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

by Nassim Nicholas Taleb

To emit a Yogiberrism, in academia there is no difference between academia and the real world; in the real world, there is

If you give an opinion, and someone follows it, you are morally obligated to be, yourself, exposed to its consequences.

The knowledge we get by tinkering, via trial and error, experience, and the workings of time, in other words, contact with the earth, is vastly superior to that obtained through reasoning,

Their three flaws: 1) they think in statics not dynamics, 2) they think in low, not high, dimensions, 3) they think in terms of actions, never interactions.

The principle of intervention, like that of healers, is first do no harm (primum non nocere); even more, we will argue, those who don’t take risks should never be involved in making decisions.

We have always been crazy but weren’t skilled enough to destroy the world. Now we can.

Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions.

The same mechanism of transferring risk also impedes learning.

You will never fully convince someone that he is wrong; only reality can.

The curse of modernity is that we are increasingly populated by a class of people who are better at explaining than understanding,

Evolution can only happen if risk of extinction is present. Further, There is no evolution without skin in the game.

is trying to use protective regulations or “rights” to derive income without adding anything to economic activity, not increasing the wealth of others.

The Golden Rule wants you to Treat others the way you would like them to treat you. The more robust Silver Rule says Do not treat others the way you would not like them to treat you.

For Isocrates, the wise Athenian orator, warned us as early as the fifth century B.C. that nations should treat other nations according to the Silver Rule. He wrote: “Deal with weaker states as you think it appropriate for stronger states to deal with you.

The very idea behind the First Amendment of the Constitution of the United States is to establish a silver rule–style symmetry: you can practice your freedom of religion so long as you allow me to practice mine; you have the right to contradict me so long as I have the right to contradict you.

Immanuel Kant’s categorical imperative, which I summarize as: Behave as if your action can be generalized to the behavior of everyone in all places, under all conditions. The actual text is more challenging: “Act only in accordance with that maxim through which you can at the same time will that it will become a universal law,” Kant wrote in what is known as the first formulation.

Avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice.

per Fat Tony’s motto: You do not want to win an argument. You want to win. Indeed you need to win whatever you are after: money, territory, the heart of a grammar specialist, or a (pink) convertible car. For focusing just on words puts one on a very dangerous slope, since We are much better at doing than understanding.

By definition, what works cannot be irrational; about every single person I know who has chronically failed in business shares that mental block, the failure to realize that if something stupid works (and makes money), it cannot be stupid.

Those who talk should do and only those who do should talk

Things designed by people without skin in the game tend to grow in complication (before their final collapse).

Now, even if regulations had a small net payoff for society, I would still prefer to be as free as possible, but assume my civil responsibility, face my fate, and pay the penalty if I harm others. This attitude is called deontic libertarianism (deontic comes from “duties”): by regulating you are robbing people of freedom. Some of us believe that freedom is one’s first most essential good. This includes the freedom to make mistakes (those that harm only you); it is sacred to the point that it must never be traded against economic or other benefits.

Honor implies that there are some actions you would categorically never do, regardless of the material rewards.

People who are not morally independent tend to fit ethics to their profession (with a minimum of spinning), rather than find a profession that fits their ethics.

Now there is another dimension of honor: engaging in actions going beyond mere skin in the game to put oneself at risk for others, have your skin in other people’s game; sacrifice something significant for the sake of the collective.

Compendiaria res improbitas, virtusque tarda—the villainous takes the short road, virtue the longer one. In other words, cutting corners is dishonest.

The hidden risk transfer is not limited to bankers and corporations. Some segments of the population play it quite effectively. For instance, people who live in those coastal areas that are prone to hurricanes and floods are effectively subsidized by the state—hence taxpayers. Although they play victims on television after an event happens, they and the real estate developers are getting the benefits others pay for.

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.

As the Romans were fully aware, one lauds merrily the merchandise to get rid of it.

So, “giving advice” as a sales pitch is fundamentally unethical—selling cannot be deemed advice. We can safely settle on that. You can give advice, or you can sell (by advertising the quality of the product), and the two need to be kept separate.

The ethical is always more robust than the legal. Over time, it is the legal that should converge to the ethical, never the reverse.

No person in a transaction should have certainty about the outcome while the other one has uncertainty.

“better fences make better neighbors”—something

Separate tribes for administrative purposes (as the Ottomans did), or just put some markers somewhere, and they suddenly become friendly to one another.

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.

Modernity put it in our heads that there are two units: the individual and the universal collective—in that sense, skin in the game for you would be just for you, as a unit. 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.

The “tragedy of the commons,” as exposed by economists, is as follows—the commons being a collective property, say, a forest or fishing waters or your local public park. Collectively, farmers as a community prefer to avoid overgrazing, and fishermen overfishing—the entire resource becomes thus degraded. But every single individual farmer would personally gain from his own overgrazing or overfishing under, of course, the condition that others don’t. And that is what plagues socialism: people’s individual interests do not quite work well under collectivism.

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.

A saying by the brothers Geoff and Vince Graham summarizes the ludicrousness of scale-free political universalism. 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. If that saying doesn’t convince you of the fatuousness of left vs. right labels, nothing will.

the most reliable advocate for a product is its user.

In general, skin in the game comes with conflict of interest. What I hope this book will do is show that the former is more important than the latter. There is no problem if people have a conflict of interest if it is congruous with downside risk for themselves.

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.

Users of products are more reliable because of a natural filtering. I bought an electric car—a Tesla—because my neighbor was enthusiastic about his (skin in the game), and I watched him remain so for a few years. No amount of advertising will match the credibility of a genuine user.

It suffices for an intransigent minority—a 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. Further, an optical illusion comes with the dominance of the minority: a naive observer (who looks at the standard average) would be under the impression that the choices and preferences are those of the majority.

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.

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.

We can answer these points using the minority rule. 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.

Revolutions are unarguably driven by an obsessive minority. And the entire growth of society, whether economic or moral, comes from a small number of people.

every organization wants a certain number of people associated with it to be deprived of a certain share of their freedom.

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.