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October 18 - November 22, 2018
One of the reasons corporations have the mortality of cancer patients is the assignment of time-defined duties.
The skills at making things diverge from those at selling things.
There is something offensive in having a nationality without skin in the game, just to travel and pass borders, without the downside that comes with the passport.
Is it that academia (and journalism) is fundamentally the refuge of the stochastophobe tawker? That is, the voyeur who wants to watch but not take risks? It appears so.
I write because that’s what I am designed to do, just as a knife cuts because that’s what its mission is, Aristotle’s arête—and subcontracting my research and writing to China or Tunisia would (perhaps) increase my productivity, but deprive me of my identity.
So people might want to do things. Just to do things, because they feel it is part of their identity.
In that sense, decentralization and fragmentation, aside from stabilizing the system, improves people’s connection to their labor.
Whenever there is a mismatch between a bonus period (yearly) and the statistical occurrence of a blowup (every, say, ten years) the agent has an incentive to play the Bob Rubin risk-transfer game.
Simply: if you can’t put your soul into something, give it up and leave that stuff to someone else.
Antifragile, learning is rooted in repetition and convexity, meaning that the reading of a single text twice is more profitable than reading two different things once, provided of course that said text has some depth of content.
How? There is, here again, a skin-in-the-game problem: a conflict of interest between professional reviewers who think they ought to decide how books should be written, and genuine readers who actually read books because they like to read books.
Book reviews are judged according to how plausible and well written they are, never in how they map to the book (unless of course the author makes them accountable for misrepresentations).*2
The most egregious contributor to inequality is the condition of a high-ranking civil servant or tenured academic, not that of an entrepreneur.
The Lindy effect separates things that gain from time from those that are destroyed by it.
Chapter 13 explains why virtue requires risk taking, not the reputational risk reduction of playing white knight on the Internet or writing a check to some nongovernmental organization (NGO) who might help destroy the world.
There is no rigorous definition of rationality that is not related to skin in the game; it is all about actions, not verbs, thoughts, and tawk.
Beware of the person who gives advice, telling you that a certain action on your part is “good for you” while it is also good for him, while the harm to you doesn’t directly affect him.
The ethical is always more robust than the legal. Over time, it is the legal that should converge to the ethical, never the reverse.
Laws come and go; ethics stay.
The question becomes: to what extent can people in a transaction have an informational differential between them?
Simply, as the aim is for both parties in a transaction to have the same uncertainty facing random outcomes, an asymmetry becomes equivalent to theft.
No person in a transaction should have certainty about the outcome while the other one has uncertainty.
It may not be ethically required, but the most effective, shame-free policy is maximal transparency, even transparency of intentions.
Recall our discussion of Kant: theory is too theoretical for humans. The more confined our ethics, the less abstract, the better it works.
Sympathy for all would be tyranny for thee, my good neighbor.
Things don’t “scale” and generalize, which is why I have trouble with intellectuals talking about abstract notions.
As club members know, the very purpose of a club is exclusion and size limitation.
The question we will reexamine later, after deeper discussion of complexity theory, is whether it is possible to be both ethical and universalist. In theory, yes, but, sadly, not in practice.
Being somewhat tribal is not a bad thing—and we have to work in a fractal way in the organized harmonious relations between tribes, rather than merge all tribes in one large soup. In that sense, an American-style federalism is the ideal system.
But we don’t have to go very far to get the importance of scaling. You know instinctively that people get along better as neighbors than roommates.
Questionable
There is no way you can get the same cohesion in a larger city when the “other” is a theoretical entity, and our behavior toward him or her is governed by some general ethical rule, not someone in flesh and blood.
In reality, my skin lies in a broader set of people, one that includes a family, a community, a tribe, a fraternity. But it cannot possibly be the universal.
And that is what plagues socialism: people’s individual interests do not quite work well under collectivism. But it is a critical mistake to think that people can function only under a private property system.
What Ostrom found empirically is that there exists a certain community size below which people act as collectivists, protecting the commons, as if the entire unit became rational.
The skin-in-the-game definition of a commons: a
space in which you are treated by others the way you treat them, where everyone exercises the Silver Rule.
We will see further in Chapter 19 that the “individual” is an ill-defined entity. “Me” is more likely to be a group than a single person.
I am, at the Fed level, libertarian; at the state level, Republican; at the local level, Democrat; and at the family and friends level, a socialist.
The thoughtful mathematician Hans Gersbach once organized a workshop on skin in the game in Zurich on how to properly reward (and punish) politicians whose interests are not lined up with those of the people they represent.
We removed the skin in the game of journalists in order to prevent market manipulation, thinking that it would be a net gain to society.
The arguments in this book are that the former (market manipulation) and conflicts of interest are more benign than impunity for bad advice.
The main reason, we will see, is that in the absence of skin in the game, journalists will imitate, to be safe, the opinion of other journalists, thus cr...
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A doctor is pushed by the system to transfer risk from himself to you, and from the present into the future, or from the immediate future into a more distant future.
In sum, both the doctor and the patient have skin in the game, though not perfectly, but administrators don’t—and
they seem to be the cause of the troubling malfunctioning of the system. Administrators everywhere on the planet, in all businesses and pursuits, and at all times in history, have been the plague.
The main idea behind complex systems is that the ensemble behaves in ways not predicted by its components.
the minority rule, the mother of all asymmetries.
certain type of intransigent minority—with significant skin in the game (or, better, soul in the game) to reach a minutely small level, say 3 or 4 percent of the total population, for the entire population to have to submit to their preferences.
A kosher (or halal) eater will never eat nonkosher (or nonhalal) food, but a nonkosher eater isn’t banned from eating kosher.
