Skin in the Game: Hidden Asymmetries in Daily Life

by Nassim Nicholas Taleb

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.

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.

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

Actually, to be precise, reality doesn’t care about winning arguments: survival is what matters.

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

learning isn’t quite what we teach inmates inside the high-security prisons called schools. In biology, learning is something that, through the filter of intergenerational selection, gets imprinted at the cellular level—skin in the game,

people don’t learn so much from their—and other people’s—mistakes; rather it is the system that learns by selecting those less prone to a certain class of mistakes and eliminating others.

Systems learn by removing parts, via negativa

Hammurabi’s best known injunction is as follows: “If a builder builds a house and the house collapses and causes the death of the owner of the house—the builder shall be put to death.”

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. More robust? How? Why is the Silver Rule more robust? First, it tells you to mind your own business and not decide what is “good” for others. We know with much more clarity what is bad than what is good. The Silver Rule can be seen as the Negative Golden Rule, and as I am shown by my Calabrese (and Calabrese-speaking) barber every three weeks, via negativa (acting by removing) is more powerful and less error-prone than via positiva (acting by additionfn1).

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.

the deep message of this book is the danger of universalism taken two or three steps too far—conflating the micro and the macro.

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

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

This explains the more severe problems of landscaping and architecture: architects today build to impress other architects, and we end up with strange—irreversible—structures that do not satisfy the well-being of their residents; it takes time and a lot of progressive tinkering for that.

Specialization, as I will keep insisting, comes with side effects, one of which is separating labor from the fruits of labor.

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.

Many addicts who normally have a dull intellect and the mental nimbleness of a cauliflower—or a foreign policy expert—are capable of the most ingenious tricks to procure their drugs. When they undergo rehab, they are often told that should they spend half the mental energy trying to make money as they did procuring drugs, they are guaranteed to become millionaires. But, to no avail. Without the addiction, their miraculous powers go away. It was like a magical potion that gave remarkable powers to those seeking it, but not those drinking it.

This doesn’t mean one should never regulate at all. Some systemic effects may require regulation (say hidden tail risks of environmental ruins that show up too late). If you can’t effectively sue, regulate.

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

I will keep mentioning that I have no other definition of success than leading an honorable life.

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

A shoemaker in Westchester County wants to be a shoemaker, to enjoy the fruits of his labor and the pride of seeing his merchandise in the stores, even if his so-called “economic” condition might benefit from letting a Chinese factory make the shoes and converting to another profession. Even if such a new system allows him to buy flat-screen TV sets, more cotton shirts, and cheaper bicycles, something is missing. It may be cruel to cheat people of their profession.

some nonsoporific topics (pagan theology, religious practices, complexity theory, ancient and medieval history, and, of course, probability and risk taking) match this author’s naturalistic filter. Simply: if you can’t put your soul into something, give it up and leave that stuff to someone else.

in the dozen or so cases I can pull from memory, it always turns out that what is presented as good for you is not really good for you but certainly good for the other party.

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.

Take for now that 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.

It may not be ethically required, but the most effective, shame-free policy is maximal transparency, even transparency of intentions.

whenever the “we” becomes too large a club, things degrade, and each one starts fighting for his own interest. The abstract is way too abstract for us. This is the main reason I advocate political systems that start with the municipality, and work their way up (ironically, as in Switzerland, those “Swiss”), rather than the reverse, which has failed with larger states.

This scale transformation from the particular to the general is behind my skepticism about unfettered globalization and large centralized multiethnic states.

(Interventionistas aren’t yet aware that “should” is not a sufficiently empirically valid statement to “build nations.”) Blaming people for being “sectarian”—instead of making the best of such a natural tendency—is one of the stupidities of interventionistas.

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.

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.

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.

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.

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.

In the famous tale by Ahiqar, later picked up by Aesop (then again by La Fontaine), the dog boasts to the wolf all the contraptions of comfort and luxury he has, almost prompting the wolf to enlist. Until the wolf asks the dog about his collar and is terrified when he understands its use. “Of all your meals, I want nothing.” He ran away and is still running.fn3 The question is: what would you like to be, a dog or a wolf? The original Aramaic version had a wild ass, instead of a wolf, showing off his freedom. But the wild ass ends up eaten by the lion. Freedom entails risks—real skin in the game. Freedom is never free.

Another aspect of the dog vs. wolf dilemma: the feeling of false stability. A dog’s life may appear smooth and secure, but in the absence of an owner, a dog does not survive.

the people you meet when riding high are also those you meet when riding low, and I saw the fellow getting some (more subtle) abuse from the same accountant before he got fired, as he eventually ran out of luck. You are free—but only as free as your last trade.

Take for now the following: What matters isn’t what a person has or doesn’t have; it is what he or she is afraid of losing. The more you have to lose, the more fragile you are.

Being higher up in life only works under some conditions. You would think that the head of the CIA would be the most powerful person in America, but it turned out that the venerated David Petraeus was more vulnerable than a truck driver. The fellow couldn’t even have an extramarital relationship. You can risk people’s lives, but you remain a slave.

It is much easier to do business with the owner of the business than some employee who is likely to lose his job next year; likewise it is easier to trust the word of an autocrat than a fragile elected official.

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

Financial independence is another way to solve ethical dilemmas, but such independence is hard to ascertain: many seemingly independent people aren’t particularly so. While, in Aristotle’s days, a person of independent means was free to follow his conscience, this is no longer as common in modern days.

Before we end, take some Fat Tony wisdom: always do more than you talk. And precede talk with action. For it will always remain that action without talk supersedes talk without action

What we generally call participation in the political process, he calls by two distinct designations: “democracy” when it fits the IYI, and “populism” when plebeians dare to vote in a way that contradicts IYI preferences.