Avoid Optimization; Learn to Love Redundancy
Redundancy, such as savings and insurance, protects against Black Swan events by providing a buffer, whereas overspecialization increases vulnerability. Embracing redundancy over optimization enhances resilience.
THE IDEA
Avoid optimization; learn to love redundancy
Redundancy (in terms of having savings and cash under the mattress) is the opposite of debt. Psychologists tell us that getting rich does not bring happiness—if you spend your savings. But if you hide it under the mattress, you are less vulnerable to a Black Swan.
Also, for example, one can buy insurance, or construct it, to robustify a portfolio.
Overspecialization also is not a great idea. Consider what can happen to you if your job disappears completely. Someone who is a Wall Street analyst (of the forecasting kind) moonlighting as a belly dancer will do a lot better in a financial crisis than someone who is just an analyst.
When to use it
Building an emergency fund and holding cash instead of fully investing it.
Developing multiple income streams or skills to reduce career risk.
Diversifying suppliers or investments to avoid single points of failure.
Buying insurance (health, property, etc.) to protect against catastrophic losses.
FROM THEORY TO EVERYDAY LIFE
In practice
Analyst Moonlighting as Belly Dancer
A Wall Street analyst who also works as a belly dancer has a backup income source during a financial crisis, illustrating how redundancy in skills can protect against job loss.
Company with Multiple Suppliers
A business that sources materials from multiple suppliers rather than optimizing for a single low-cost provider is less vulnerable to supply chain disruptions.
A MOMENT TO REFLECT
Put it to work.
What areas of your life could benefit from more redundancy (savings, skills, relationships)?
How might overspecialization make you fragile in your career or investments?
In what ways have you prioritized optimization over redundancy, and what risks does that create?
Often confused with
CONTINUE THE CONVERSATION
Source texts
- The Black Swan The Impact of the Highly Improbable With a new section On Robustness and Fragility (Nassim Nicholas Taleb)