. Aristotlean logic
prevailed in the West, until the German philosopher Hegel (1770-1831) developed
dialectics based upon the concept that everything is composed of contradictions, with
gradual changes becoming crises. Karl Marx (1818-1883) built on Hegelian dialectics
into historical change through class struggle and dialectic materialism, whereas Mao
Zedong fused Marxism into Chinese agrarian reality to form a theory of revolutionary
knowledge through practice.
In the 20th century, natural science, such as physics, mathematics and biology began
to evolve away from the social sciences, particularly economics. The Anglo-Saxon
tradition of linear, logical thinking continued to dominate in social science, through
philosophers such as Karl Popper, who rejected the vagueness of dialectics. On the
other hand, quantum physics, quantum mathematics, biology and information theory
began to evolve into binary worldviews whereby change in nature evolved through
the synthesis or erosion of opposites. This is much closer to ancient Chinese and
Indian views that saw the world in constant change.
What has been missing so far has been a synthesis of the two divergent worldviews.
In his new book Antifragility: How to live in a world we do not understand, Black Swan
author Nassim Taleb introduced option theory as a general tool to bridge dialectic
thinking with mainstream bell curve statistics. The normal “bell curve” distribution is a
widely used statistical tool for decision making in mainstream social science. Social
scientists look for statistical significance in the high probability (95%) or “robust” zone
of the bell curve, tending to ignore low probability events (2.5% each) in the long tails,
By ignoring the long tail events that occur rarely but have large impact when they
occur, mainstream thinking like the economic profession missed systemic events like
that 2008 financial crisis. There are of course two long tails, one being the “bad”
Black Swan events that create systemic damage when they occur.
The other is the upside or “good” long tail events. Nassim calls “anti-fragility” as good
actions that compensate for “fragility”, the bad events.
Intuitively, Taleb has reframed Chinese philosophy in modern mathematics with a
scientific explanation. What he calls the central Triad of exposures Fragile,
Robustness and Antifragile has the analogy in the Chinese trinity of female (ying),
Golden Mean and male (yang).
The Confucian concept of Golden Mean seeks to avoid extremes and take the safe
middle path. But Taleb's insight shows why the Golden Mean gets into trouble,
because playing safe and mainstream ignores the uncertainty of Black Swan events
that could eventually damage the system as a whole. Prudence and conservatism
through adopting the Golden Mean prevents the practitioner from adopting
“antifragile or (good) high risk-high payoff” strategies that would compensate for the
uncertain unknown bad Black Swan events.
A Buddhist would immediately recognise the need to build up good deeds to
compensate for the bad deeds that may befall oneself.
By not taking risks, Chinese dynasties that adopted Golden Mean strategies became
closed societies that eventually imploded when disaster struck. On the other hand, in
the run up to the Industrial Revolution, Western societies took large risks with high
payoffs, in science, technology and even colonialism. Western society compensated
for fragility by taking anti-fragile measures. No risk, no gain.
The easiest way to think about options and antifragile strategies is in stock market
investment. Suppose you adopt a conservative strategy that follows what the market
does on average (follow the index). If however the market suddenly drops by 30%,
and your portfolio declines by 30%, you will never recover your capital if you continue
to adopt market following Golden Mean strategy. To recover or do better, you have to
take small bets on risky shares that are “anti-fragile”, meaning that if they win, they
win big.
Antifragility loves volatility. Making small mistakes will avoid large mistakes. The more
you try to be stable, the more unstable you become, which Keynesian disciple Hyman
Minsky rediscovered as “stability creating instability.”。
Taking non-linear options on high risk-high return ventures was exactly what Deng
Xiaoping did in his opening up strategy. He knew that the risks of failure were high
(and unknown) but taking options by opening up new development zones and new
policies created new payoffs and growth areas that were not imagined by the critics.
In 2013, Deng's successors may be making new, anti-fragile options.
Andrew Sheng is president of the Fung Global Institute.
A version of this article appeared in The Star Online, 5 January 2013
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