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

by Nassim Nicholas Taleb

like Antaeus, you cannot separate knowledge from contact with the ground. Actually, you cannot separate anything from contact with the ground. And the contact with the real world is done via skin in the game—having an exposure to the real world, and paying a price for its consequences, good or bad.

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, something self-serving institutions have been very busy hiding from us.

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.

Imagine people with similar mental handicaps, people who don’t understand asymmetry, piloting planes. Incompetent pilots, those who cannot learn from experience, or don’t mind taking risks they don’t understand, may kill many. But they will themselves end up at the bottom of, say, the Bermuda Triangle, and cease to represent a threat to others and mankind. Not here.

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.

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

we have no choice but to decentralize or, more politely, to localize; to have fewer of these immune decision makers. Decentralization is based on the simple notion that it is easier to macrobull***t than microbull***t. Decentralization reduces large structural asymmetries.

government interference in general tends to remove skin in the game.

pathemata mathemata:

The same mechanism of transferring risk also impedes learning.

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

Systems learn by removing parts, via negativa.*4

The experience of the system is different from that of individuals; it is grounded in filtering. To summarize so far, Skin in the game keeps human hubris in check.

“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. Effectively, there is no democracy without such an unconditional symmetry in the rights to express yourself, and the gravest threat is the slippery slope in the attempts to limit speech on grounds that some of it may hurt some people’s feelings. Such restrictions do not necessarily come from the state itself, rather from the forceful establishment of an intellectual monoculture by an overactive thought police in the media and cultural life.

By applying symmetry to relations between individual and collective, we get virtue, classical virtue, what is now called “virtue ethics.” But there is a next step: all the way to the right of Table 1 is 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. And “act in such a way that you treat humanity, whether in your own person or in the person of any other, never merely as a means to an end, but always at the same time as an end,” in what is known as the second formulation. Formulation shmormulation, fughedaboud Kant as it gets too complicated and things that get complicated have a problem. So we will skip Kant’s drastic approach for one main reason:

Universal behavior is great on paper, disastrous in practice.

One practical extension of the Silver Rule (as a reminder, it is the one that says Do not do to others what you don’t want them to do to you): Avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice.

But disincentive is not enough: the fool is a real thing. Some people do not know their own interest—just consider addicts, workaholics, people trapped in a bad relationship, people who support large government, the press, book reviewers, or respectable bureaucrats, all of whom for some mysterious reason act against their own interest.

You do not want to win an argument. You want to win.

I personally know rich horrible forecasters and poor “good” forecasters. Because what matters in life isn’t how frequently one is “right” about outcomes, but how much one makes when one is right. Being wrong, when it is not costly, doesn’t count—in a way that’s similar to trial-and-error mechanisms of research.

Intellectualism is the belief that one can separate an action from the results of such action, that one can separate theory from practice, and that one can always fix a complex system by hierarchical approaches, that is, in a (ceremonial) top-down manner.

Using mathematics when it’s not needed is not science but scientism.

Replacing the “natural,” that is age-old, processes that have survived trillions of high-dimensional stressors with something in a “peer-reviewed” journal that may not survive replication or statistical scrutiny is neither science nor good practice.

At the time of writing, science has been taken over by vendors using it to sell products (like margarine or genetically modified solutions) and, ironically, the skeptical enterprise is being used to silence skeptics.

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).

Given that regulations are additive, we soon end up tangled in complicated rules that choke enterprise. They also choke life.

Common law is about the spirit while regulation, owing to its rigidity, is all about the letter.

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.

If you do not take risks for your opinion, you are nothing.

As a Spartan mother tells her departing son: “With it or on it,” meaning either return with your shield or don’t come back alive (the custom was to carry the dead body flat on it); only cowards throw away their shields to run faster.

Compendiaria res improbitas, virtusque tarda—the villainous takes the short road, virtue the longer one.

Think of the effect of using a handheld translator on your next trip to Mexico in place of acquiring a robust vocabulary in Spanish by contact with locals. Assistance moves you one step away from authenticity.

Arrogant Will Do Products or companies that bear the owner’s name convey very valuable messages. They are shouting that they have something to lose.

Book reviewers are bad middlemen; they are currently in the process of being disintermediated just like taxi companies (what some call Uberized).

You who caught the turtles better eat them, goes the ancient adage.*1

Detecting that he was only invited to relieve them of the unwanted food, he forced them all to eat the turtles, thus establishing the principle that you need to eat what you feed others.

The ethical is always more robust than the legal. Over time, it is the legal that should converge to the ethical, never the reverse. Hence: Laws come and go; ethics stay.

Sympathy for all would be tyranny for thee, my good neighbor.

(Interventionistas aren’t yet aware that “should” is not a sufficiently empirically valid statement to “build nations.”)

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.

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.

And the simple rule that changes the total is as follows: A kosher (or halal) eater will never eat nonkosher (or nonhalal) food, but a nonkosher eater isn’t banned from eating kosher. Or, rephrased in another domain: A disabled person will not use the regular bathroom, but a nondisabled person will use the bathroom for disabled people.

(Gnostic religions are those with mysteries and knowledge that are typically accessible to only a minority of elders, with the rest of the members kept in the dark about the details of the faith).

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.

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

“Never doubt that a small group of thoughtful citizens can change the world. Indeed, it is the only thing that ever has,”

The researchers Dhananjay Gode and Shyam Sunder came to a surprising result in 1993. You populate markets with zero intelligence agents, that is buying and selling randomly, under some structure such that a proper auction process matches bids and offers in a regular way. And guess what? We get the same allocative efficiency as if market participants were intelligent. Friedrich Hayek has been, once again, vindicated. Yet one of the most cited ideas in history, that of the invisible hand, appears to be the least integrated into modern psyche.

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