Skin in the Game: Hidden Asymmetries in Daily Life (Incerto, #5)

by Nassim Nicholas Taleb

Genes follow majority rule; languages minority rule. Languages travel; genes less so.

But Christians were intolerant of Roman paganism. The “persecution” of the Christians had vastly more to do with the intolerance of the Christians for the pantheon of local gods than the reverse. What we read is history written by the Christian side, not the Greco-Roman one.

in fact, my heuristic is that the more pagan, the more brilliant one’s mind, and the higher one’s ability to handle nuances and ambiguity. Purely monotheistic religions such as Protestant Christianity,

Salafi Islam, or fundamentalist atheism accommodate literalist and mediocre minds that cannot handle

if one needs, say, a 3 percent threshold in a political unit for the minority rule to take its effect, and on average the stubborn minority represents 3 percent of the population, with variations around the average, then some states will be subject to the rule, but not others. If, on the other hand, we merge all states in one, then the minority rule will prevail all across.

How do books get banned? Certainly not because they offend the average person—most persons are passive and don’t really care, or don’t care enough to request the banning. From past episodes, it looks like all it takes is a few (motivated) activists for the banning of some books, or the blacklisting of some people. The great philosopher and logician Bertrand Russell lost his job at the City University of New York owing to a letter by an angry—and stubborn—mother who did not wish to have her daughter in the same room as the fellow with a dissolute lifestyle and unruly ideas.

Let us conjecture that the formation of moral values in

society doesn’t come from the evolution of the consensus. No, it is the most intolerant person who imposes virtue on others precisely because of that intolerance. The same can apply to civil rights. An insight into how the mechanisms of religion and the transmission of morals obey the same renormalization dynamics as dietary laws—and how we can show that morality is more likely to be something enforced by a minority.

What emerges from the minority rule is more likely to be black-and-white, binary rules.

Indeed, given the total lack of separation between church and state in his creed, and between the holy and the profane, to him haram (the opposite of halal) means literally illegal. The entire room was committing a legal violation.

Yes, an intolerant minority can control and destroy democracy. Actually, it will eventually destroy our world. So, we need to be more than intolerant with some

intolerant minorities. Simply, they violate the Silver Rule. It is not permissible to use “American values” or “Western principles” in treating intolerant Salafism (which denies other peoples’ right to have their own religion). The West is currently in the process of committing suicide.

The market is like a large movie theater with a small door. And the best way to detect a sucker is to see if his focus is on the size of the theater rather than that of the door.

Had science operated by majority consensus, we would be still stuck in the Middle Ages, and Einstein would have ended as he started, a patent clerk with fruitless side hobbies.

sheep led by a lion than an army of lions led by a sheep.

And the entire growth of society, whether economic or moral, comes from a small number of people.

Society doesn’t evolve by consensus, voting, majority, committees, verbose meetings, academic conferences, tea and cucumber sandwiches, or polling; only a few people suffice to disproportionately move the needle.

All it takes is, say, a 3 percent minority, for “Merry Christmas” to become “Happy Holidays.”

The average behavior of the market participant will not allow us to understand the general behavior of the market. You can examine markets as markets and individuals as individuals, but markets are not sums of average individuals (a sum is an average multiplied by a constant so they are both equally affected).

The psychological experiments on individuals showing “biases” do not allow us to automatically understand aggregates or collective behavior, nor do they enlighten us about the behavior of groups.

The higher the dimension, in other words, the higher the

number of possible interactions, and the more disproportionally difficult it is to understand the macro from the micro, the general from the simple units.

Understanding how the subparts of the brain (say, neurons) work will never allow us to understand how the brain works. A group of neurons or genes, like a group of people, differs from the individual components—because the

interactions are not necessarily linear.

Leave people alone under a good structure and they will take care of things.

Complete freedom is the last thing you want if you have an organized religion to run. Total freedom for your employees is also a very, very bad thing if you have a firm to run,

In short, every organization wants a certain number of people associated with it to be deprived of a certain share of their freedom. How do you own these people? First, by conditioning and psychological manipulation; second, by tweaking them to have some skin in the game, forcing them to have something significant to lose if they disobey authority—something

People you find in employment love the regularity of the payroll, with that special envelop on their desk the last day of the month, and without which they would act as a baby deprived of mother’s milk. You realize that had Bob been an employee rather than something that appeared to be cheaper, that contractor thing, then you wouldn’t be having so much trouble.

So employees exist because they have significant skin

in the game—and the risk is shared with them, enough risk for it to be a deterrent and a penalty for acts of undependability, such as failing to show up on time. You are buying dependability.

There is a trader’s expression: “Never buy when you can rent the three Fs: what you Float, what you Fly, and what you…(that something else).” Yet many people own boats and planes, and end up stuck with that something else.

Someone who has been employed for a while is giving you strong evidence of submission. Evidence of submission is displayed by the employee’s going through years depriving himself of his personal freedom for nine hours every day, his ritualistic and punctual arrival at an office, his denying himself his own schedule, and his not having beaten up anyone on the way back home after a bad day. He is an obedient, housebroken dog.

Even when an employee ceases to be an employee, he will remain diligent. The longer the person stays with a company, the more emotional investment they will have

in staying, and, when leaving, are guaranteed in making an “honorable exit.”

At the time of writing, firms stay in the top league by size (the so-called S&P 500) for only about between ten and fifteen years. Companies exit the S&P 500 through mergers or by shrinking their business, both conditions leading to layoffs. Throughout the twentieth century, however, expected duration was more than sixty years. Longevity for large firms was greater; people stayed with large firms for their entire lives. There was such a thing as a company man (restricting the gender here is appropriate, as company men were almost all men). The company man is best defined as someone whose identity is impregnated with the stamp his firm wants to give him.

company expects. His social life is so invested in the company that leaving it inflicts a huge penalty, like banishment from Athens under the Ostrakon. Saturday nights, he goes out with other company men and spouses, sharing company jokes.

A company man is someone who feels that he has something huge to lose if he doesn’t behave as a company man—that is, he has skin in the game.

The system worked when large corporations survived a long time and were perceived to be longer lasting than nation-states. By the 1990s, however, people started to realize that working as a company man was safe…provided the company stayed around. But the technological revolution that took place in Silicon valley put traditional companies under financial threat. For instance, after the rise of Microsoft and the personal computer, IBM, which was the main farm for company men, had to lay off a proportion of its “lifers,” who then realized that the low-risk profile of their position wasn’t so low risk. These people couldn’t find a job elsewhere; they were of no use to anyone outside IBM. Even their sense of humor failed outside of the corporate culture. If the company man is, sort of, gone, he has been replaced by the companies person. For people are no

longer owned by a company but by something worse: the idea that they need to be employable. The employable person is embedded in an industry, with fear of upsetting not just their employer, but other potential

an employable person is the one you will never find in a history book, because these people are designed to never leave their mark on the course of events.

An employee is—by design—more valuable inside a firm than outside of it; that is, more valuable to the employer than the marketplace.

Had economists, Coase or Shmoase, had any interest in the ancients, they would have discovered the risk-management strategy relied upon by Roman families who customarily had a slave for treasurer, the person responsible for the finances of the household and the estate. Why? Because you can inflict a much higher punishment on a slave than a free person or a freedman—and you do not need to rely on the mechanism of the law for that. You can be bankrupted by an irresponsible or dishonest steward who can divert your estate’s funds to Bithynia. A slave has more downside.

The best slave is someone you overpay and who knows it, terrified of losing his status.

All large corporations had (and some still have) employees with expat status and, in spite of its costs, it is an extremely effective strategy. Why? Because the further from headquarters an employee is located, the more autonomous his unit, the more you want him to be a slave so he does nothing strange on his own. A bank in New York sends a married employee with his family to a foreign location, say, a tropical country with cheap labor, with perks and privileges such as country club membership, a driver, a nice company villa with a gardener, a yearly trip back home with the family in first class, and keeps him there for a few years, enough to be addicted. He earns much more than the “locals,” in a hierarchy reminiscent of colonial days. He builds a social life with other expats. He progressively wants to stay in the location longer, but he is far from headquarters and has no idea of his minute-to-minute standing in the firm

except through signals. Eventually, like a diplomat, he begs for another location when time comes for a reshuffle. Returning to the home office means loss of perks, having to revert to his base salary—a return to lower-middle-class life in the suburbs of New York City, taking the commuter train, perhaps, or, God forbid, a bus, and eating a sandwich for lunch! The person is terrified when the big boss snubs him. Ninety-five percent of the employee’s mind will be on company politics…which is exactly what the company wants. The big boss in the board room will have a supporter in the event of some intrigue.

In the famous tale by Ahiqar, later picked up by Aesop (then again by La Fontaine), the dog boasts to the wolf all the contraptions of comfort and luxury he has, almost prompting the wolf to enlist. Until the wolf asks the dog

about his collar and is terrified when he understands its use. “Of all your meals, I want nothing.” He ran away and is still running.*3 The question is: what would you like to be, a dog or a wolf? The original Aramaic version had a wild ass, instead of a wolf, showing off his freedom. But the wild ass ends up eaten by the lion. Freedom entails risks—real skin in the game. Freedom is never free.

However, experimental darkening of lighter males does not raise their status, because their behavior is not altered. In fact these darker birds get killed—as the researcher Terry Burnham once told me: “birds know that you need to walk the walk.”

Another aspect of the dog vs. wolf dilemma: the feeling of false stability. A dog’s life may appear smooth and secure, but in the absence of an owner, a dog does not survive. Most people prefer to adopt puppies, not grown-up dogs; in many countries, unwanted dogs are euthanized. A wolf is trained to survive. Employees abandoned by their employers, as we saw in the IBM story, cannot bounce back.

There is a category of employees who aren’t slaves, but these represent a very small proportion of the pool. You can identify them as follows: they don’t give a f*** about their reputation, at least not their corporate reputation.