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

by Nassim Nicholas Taleb

True, a contractor has downside, a financial penalty that can be built into the contract, in addition to reputational costs. But consider that an employee will always have more risk. And conditional on someone being an employee, such a person will be risk averse. By being employees they signal a certain type of domestication. Someone who has been employed for a while is giving you strong evidence of submission.

Slave ownership by companies has traditionally taken very curious forms. The best slave is someone you overpay and who knows it, terrified of losing his status.

Ironically the highest status, that of a free man, is usually indicated by voluntarily adopting the mores of the lowest class.

What matters isn’t what a person has or doesn’t have; it is what he or she is afraid of losing.

People whose survival depends on qualitative “job assessments” by someone of higher rank in an organization cannot be trusted for critical decisions.

It is no secret that large corporations prefer people with families; those with downside risk are easier to own, particularly when they are choking under a large mortgage.

To make ethical choices you cannot have dilemmas between the particular (friends, family) and the general.

If you do not undertake a risk of real harm, reparable or even potentially irreparable, from an adventure, it is not an adventure.

always do more than you talk. And precede talk with action. For it will always remain that action without talk supersedes talk without action.

True equality is equality in probability.

Consider that about 10 percent of Americans will spend at least a year in the top 1 percent, and more than half of all Americans will spend a year in the top 10 percent.

The way to make society more equal is by forcing (through skin in the game) the rich to be subjected to the risk of exiting from the 1 percent.

no downside for some means no upside for the rest.

We’ve made a big deal out of Piketty here because the widespread enthusiasm for his book was representative of the behavior of that class of people who love to theorize and engage in false solidarity with the oppressed, while consolidating their privileges.

The reason regular people are not as acrimonious as the “intellectuals” and bureaucrats is because envy does not travel long distance or cross many social classes. Envy does not originate with the impoverished, concerned with the betterment of their condition, but with the clerical class.

Complex regulations allow former government employees to find jobs helping firms navigate the regulations they themselves created.

Thirty-nine percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and 73 percent will spend a year in the top 20 percent.

Actors who hung out there gossiping about other actors discovered that Broadway shows that lasted for, say, one hundred days, had a future life expectancy of a hundred more. For those that lasted two hundred days, two hundred more. The heuristic became known as the Lindy effect.

time is equivalent to disorder, and resistance to the ravages of time, that is, what we gloriously call survival, is the ability to handle disorder.

That which is “Lindy” is what ages in reverse, i.e., its life expectancy lengthens with time, conditional on survival.

Use laws that are old but food that is fresh.

“The Romans judged their political system by asking not whether it made sense but whether it worked,”

if anything, knowledge is the reverse of an athletic contest. In philosophy, the winner is the one who finishes last, he said.

Anything that smacks of competition destroys knowledge.

One should give more weight to research that, while being rigorous, contradicts other peers, particularly if it entails costs and reputational harm for its author.

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

The longer an idea has been around without being falsified, the longer its future life expectancy.

Note that I am here modifying Popper’s idea; we can replace “true” (rather, not false) with “useful,” even “not harmful,” even “protective to its users.” So I will diverge from Popper in the following. 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.

It is critical that it is not just that the books of the ancients are still around and have been filtered by Lindy, but that those populations who read them have survived as well.

the one who doesn’t look the part, conditional on having made a (sort of) successful career in his profession, had to have much to overcome in terms of perception. And if we are lucky enough to have people who do not look the part, it is thanks to the presence of some skin in the game, the contact with reality that filters out incompetence, as reality is blind to looks.

Now there may be some correlation between looks and skills (someone who looks athletic is likely to be athletic), but, conditional on having had some success in spite of not looking the part, it is potent, even crucial, information.

In 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.

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

many problems in society come from the interventions of people who sell complicated solutions because that’s what their position and training invite them to do. There is absolutely no gain for someone in such a position to propose something simple: you are rewarded for perception, not results. Meanwhile, they pay no price for the side effects that grow nonlinearly with such complications.

gyms should not look like gyms, exercise should not look like exercise. Most gains in physical strength come from working the tails of the distribution, close to your limit.

Thyestes shouts in Seneca’s tragedy, thieves do not enter impecunious homes, and one is more likely to be drinking poison in a golden cup than an ordinary one.

It is easy to scam people by getting them into complications—the poor are spared that type of scamming.

Hamburgers, to many of us, are vastly tastier than filet mignon because of the higher fat content, but people have been convinced that the latter is better because it is more expensive to produce.

Very few people understand their own choices, and end up being manipulated by those who want to sell them something.

if wealth is giving you fewer options instead of more (and more varied) options, you’re doing it wrong.

If anything, being rich you need to hide your money if you want to have what I call friends. This may be known; what is less obvious is that you may also need to hide your erudition and learning. People can only be social friends if they don’t try to upstage or outsmart one another.

one can generalize and define a community as a space within which many rules of competition and hierarchy are lifted, where the collective prevails over one’s interest. Of course there will be tension with the outside, but that’s another discussion.

sophistication can, at some level, cause degradation, what economists call “negative utility.” This tells us something about wealth and the growth of gross domestic product in society; it shows the presence of an inverted U curve with a level beyond which you get incremental harm. It is detectable only if you get rid of constructed preferences.

The best enemy is the one you own by putting skin in his game and letting him know the exact rules that come with it. You keep him alive, with the knowledge that he owes his life to your benevolence.

Today, anonymity brings out the a**hole in people. So I accidentally discovered a way to change the behavior of unethical and abusive persons without verbal threat. Take their pictures. Just the act of taking their pictures is similar to holding their lives in your hands and controlling their future behavior thanks to your silence. They don’t know what you can do with it, and will live in a state of uncertainty.

Of course, I destroyed their pictures. But I never thought handhelds could be such a weapon. And it would be unfair to use their pictures for web-mobbing. In the past, bad deeds were only transmitted to acquaintances who knew how to put things in perspective. Today, strangers, incapable of judging a person’s general character, have become self-appointed behavior police. Web-shaming is much more powerful than past reputational blots, and more of a tail risk.

If we don’t understand something and it has a systemic effect, just avoid it. Models are error-prone, something I knew well with finance; most risks only appear in analyses after harm is done.

you never cure structural defects; the system corrects itself by collapsing.

let us get deeper into the application of the Silver Rule in intellectual debates. You can criticize either what a person said or what a person meant. The former is more sensational, hence lends itself more readily to dissemination.

It is impossible for anyone to write a perfectly rationally argued document without a segment that, out of context, can be transformed by some dishonest copywriter to appear totally absurd and lend itself to sensationalization, so politicians, charlatans, and, more disturbingly, journalists hunt for these segments.