Does Antifragility Need Fragility?

There is this book: Anitfragile. Its conclusion: the antifragile is immune to prediction errors and it becomes stronger with added stress.

There is an ongoing thread at Wilmott General Forum - Can antifragility exists without fragility?

"Traden4Alpha" (an outstanding knowledgeable senior member) points out that it depends on the assessment criteria. At the transaction level, antifragility needs fragility: hedgers need speculators, the counter party that accepts to take the fragile side of a contract (but speculators themselves can buy antifragility).

The difficult thing about this at the global level is transparency: who has what fragile/antifragile position  and how do those positions cross-connect to fragility concentration or fragility diffusion and buffering.

This led the two of us to

Local and systemic risk management 

In heterogeneous, decentralized systems the failure of one agent is for the benefit of another. Diffusion and buffering helps to gain overall antifragility.

The danger of tightly coupled complex systems

The fear of systemic risk may lead to tightly coupled complex (security) systems that may have unintended consequences (complexity) but do not give enough time to react to them (tight coupling).

The metaphor: a nuclear power plant. Their tightly coupled complexity is a inevitable system characteristic, but their safety mechanism does not always make them safer (too poor instruments, wrong interpretation, unexpected connections, false alarms, …)

In search of the perfect antifragility may lead to "normal accidents".

A sufficiently complex tightly coupled system will fail sooner or later

Learning from turbulences leads to antifragility 

Avoiding risk is a poor way to manage risk. You never learn and all events stay unexpected, hidden and more or less catastrophic.

The safety system in the time when the subprime crisis emerged with all the toxic CDOs blew the danger up instead of making the system safer. Market participants - thinking the system was safe - "forgot" the convex risk of a put-option integrated into a mortgage backed security.

If such a system fails, we have not gained anything.

So, a diversified, decentralized, limited purpose, less tightly coupled system of financial institutions, less overall constraints and rules, … may be a better way. Gain from disorder - as NN Taleb says.