Transcript: Nassim Taleb on What Everyone Gets Wrong About Being Antifragile

Nassim Taleb has always been provocative and has a knack for both offending and attracting people at the same time. But lately he’s taken a surprising turn, having gone on the attack towards many groups that adored him. Whether its Bitcoiners, deadlift maximalists who don’t believe in cardio, or anti-vaxxers, Taleb says they misunderstand his philosophy of antifragility. On this episode, we speak with the famed author, trader, and philosopher, about what people get so wrong. The transcript has been lightly edited for clarity.

Key insights from the pod

Why has Taleb suddenly gotten into cycling? — 3:58

Why was he such an aggressive blocker on Twitter? — 5:58

Is Bitcoin antifragile? — 8:02

The difference between the Covid vaccine and GMO — 15:36

How do we know when to trust an expert? — 21:16

What do VCs contribute to society? — 26:45

What VCs got wrong about the banking system — 30:29

SBF and the cult of youth in finance — 35:18

How Universa is positioned today — 38:54

Should we be worried about AI? — 43:43

The biggest risk investors are ignoring today — 45:05

Where is the best squid ink pasta in the world? — 46:15

Did Nassim Taleb really change? — 47:43

Joe Weisenthal: (00:10)

Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

Tracy Alloway: (00:15)

And I'm Tracy Alloway.

Joe: (00:17)

Tracy, welcome back. You've been on vacation. It's so exciting to be recording an episode with you again. It was really nice. I missed you for real.

Tracy: (00:26)

Thank you. I actually think this might be the first time in my life that I've been happy to come back from vacation. Honestly, a lot happened while I was away. It was beautiful, by the way. I went to the Seychelles for two weeks. I'm not a huge beach vacation person, so it wasn't a place that I would normally go to, but it was absolutely gorgeous. Highly recommend it. I think it's ruined me for all other beaches in the future. But I am happy to be back and recording with you once again. And I missed you too, Joe.

Joe: (00:59)

Thank you. It's great to have you back, and you sound great. You know what I did this week?

Tracy: (01:04)

I can take a guess, but go ahead.

Joe: (01:07)

I did a deadlift. I've been lifting weights at the gym, and I did a deadlift. I'm still very weak. I'm not going to say what my PR is, my personal record, but it was very satisfying. I felt good, and now I'm going to keep doing weights for a little while.

Tracy: (01:30)

But Joe, is it a real deadlift if you're not bragging about it on Twitter?

Joe: (01:35)

When I hit bragging level, I will definitely brag. But everyone can figure out where I am going with that because we are going to be speaking today with one of the foremost deadlift advocates in public.

Tracy: (01:55)

I, of course, know exactly who you're talking about. This is someone, you know, certainly a personality and a character, especially online on Twitter. I think we both have, at various times, been blocked and unblocked by him.

One of the craziest things to me about 2023 is that I find myself not only unblocked by this guest, but also nodding my head in agreement with him on a variety of topics.

Joe: (02:32)

2023 is a very weird year for that very reason.

Anyway, we just gotta get right into it. We are, of course, speaking with the one and only Nassim Nicholas Taleb. He is a professor at NYU, an advisor at the tail risk fund, Universa, and the author of several books, including The Black SwanAntifragile Fooled by Randomness. He is a deadlift advocate and has also gotten into cycling lately, which is interesting. He is a flaneur. I don't even know where to start. Nassim, thank you so much for joining us. Every time I see the word flaneur, I forget what it means. What does it mean?

Nassim Nicholas Taleb: (03:13)

I have to remember exactly what it means because the original designation is for someone who walks around aimlessly.

Joe: (03:23)

Nassim: (03:24)

I try to generalize it to someone who does things aimlessly just for the fun of it without a prescribed plan. And if you find something interesting, then you go with it.

Joe: (03:36)

That's funny because I started off by saying that I think of you as a deadlift advocate, but this year you're getting into road biking, which is interesting because it's a very different type of exercise. It's not the type of exercise I associate you with.

Nassim: (03:54)

Well, I was a cyclist.

Joe: (03:56)

What's the deal with getting into cycling?

Nassim: (03:58)

I was a cyclist when we met last, which is about 15 years ago. I had a near miss with a truck, and then I switched to a combination of a lot of walking and some intense but short episodes of weightlifting, full body weightlifting. Then I started reading the literature and realized that weightlifting is not good for your heart. It's necessary, but on its own, it's not good at all. It causes aortic stiffness and other things. When you lift very heavy objects, your body adapts by doing things that are not helpful for long-term survival.

So we need to compensate. Instead of just walking, something a little more intense than walking but not very intense. So here you have a lot of aerobic exercise, low grade, and your occasional full body weight lift. Just a variation on what I was doing, but you have to follow the evidence. The literature is clear that weightlifting is not good for your heart because it causes adaptations that are not very good. It causes long-term heart failure. If you adapt by doing aerobic exercise, which is more naturalistic, then you get both.

Tracy: (05:26)

I think flexibility is also an underrated component of that.

I'm trying to think of how to take it from here. I'm going to try to avoid doing a lot of media naval-gazing in this interview, but there is one question that I have to ask just because I think it feeds into a wider point about your online presence. Why did you block me and Joe, and why have we been unblocked?

Nassim: (05:53)

A lot of my blocking is not done by me directly, but by some automated bots. You have to understand that I get messaged by finance people, and I don't get along with the general finance crowd, and by the crypto people, particularly after I took positions that are not very favorable to the crypto people. So to clean up my feed, I just block things. I had someone who happened to be in Ukraine at the time, helping me do automatic blocking, and believe it or not, the best thing to do with your Twitter feed is to block groups, because then things become clean.

Tracy: (06:37)

Oh, I believe it for sure.

Nassim: (06:39)

So unfortunately, you guys were affected, but then I unblocked people when I realized it went too far.

Joe: (06:46)

Thank you.

Nassim: (06:47)

So the first reaction is what I call, it's like you close the door and then you let in those you think were excluded or would not degrade the feed.

Joe: (06:59)

That's a great answer.

Nassim: (07:00)

It doesn't have anything to do with disagreements. It has to do with style also.

Joe: (07:05)

Nassim: (07:06)

But I think the people that annoy me the most are those who nitpick because they divert the conversation. Nitpickers are, I mean, trolls; you can consider trolls as nitpickers. People don't notice the nitpickers.

Joe: (07:19)

Well, so you mentioned it already. Let's just start with the crypto thing. Because what's interesting to me about your disagreements with crypto people, Bitcoin maximalists, etc., is that many of them looked up to you and read Antifragile and such. They read AntifragileFooled by RandomnessThe Black Swan, which informed them that it's like, okay, we need to adapt, get into this currency that's very hard. That is antifragile: Bitcoin, the ultimate antifragile currency. And so to their mind, they read your work and this is what they took away. And so, what did they get wrong?

Nassim: (08:02)

Okay, so the first thing is that my work is first about avoiding tail risk, right? Basically, if you want to do well, you must first survive. And it's not a separable condition. So one has to avoid fragility. And it turns out that as much as the Federal Reserve induces fragility in the system, and as much as I dislike Bernanke, it turns out that Bitcoin is a lot worse. It is itself a very fragile commodity, and it got cornered. A very small number of people start controlling it. And it's fragile in the sense that if one day, if the miners go to the beach for one day or for an hour, it's gone. Whereas if you have gold, I have a gold necklace here.

If I leave it on the ground for a hundred thousand years, it'll still be gold. It may lose its financial value, but the physical quality will not be altered. Whereas with Bitcoin, it's just a book entry that needs to be maintained and would collapse, plus a lot of other things promised by Bitcoin that are not delivered.

Like, it was meant to be a transactional thing but turned out to be a speculative item. So I realized quickly that I made a mistake with Bitcoin, like I made a mistake by avoiding the wrong exercise. And of course, I was at some point an owner of Bitcoin and publicly said that I made a mistake and I went short Bitcoin later, but it was not good for the system. And I applied it in a paper that was published in Quantitative Finance where you look at, hey, what's a currency? What's an inflation hedge? What is a refuge investment? And Bitcoin satisfies none of these.

So people of course got angry because they feel like they're going to blame you for changing your mind. They don't realize that I'm not selling a recipe; I'm selling a process. Certainty is the way of thinking, the way of approaching things. And if you realize that something is fragile, immediately do something about it. So, remarkably, it's the same cluster of people who read Antifragile and thought that, "Hey, you know, what doesn't kill you makes you stronger. Let's get infected with the vaccine, with Covid. And let's ignore Covid; it's going to make us stronger. It's going to kill a few people." So that kind of eugenics, that kind of stuff, I realized was profoundly inimical to me.

So it's the same crowd that was denying Covid, saying, "Hey, you know, it's just a virus that's going to make you stronger." They didn't realize that. They explained Antifragile: jumping one foot will make your bones stronger, but a thousand feet will not help you too much. I mean, it may help the caretaker and people who organize funerals, but not you. So I realized very quickly there's a cluster of people who were both into Bitcoin due to very naive reasoning, extremely naive reasoning, thinking, "Hey, you know, it's an inflation hedge," as we saw, it was a reverse inflation hedge. But the good thing is that I figured out quickly to pull out in time, in the sense that it lost its value when we realized there was inflation. And the same group of people were into conspiracies, all general conspiracies. And that's not the crowd I want, and that's not the crowd I want to be associated with.

Tracy: (11:36)

You mentioned that Bitcoin was bad for the system, and I think that's the connective tissue that leads into some more recent events with the banking system. But can you talk a little bit more about that? How do you see Bitcoin actually?

Nassim: (11:51)

Okay, let's look at why we have Bitcoin and why we are talking about Bitcoin. Effectively, it's the incompetence of what I call Bernankeism. You know, because sometimes you have to put a name to a tendency. The Federal Reserve's job is not to do structural things. The Federal Reserve's job is to engage in monetary policies and typically short-term monetary policies to ensure the stability of the United States. So the job is to ease when economic conditions threaten inflation and to tighten during hard economic conditions. But you cannot replace a structural policy with a monetary policy. In other words, we had a problem with debt, and you can't solve the debt problem by putting interest rates at zero for a long time.

If you put interest rates at zero, it should be for a short period of time while looking for an alternative. So when they did it for 15 years, they put interest rates at zero, and that created tumors. The first that comes to mind is Bitcoin. Ironically, it also created a Ponzi-like class of investments because there's no time value of money anymore. Your discount rate is uncertain, and we created a generation of people who don't know the cost of funds or the cost of money. Anyone with 15 years of experience in finance doesn't know anything about interest rates. So interest rates at zero create tumors.

Real estate values go up dramatically because the cost of holding a mansion is close to nothing, or it was close to nothing. It also created a class of investments called VC funds. In the old days, these funds were promising you cash flow, but today, they're promising you another funding round where you're going to sell it to someone else. So we moved from the classical cash flow model, or even if you're negative cash flow, the promise of future cash flow, to the promise of selling the company to someone else. We have billionaires in Silicon Valley who got rich from companies that never made a penny. So that's the background. And of course, a story like Bitcoin takes off because it doesn't cost much to control.

Joe: (14:47)

Since you mentioned it, I'm curious about Covid specifically and your criticism of anti-vaxxers. One of the things that I think is interesting is it's not clear to me how you think about these problems, because the vaccine is fairly new. It seems to be relatively untested as a technology. And there are other scientific advances that you've really recoiled against, for example, I think you were very critical about GMO crops and you worried about the tail risks posed by those. So can you talk a little bit about your framework and thinking about why something like the COVID vaccine you're comfortable with, whereas something like GMO crops creates an uncomfortable level of tail risk?

Nassim: (15:36)

Okay. Before we start, let's say that you cannot compare vaccines to GMOs. Vaccines are tested in individuals, and you can see the side effects in individuals. GMOs are systemic; they spread in the environment. Also, you're not taking the vaccine because you think it tastes good or it's going to be a pleasant experience. You're taking the vaccine because of Covid, and Covid was not something benign. Comparing the two involves different risk management.

Two things I'd like to mention here. The first one is that very rapidly, I waited a little bit and then saw that there were a very large number of vaccinated people with no side effects. People said we need more time, but they didn't understand that you can replace time with sample size. In the sense that if it's something related to genetic mistakes or something of a genetic nature, like cancer, for example, a large sample size compensates for lack of time.

We have the illusion that after Hiroshima, people got cancer about 12 and a half years later. That's not true. Some people got cancer within a few months. But there's a distribution because we need a certain number of mutations. Like when you go to Las Vegas, for an individual to win eight times in a row, it takes years of waiting. But if you have a billion people in a casino, you're going to have that every hour. So this is where I realized that the vaccine did not pose a significant threat of that nature.

I wrote technical comments on that. But to go back to the pandemic, my specialty is fat tails. So I've spent all my life dealing with that central problem and developing statistical tools for fat tails. When the pandemic happened, I started publishing in that field because people didn't realize that you had to think differently when it comes to fat tails. You cannot take averages, and you shouldn't do naive forecasting. I got involved in a few discussions and published seven or eight papers on that, including ones on masks. I may have one on vaccines if people keep denying the risk differential between the vaccine and the disease. But there's a lot of stuff people don't get about Covid. The first one is that it's not something that affects only the old; it affects everybody in proportion to their mortality.

So it's not particularly an old person's problem. In other words, if you say it's only the old, then you should say, let's stop dealing with cancer because cancer affects the elderly disproportionately, or let's stop cardiology; it costs too much money. Gym-goers don't need it because they're 38 years old, right? It's the same idea. Covid affects us in proportion to age. So your mortality risk goes up by 8% regardless of your age above 30, of course above some threshold. That's not well understood. So it's not an old person problem. And diseases affect old people, not Covid by itself. There are a bunch of things people didn't get. Initially, I was known as the author of "Fooled by Randomness." That book was misunderstood. I was saying that the world is more random than you think, but I'm not saying it's all random.

Tracy: (19:39)

Well, actually, I wanted to—

Nassim: (19:41)

Yes, go ahead. Let me finish. One of the messages is we tend to be swayed by anecdotes.

Tracy: (19:50)

Nassim: (19:51)

Right? And I noticed that over time, things got worse. The book sold, I don't know, seven, eight, nine million copies worldwide, but at the same time, people are swayed by anecdotes. So whether it's Covid, vaccines, naive stories, Bitcoin, or stuff about elections, we're swayed by the anecdote. Our world is becoming more complex and requires more statistical sophistication, while social media is driving us to the most primitive way of thinking. Sorry to interrupt you, Tracy.

Tracy: (20:34)

No, no, no. This is actually exactly what I wanted to ask you. For a long time, is there a tension between, you know, you say in a lot of your works that we shouldn't trust experts necessarily. You should be wary of them. I think you call them bullshitters or other words. But on the other hand, with something like the vaccine, I doubt that the average person has the scientific background to look at the literature and say, "Oh, this makes sense," or it doesn't. And in that case, it seems like we should be trusting experts. So how do you square those two things?

Nassim: (21:16)

The Black Swan, I made a table to answer your precise question, to explain in which fields the expert is an expert, and in which fields the expert is, what I call, a BS. The difference has to do with fat tails. It's much easier to detect BS in thin-tailed processes. So the dentist is going to be an expert at dentistry. The plumber is an expert at being a plumber, but we're not sure if the macroeconomist is an expert at macroeconomics. The same thing happens in medicine; epidemiologists were not really experts at what's going on because it's fat-tailed, but an individual doctor is going to be an expert in their field. When you look at time series for vaccines, vaccine is a thin-tailed process.

That's the difference for GMOs, thin-tailed versus fat-tailed. I explained it in The Black Swan. It's the difference between the income of a speculator and the income of a dentist. One has winner-take-all effects; the other one is more narrowly distributed. Later on, I did more thinking in Skin in the Game, saying, how can you solve the problem? The difference is skin; if you have skin in the game, then you have survival. If there's any way to bust your claims and make you exit the pool, then of course, an expert will have a filter eliminating pseudo-experts, particularly those who represent risks.

A surgeon who does bad surgeries will exit the pool. There is a mechanism in surgery, and in an accountant's life who doesn't understand balance sheets or cash flow, they will go out of business. But there are places where the process is delayed, namely technology, macroeconomics, and economics. The difference is that your plumber is an expert at plumbing, but a forecaster is not an expert at forecasting. There are fields with a lot of BS, like academic psychology, the one that deals with biases and stuff like that. Medicine is on firm ground; it's not perfect and has made mistakes, but it fundamentally self-corrects.

Tracy: (24:07)

I get the distinction, but I guess my other question is, as a thinker, you go from topic to topic, and you know, you say that...

Nassim: (24:24)

Let me tell you my rule, Tracy. My rule is I publish in peer-reviewed journals in these topics to be professional. And that's my problem with some people, is that I speak about medicine, but I have seven papers in medical topics, whether it's published in medical journals or other scientific fields. I talk about genetics; I have two published and two coming in genetics. So I never talk about a subject unless I engage the experts. And that was my fight with a lot of people.

Tracy: (25:08)

Nassim: (25:08)

My idea is not necessarily to publish in a peer-reviewed journal if you are in a practical profession, like if you're a truck driver, you can talk about trucks. But if you're sitting in an ivory tower somewhere, you need to engage the professionals, not just be an expert on Twitter. That's my rule, and people don't realize that I'm subjecting myself to that discipline.

Joe: (25:35)

Nassim: (25:36)

So I published 80 technical papers after "The Black Swan," not for the image, but because I required some technical expertise from others before listening to them.

Joe: (25:52)

Speaking of bullshitters and speaking of Twitter, and speaking of people who say a lot of things on topics that they either are not experts on or have not published in a rigorous manner, there is a certain...

Tracy: (26:08)

Like 90% of Twitter.

Joe: (26:09)

That's true. But there is a certain class of people that Nassim, you have been going back and forth with venture capitalists for several years now. Many of the prominent ones have fashioned themselves as these sort of philosopher kings, weighing in on everything from tech to politics, to what the Fed should do, to declining fertility rates in the West, and all these things that they're up in arms about. And they've gotten really loud about how banking works in the wake of the failure of SVB. You seem to have a special place in your heart of disdain for many of these people.

Nassim: (26:45)

Because, of course, your natural inclination is to believe that venture capitalists do a great job, that they contribute to society, and that it's thanks to them that we have this computer program we're using now for this podcast. That's the inclination. When you scratch, you realize that maybe the game has changed dramatically, and you have a bunch of people who package companies. They're good at packaging companies, and of course, the thing has policy characteristics. Not only that, but they think that society owes them something because we're using an iPhone. So, they have this feeling, "Hey, you know what? You're using an iPhone; therefore, you owe me something, therefore come in and bail me out." Plus, a lot of these are libertarians, but it so happens that a lot of people are libertarian until they have their first drawdown.

So, VCs, in principle, it's a very noble profession. All professions are noble in principle, but you want to avoid the rent-seeking by that profession as a whole. And this is why every profession, although you have peer review within the profession, you need to make sure there's some accountability, external accountability, or adult supervision from the outside.

And it looks like VCs are not doing what they claim to do. I mean, think of all these billionaires, and you realize that a lot of these billionaires are billionaires from funding. If Tracy and I started a company tomorrow, we put $10,000 each. So, we have a company worth $20,000, right? And then we decide to sell 1% of the company to Joe for $1,000. Guess what, Tracy? Our $10,000 each became almost $50,000.

Tracy: (29:08)

Joe, you're good for one K, right?

Joe: (29:09)

I could swing that.

Nassim: (29:10)

Exactly. So, and then you have a friend who's going to spend another thousand to buy a percent of the company and so on. A lot of these problems with similar characteristics are present in many systems. Of course, there is value somewhere. They produce good stuff. We had a lot of recently developed technologies, but we have to be aware that there's a lot of smoke. And also, they realize that that game was fueled by low interest rates.

Joe: (29:46)

Right. So that is the general case against listening to a lot of these individuals on every topic they wish to opine on. Can you just talk a little bit about the specifics, particularly in the collapse of SVB, and you've criticized several of them, which we don't need to mention by name, but about their level of understanding of the banking system and finance risks, etc. What do you think is it just a sort of bias, like the cliche "there's no libertarians in a bank run" or something? Or is there a deeper misunderstanding that many of them have about how the structure of the banking system works?

Nassim: (30:29)

First, many of them didn't understand the difference between losing money for credit reasons or versus losing money because of the term structure shifts. You see that bank SVB made a mistake of investing long term, first of all. And that's pretty much the way we think about it at Universa; if you look at convex versus concave investment, you really have to have a deep misunderstanding of finance to invest very long term in bonds that pay you no interest, because basically you have no upside and all downside from there.

So, these banks were very fragile, and they invested in a curve play, but the US government is going to pay that debt, and don't use it to single out the prices of Bitcoin because Bitcoin suffered from it. And effectively, Bitcoin rallied when they bailed out the banks.

So, I'm giving one example. But then again, let me tell you, when you become prominent, you're responsible for your words because you may influence others, right? And that's my role. Whatever I say in public about public matters is public, and I should be held accountable for all my mistakes. I've been accountable for a lot of my mistakes. When you adjust, you've got to be self-correcting.

Tracy: (31:52)

Just on the venture capital model, I take the funding point, and I wholly agree with it, but it seems like also one of the reasons that VC and tech investments in general became so popular during an era of low interest rates was that if you can't get a decent return from investing in traditional financial assets, then why not basically purchase a lottery ticket for the next Google or the next Amazon, or even Bitcoin at times has been described as a lottery ticket.

Is there an overlap between trying to identify tail risks, which almost by definition are unknowable, and that kind of model of trying to purchase a lottery ticket for the next big thing? Because it seems like both those two things, you never really know what the next black swan event is going to be or the next big technological innovation.

Nassim: (32:50)

This is a great question because people keep telling me, "You like to engage in trades that have a high probability of small loss and small probability of large loss. Why don't you just buy a lottery ticket?" I want to explain that the number one condition is to have a positive expected return. You must not be a turkey. In other words, a lottery ticket is completely irrational. In the long run, you're not going to make any money. But if you engage in tail risk trades, we believe that a lot of people think these options are expensive, like expensive lottery tickets because they have the wrong model. We made a paper public explaining this. The central problem is that you should focus on expected value.

A lot of places appear to have negative expected value in finance and positive value elsewhere, and vice versa. It's very rational to invest in VC if you think that your dollar will return a thousand dollars. But I doubt that will happen. The story is oversold, and that was a low-interest-rate game. Now people are going to focus on profitability, and these companies may not survive. If you buy into a lot of companies, you lose that skewed attribute. So, you no longer have trades with small losses and big gains. If I invest in a million companies with small loss and big gains, I would have steady returns if I have positive returns.

Joe: (34:41)

What did Sam Bankman-Fried misunderstand about positive EV? He and his whole crew thought huge risks were worth it if there's even a slight edge, a slight positive EV. They took the ultimate risk, and it blew up. They thought these risks were worthwhile because they wanted to make a lot of money, and they thought it was important to save the world from perceived threats, whether it's AI or anything else. What did he misunderstand about probabilistic thinking?

Nassim: (35:18)

It's great to talk about him, not because it's him, but because of that group of people. We have this entire collection of young individuals who think that the past does not exist.

When I was a trader in my twenties, I picked the brains of every older trader who had survived. And that was not just me. When I look back, I see people who have survived have the same attitude. These people make a clean slate, and we have a cult of the youth, and they have a cult of themselves. To me, being young in finance is necessary, but it's also a disadvantage because of a lack of experience and that culture. They thought that if they understood the blockchain, they did not need to understand finance. The root of the problem is they think that finance is a computer program.

Finance has vastly more texture than that and requires a lot more introspection. When you make a decision, you need to consider many, many factors. Finance is very complicated. It's just like we say, science is hard; finance is hard. There is a simplified, fortune cookie approach to finance that has misguided tons of people. Many of them became paper billionaires, and now they're going to end up like him, living in their parents' basement because they have no skills. Programming is a skill that's no longer going to be in high demand. The tragedy is much more general than what he missed. It's the approach, "Hey, we don't need this."

There are elementary mistakes these people make when looking at time series, for example. They say, "Look at Bitcoin; if you bought it four years ago, you had these returns." That's not how we look at investments. We look at peak value, drawdowns, the structure of drawdowns because you're not going to go back in a time machine and buy it four years ago.

You're buying now, and you have to worry about the next four years, not the past four years. They don't understand how to present returns, how to compare returns, how to discuss inflation, or basic things about monetary policy. It's something about that age group, supposedly educated, making mistakes that a trainee would immediately recognize. The world has lost some sophistication, and we have to get it back. It's evolution. Those who are more respected for historical understanding will prevail. In the end, guys who have the last word are the oldest investors around, like Warren Buffett and Charlie Munger.

Tracy: (38:47)

How is Universa positioned nowadays? Talk to us about all these ideas. How are you putting them into practice?

Nassim: (38:54)

The one thing I would say about Universa is that in 2023, the positioning is identical to the one in 2013 and identical to the one we'll have in 2051, if my cycling allows me to survive that long. In other words, we are providing a structural service with portfolios to prevent blow-ups, to eliminate that tail. For us, just like blocking noisy people on Twitter enhances Twitter, eliminating your tail risk allows you to make any mistake you want with your investments.

Joe: (39:30)

A lot of people seem to intuitively like the idea of tail risk funds buying protection, and for the reason you mentioned, it's like, "We're all going to make mistakes, but I want to sleep at night." And so, they want to have some sort of hedge or something like that and buy puts or whatever it is. But that doesn't seem obviously like it's costly in the short term. There's no free lunch, right?

Nassim: (40:00)

No, no, no, that's our problem. If you buy what we call the “sucker’s put,” you might as well give your money to charities. I can give you some charity names. The problem with tailoring is that just like Sam Bankman-Freed thought finance was easy because he figured out a few technical things, they had their own, "Hey, it's great, let's do it." The devil is in the execution. It's very, very complicated and requires a lot of experience.

Joe: (40:32)

Conceptually, though, setting it conceptually,

Nassim: (40:35)

Conceptually, how

Joe: (40:37)

Is it different? Yeah,

Nassim: (40:40)

Hugely different. Because the return you're going to have when you— I'm not supposed to talk about returns.

Joe: (40:47)

Sure, sure. Okay. Well, you don't have to talk...

Nassim: (40:49)

I'm going to say conceptually, there is a huge difference between the naive tail hedger and the experienced tail hedger, and let's leave it at that.

Joe: (41:02)

Nassim: (41:02)

Because there's a lot of things involved between liquidity, how you buy, and the difference between the bid and ask for options is significant.

Tracy: (41:14)

Just practically, you mentioned the difference between experienced and naive tail risk hedgers. But practically, is it easier or harder or cheaper or more expensive to buy really big tail risk insurance nowadays? How has that process actually evolved since the 1980s, for instance?

Nassim: (41:37)

I think that people are even more naive today than they were in the 1980s. Believe it or not, people are even more naive than they were right after the stock market crash. I don't think we have enough financial sophistication. Maybe short-term arbitrages disappear, but things are more structural, like how the price of tail risk is. People are very naive. They also don't understand the following argument: it's your own money. You understand very well that you want to sleep at night and there are some things you don't want to lose all your money on.

People never buy a house unless they can have insurance on it, particularly if the house represents three or four times their net worth. You don't buy a house before making sure that if there's a fire, you're not going to have a huge liability. And very often, when you drive, you're obligated to have tail insurance. But when it comes to portfolios, those who trade their own money or invest their own money will find it natural to say, "I'm not going to invest unless tail risk is expensive, guess what? I'm not going to invest in that." And then you have a second category, people who are paid to invest.

And you say, "Oh, well this is expensive. No, I'm going to do without that." Of course, it's not your money. And that's the skin in the game problem.

Joe: (42:58)

Speaking of tail risk, this week that we're recording, several people signed an open letter saying that we should halt development of technologies along the lines of AI and that there is an imminent risk, at least some people believe, of these computers becoming so powerful that they wipe out all living things on Earth. Sounds like the ultimate tail risk. I'm not going to ask you how you would hedge against that because I doubt that would be a scenario worth hedging for, but is that a tail risk in your view? Are we on track to develop computers that will eliminate life as we know it?

Nassim: (43:32)

I don't think so. Number one is AI. People are worried that AI will put them out of business. That's why they issue these calls.

Joe: (43:41)

Hmm. I'm worried about that.

Nassim: (43:43)

Yeah. Well, AI is not running red lights, traffic lights, or things that are consequential. And when AI starts running these things, then we'll talk about it. But for the time being, we'll talk about development, and it looks like it's a probabilistic machine, no more or less, with the defects of probabilistic machines. And the reason I talk a little bit about AI is because, as a statistician, it's nothing but nonlinear statistics. It's a statistical device and it works as a statistical device, but we know the shortcomings of statistical machines, and it has all the shortcomings. So I'm not even worried. Nobody's going to use AI for things beyond automated searches or automating a lot of things that can be automated. And unfortunately, a lot of people feel threatened because they see the discourse by AI very similar to their own. So far, I don't see anything as far as society, I don't see it's not like with the pandemic where you can see something spreading.

Tracy: (44:59)

What's the tail risk that you think investors are most underestimating nowadays?

Nassim: (45:05)

Okay. The fact that zero interest rates are very unnatural. And if you raise rates to a normal level, say between four and 6%, the Fed would like to have higher interest rates. But there are some pressures; they'd like to have a higher base because if you're at 4% interest rate, then you can lower it. If you have a crisis, you can go down, you can go up. But if your interest rate is at zero and you have a further crisis, you don't know what to do. Or at least you can't play with interest rates.

We have to look for something else, suggesting that it's dangerous. So I think that if you look at interest rates higher than 3% long term as a discount rate, then equities are in trouble because they're not priced for that. So this is where you're going to look at; structurally, the equities are in trouble, but I think that many things will be in trouble first.

Joe: (46:05)

I have two final questions. One is very short. Do you still eat squid ink pasta? And where's the best squid ink pasta?

Tracy: (46:13)

These are the important questions.

Joe: (46:14)

Where's the best?

Nassim: (46:15)

Okay, this is important. If you want good squid ink pasta, you've got to go to Lebanon. The Beirut recipes are the best. And if you want good squid pasta, you've got to go to Southern Italy. If you want squid risotto, go to Northern Italy. And then, I would say lower on the list, Spain, you go for the arroz negro, the black paella. So, I don't recommend New York too much for squid ink pasta. But I can cook, and I'm learning to cook it. Within two or three years, I'll been able to produce a decent dish.

Joe: (47:01)

Oh, well, Tracy and I would love to do a live video episode coming over to your house sometime and having you prepare us a squid ink dish.

Tracy: (47:10)

In three years’ time.

Joe: (47:11)

In 2026.

Nassim: (47:12)

In three years. Yeah.

Joe: (47:13)

Well, so then, one last question, and I really appreciate the time. I have to say, if I'm being just totally blunt, I know that you say that many of your readers of Antifragile and some of your other works misunderstood your work. And I get that. But I also think your tone has changed. You seem a little less bombastic than previous times we have chatted. You yourself have gotten...

Nassim: (47:41)

Because you agree with me...

Joe: (47:42)

No, maybe.

Nassim: (47:43)

Let me talk. It's because you agree with me. A lot of people find me more bombastic because you agree. There's always this bias if you agree with the message. Alright, that's fair. You see, you give a lot of slack to the messenger, and if you disagree, you shoot the messenger.

I have to go back to Antifragile, just a brief summary for those who don't know what it means. It means that we need stressors. We need a lot of low-grade stressors. You see? And, like companies need to encounter a few problems because you up-regulate and you get stronger after that. But it doesn't mean that you should tolerate tail risk.

It's all conditional on avoiding tail risk, right? And if you get stronger in jumping one foot, a hundred meters are going to kill you. So just don't take the idea too far. It's very local. That's the idea of Antifragile. And an Antifragile investment is not something called Antifragile by some web thinker. You know, Antifragile investment is something that reacts very well to the misfortunes in the market and definitely not Bitcoin.

Joe: (49:00)

Nassim Nicholas Taleb, this was a thrill. Thank you so much for coming on. And I'm looking forward to dinner at your house in 2026 and another episode in Lebanon. We'll come anywhere. I think Tracy and would love to go to Lebanon.

We'll bring a crew, we'll film it, it'll be great. And then we'll have you back on again in 15 years, you know, assuming the AI hasn't killed us all. But, thank you so much. This was a real

Nassim: (49:27)

Pleasure. Thanks. Thanks. Very nice talking. Thank you.

Tracy: (49:29)

Thanks, Nassim. Appreciate it.

Joe: (49:45)

So, Tracy, the big question is, did Nassim change or do suddenly he says things that flatter our biases, so suddenly we perceive him to have changed?

Tracy: (49:57)

I mean, I imagine it's a bit of both, but I think my, first of all, I enjoyed that conversation. That was so fun. That was so fun. But secondly, I think my big "how I learned to stop worrying and love the Taleb" moment is you kind of have to realize that a lot of the criticisms and things he says about others kind of apply to himself, which doesn't necessarily make them untrue. They're still very valuable insights. But it's either, you know, you grasp that and it frustrates you enormously or you just roll with it and appreciate the insights nonetheless. And I think I'm in the stage of my life where I'm just going to roll with it.

Joe: (50:37)

That's so funny. Especially because he specifically is like, “No, no, no, I published in academic journals. I am not an all-purpose bullshitter.” You know, one thing that I think throughout, and I have to say for years, a point of his that I've always, whatever cycle he's in, whoever hates him at a given moment that I've always respected, that I've always thought was true is his point about the difference between a plumber and an economist, or the difference between a doctor and an epidemiologist, which I think is a really insightful true point.

A plumber is an expert on plumbing. They've fixed a pipe or a toilet or a sewer system or a shower system, thousands and thousands of times. There is very little new that you can ever show a plumber that they haven't seen. And there is a certain level of skillset and ability to solve things that one can only get after having fixed a lot of toilets or pipes.

Which, and that's why there's the whole apprenticeship thing. And I think that is a really useful heuristic for talking to anyone, which is like, are they really an expert? Have they done something that's built up deep expertise or are they just sort of winging it?

Tracy: (51:54)

Right? I think that's a completely valid point. And there's only so much expertise that one person can really have, you know? You can't expect people to be an expert in everything. But on the other hand, he talked a lot about the world becoming more complex, and I think this is where the instinct comes to try to understand more and more things because yes, a plumber has seen many clogged toilets and he can probably fix them in his sleep.

But then when something unexpected happens, like for instance, Covid and a supply chain crisis that impacts his ability to get those little toilet pump things, that seems like that's where the instinct to try to understand the whole comes from. And the irony in all of this is that a lot of what Taleb spends his time doing is trying to identify and presumably position for these unexpected risks.

Joe: (52:53)

You know, it is interesting the difference between, in his view, the vaccine and GMOs, one being systemic, the other being that trials of thousands and thousands of people is, of course, a substitute for time in the way that GMO crops, there's no way to shortcut the process of like, well, what is going to happen to the entire ecosystem of agriculture over the next hundred or a thousand years? Because we just literally haven't, there's no way to substitute that time yet.

Anyway, I really liked that conversation. I was sad during that period when Taleb blocked me. And I'm glad we are both unblocked because I am enjoying watching his cycling journey, his fights, and I just think he's an interesting guy.

Tracy: (53:44)

Absolutely. And I guess I'm looking forward to having squid ink pasta in three years' time. All I can say is there's going to be a lot of pressure though because it better be good after three years of study. Right?

Joe: (53:56)

Well, you know, the thing is he's been talking about squid ink forever. And so the fact that he himself says it's going to be another three years before he's ready to cook it is like, I, it's, you know, he's a journeyman. It sounds like he is himself an apprentice or journeyman squid ink chef who is not there yet.

Tracy: (54:15)

Maybe we should do a Come Dine with Me style cook-off where each of us attempts to cook squid ink pasta in a different location and then we rate each other. Alright, I'm getting ahead of myself. Shall we leave it there? 

Joe: (54:27)

Let’s leave it there.

You can follow Nassim Taleb (if you’re not already blocked) on Twitter at @nntaleb