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

by Nassim Nicholas Taleb

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

Decentralization reduces large structural asymmetries.

Evolution can only happen if risk of extinction is present.

There is no evolution without skin in the game.

What is rational is what allows the collective—entities meant to live for a long time—to survive.

In that sense, contrary to what psychologists and psycholophasters will tell you, some “overestimation” of tail risk is not irrational by any metric, as it is more than required overall for survival.

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

There is absolutely no benefit for someone in such a position to propose something simple: when you are rewarded for perception, not results, you need to show sophistication.

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

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. Such a commons cannot be too large. It is like a club. Groups behave differently at a different scale.

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.

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.

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

Scars signal skin in the game.

People can detect the difference between front- and back-office operators.

Clearly, when you say that inequality changes from year one to year two, you need to show that those who are at the top are the same people—something Piketty doesn’t do (remember that he is an economist and has trouble with things that move).

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.

So class envy doesn’t originate from a truck driver in South Alabama, but from a New York or Washington, D.C., Ivy League–educated IYI (say Paul Krugman or Joseph Stiglitz) with a sense of entitlement, upset some “less smart” persons are much richer.

Likewise, Alfonso X of Spain, nicknamed El Sabio, “the wise,” had as a maxim: Burn old logs. Drink old wine. Read old books. Keep old friends.

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

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

Courage is when you sacrifice your own well-being for the sake of the survival of a layer higher than yours.

In a strategy that entails ruin, benefits never offset risks of ruin.

Rationality is avoidance of systemic ruin.

When the beard (or hair) is black, heed the reasoning, but ignore the conclusion. When the beard is gray, consider both reasoning and conclusion. When the beard is white, skip the reasoning, but mind the conclusion.