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

by Nassim Nicholas Taleb

You know an idea will fail if it is not useful, and can be therefore vulnerable to the falsification of time

For things to survive, they necessarily need to fare well in the risk dimension, that is, be good at not dying. By the Lindy effect, if an idea has skin in the game, it is not in the truth game, but in the harm game.

An idea survives if it is a good risk manager, that is, not only doesn’t harm its holders, but favors their survival—this also applies to superstitions that have crossed centuries because they led to some protective actions.

More technically, an idea needs to be convex (antifragile), or at least bring about a beneficial redu...

any type of activity or business divorced from the direct filter of skin in the game, the great majority of people know the jargon, play the part, and are intimate with the cosmetic details, but are clueless about the subject.

Hire the successful trader, conditional on a solid track record, whose details you can understand the least.

The fallacy is that what one may need to know in the real world does not necessarily match what one can perceive through intellect: it doesn’t mean that details are not relevant,

only that those we tend (IYI-style) to believe are important can distract us from more central attributes of the price mechanism.

In any activity, hidden details are only revealed via Lindy.

What can be phrased and expressed in a clear narrative that convinces suckers will be a sucker trap.

At the time of writing, most big recent successes (Microsoft, Apple, Facebook, Google) were started by people with skin and soul in the game and grew organically—if they had recourse to funding, it was to expand or allow the managers to cash out; funding was not the prime source of creation. You don’t create a firm by creating a firm; nor do you do science by doing science.

This is true if one has money to begin with. Not always true of female and minority lead businesses. These often lack friends and family funding.

Just as the slick fellow in a Ferrari looks richer than the rumpled centimillionaire, scientism looks more scientific than real science.

True intellect should not appear to be intellectual.

Poison is drunk in golden cups

As Vauvenargues, the French moralist, figured out, small is preferable owing to what we would call in today’s terms scale properties. Some things can be, simply, too large for your heart. Rome, he wrote, was easy to love by its denizens when it was a small village, harder when it became a large empire.

The principle of charity stipulates that you try to understand a message as if you were yourself its author. It, and revulsion at its violations, are Lindy compatible.

It is much more immoral to claim virtue without fully living with its direct consequences.

If your private life conflicts with your intellectual opinion, it cancels your intellectual ideas, not your private life.

If your private actions do not generalize, then you cannot have general ideas.

Courage is the only virtue you cannot fake.

First, there are problems of “overfitting,” overnarrating, extracting too much via positiva and not enough via negativa from past data.

confusing intensity with frequency.

there is a problem of representativeness, or to what extent the narrated maps to the empirical. Historians and international affairistas who reach us are more motivated by stories of conflict than by organic collaboration on the ground between a broader set of noninstitutional players, merchants, barbers, doctors, money changers, plumbers, prostitutes, and others.

accounts of past wars are fraught with overestimation biases.

summarize, in a Judeo-Christian place of worship, the focal point, where the priest stands, symbolizes skin in the game. The notion of belief without sacrifice, which is tangible proof, is new in history.

The strength of a creed did not rest on “evidence” of the powers of its gods, but evidence of the skin in the game on the part of its worshippers.

nobody in the Vatican seems to ever take chances by going first to the Lord, subsequently to the doctor, and, what is even more surprising, nobody seems to see a conflict with such inversion of the logical sequence. In fact the opposite course of action would have been considered madness. It would be in opposition to the tenets of the Catholic church, as it would be considered voluntary death, which is banned.

Are visual deceits any different from leading someone to believe in Santa Claus, if it enhances his or her holiday aesthetic experience? No, unless it causes harm. In that sense harboring superstitions is not irrational by any metric: nobody has managed to build a criterion for rationality based on actions that bear no

Survival comes first, truth, understanding, and science later.

“to make money you must first survive”—skin

the world to be “ergodic,” there needs to be no absorbing barrier, no substantial irreversibilities.

There is nothing particularly irrational in beliefs per se (given that they can be shortcuts and instrumental to something else): to him everything lies in the notion of “revealed preferences.”

Judging people by their beliefs is not scientific. There is no such thing as the “rationality” of a belief, there is rationality of action. The rationality of an action can be judged only in terms of evolutionary considerations.

The axiom of revelation of preferences (originating with Paul Samuelson, or possibly the Semitic gods), as you recall, states the following: you will not have an idea about what people really think, what predicts people’s actions, merely by asking them—they themselves don’t necessarily know. What matters, in the end, is what they pay for goods, not what they say they “think” about them, or the various possible reasons they give you or themselves for that. If you think about it, you will see that this is a reformulation of skin in the game. Even psychologists get it; in their experiments, their procedures require that actual dollars be spent for a test to be “scientific.” The

never discount anything that allows you to survive.

what is rational is that which allows for survival.

When you consider beliefs in evolutionary terms, do not look at how they compete with each other, but consider the survival of the populations that have them.

Rationality does not depend on explicit verbalistic explanatory factors; it is only what aids survival, what avoids ruin.

Not everything that happens happens for a reason, but everything that survives survives for a reason.

situation is deemed non-ergodic when observed past probabilities do not apply to future processes. There is a “stop” somewhere, an absorbing barrier that prevents people with skin in the game from emerging from it—and to which the system will invariably tend. Let us call these situations “ruin,” as there is no reversibility away from the condition. The central problem is that if there is a possibility of ruin, cost-benefit analyses are no longer possible.