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,

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

Many bad pilots, as we mentioned, are currently in the bottom of the Atlantic, many dangerous bad drivers are in the local quiet cemetery with nice walkways bordered by trees. Transportation didn’t get safer just because people learn from errors, but because the system does. 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.

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

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

some “overestimation” of tail risk is not irrational by any metric, as it is more than required overall for survival. There are some risks we just cannot afford to take. And there are other risks (of the type academics shun) that we cannot afford to not take. This dimension, which bears the name “ergodic,” is belabored in Chapter 19.

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.

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

As we saw, a bureaucratized system will increase in complication from the interventionism of people who sell complicated solutions because that’s what their position and training invite them to do. 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.

And of course regulations, once in, stay in, and even when they are proven absurd, politicians are afraid of repealing them, under pressure from those benefiting from them. Given that regulations are additive, we soon end up tangled in complicated rules that choke enterprise. They also choke life.

The other solution is to put skin in the game in transactions, in the form of legal liability, and the possibility of an efficient lawsuit. The Anglo-Saxon world has traditionally had a predilection for the legal approach instead of the regulatory one: if you harm me, I can sue you.

If you do not take risks for your opinion, you are nothing. And I will keep mentioning that I have no other definition of success than leading an honorable life.

honor means that there are things you would do unconditionally, regardless of the consequences.

Anything you do to optimize your work, cut some corners, or squeeze more “efficiency” out of it (and out of your life) will eventually make you dislike it.

Nor do we industrialize writing. You would be disappointed if I hired a group of writers to “help” as it would be more efficient.

By some mysterious mental mechanism, people fail to realize that the principal thing you can learn from a professor is how to be a professor—and the chief thing you can learn from, say, a life coach or inspirational speaker is how to become a life coach or inspirational speaker. So remember that the heroes of history were not classicists and library rats, those people who live vicariously in their texts.

Seen that way, the rise of some protectionism may have a strong rationale—and an economic one.

We may be better off in a narrowly defined accounting sense (in the aggregate) by exporting jobs. But that’s not what people may really want. I write because that’s what I am designed to do, just as a knife cuts because that’s what its mission is, Aristotle’s arête—and subcontracting my research and writing to China or Tunisia would (perhaps) increase my productivity, but deprive me of my identity.

Whenever there is a mismatch between a bonus period (yearly) and the statistical occurrence of a blowup (every, say, ten years) the agent has an incentive to play the Bob Rubin risk-transfer game. Given the number of people trying to get on the money-making bus, there is a progressive accumulation of Black Swan risks in such systems. Then, boom, the systemic blowup happens.fn1

You who caught the turtles better eat them, goes the ancient adage.fn1

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.

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.

It is provided by the Rhodian Law that where merchandise is thrown overboard for the purpose of lightening a ship, what has been lost for the benefit of all must be made up by the contribution of all.

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.

An honest person will never commit criminal acts, but a criminal will readily engage in legal acts.

Two more things. First, the geography of the terrain, that is, the spatial structure, matters a bit; it makes a big difference whether the intransigents are in their own district or are mixed with the rest of the population. If people following the minority rule lived in ghettos with a separate small economy, then the minority rule would not apply. But when a population has an even spatial distribution, say, when the ratio of such a minority in a neighborhood is the same as that in the entire village, that in the village is the same as in the county, that in the county is the same as in the state, and that in the state is the same as nationwide, then the (flexible) majority will have to submit to the minority rule. Second, the cost structure matters quite a bit. It happens in our first example that making lemonade compliant with kosher laws doesn’t change the price by much—it is a matter of avoiding some standard additives. But if the manufacturing of kosher lemonade costs substantially more, then the rule will be weakened in some nonlinear proportion to the difference in costs.

One can expect the same rejection of others’ religious norms to take place in the West as the Muslim populations in Europe grow.

Consider that transgenic-GMO eaters will eat non-GMOs, but not the reverse. So it may suffice to have a tiny percentage—say, no more than 5 percent—of an evenly spatially distributed population of non-genetically modified eaters for the entire population to have to eat non-GMO food. How?

working, that is, engaging in an activity that, when abused, causes the loss of mental clarity, in addition to bad posture and loss of definition in facial features.

you think that because some extreme right- or left-wing party has, say, the support of ten percent of the population, their candidate will get ten percent of the votes. No: these baseline voters should be classified as “inflexible” and will always vote for their faction. But some of the flexible voters can also vote for that extreme faction, just as non-kosher people can eat kosher. These people are the ones to watch out for, as they may swell the number of votes for the extreme party.

The advertising executive (and extremely bon vivant) Rory Sutherland suggested to me that this explains why some fast-food chains, such as McDonald’s, thrive. It’s not because they offer a great product, but because they are not vetoed in a certain socio-economic group—and by a small proportion of people in that group at that.fn1 When there are few choices, McDonald’s appears to be a safe bet.

It all started with the asymmetric rule that those who are nonnative in English know (bad) English, but the reverse—English speakers knowing other languages—is less likely.

Genes follow majority rule; languages minority rule. Languages travel; genes less so.

THE ONE-WAY STREET OF RELIGIONS In the same manner, the spread of Islam in the Near East, where Christianity was heavily entrenched (remember that it was born there), can be attributed to two simple asymmetries.

The two asymmetric rules were are as follows. First, under Islamic law, if a non-Muslim man marries a Muslim woman, he needs to convert to Islam—and if either parent of a child happens to be Muslim, the child will be Muslim.fn3 Second, becoming Muslim is irreversible, as apostasy is the heaviest crime under the religion, sanctioned by the death penalty.

Under these two asymmetric rules, one can do simple simulations and see how a small Islamic group occupying Christian (Coptic) Egypt can lead, over the centuries, to the Copts becoming a tiny minority. All one needs is a small rate of interfaith marriages.

In places such as Lebanon, Galilee, and Northern Syria, with mountainous terrain, Christians and other non-Sunni Muslims remained concentrated. Christians, not being exposed to Muslims, experienced no intermarriage. By contrast, Egypt has a flat terrain. The distribution of the population presents homogeneous mixtures there, which permits renormalization

Egypt’s Copts suffered from an additional problem: the irreversibility of Islamic conversions. Many Copts during Islamic rule converted to the dominant religion when it was merely an administrative procedure, something that helps one land a job or handle a problem that requires Islamic jurisprudence. One did not have to really believe in it, since Islam doesn’t conflict markedly with Orthodox Christianity. Little by little a Christian or Jewish family engaging in a Marrano-style conversion becomes truly converted, as, a couple of generations later, the descendants forget the arrangement of their ancestors.

So all Islam did was out-stubborn Christianity, which itself won thanks to its own stubbornness. For before Islam, the original spread of Christianity in the Roman empire was largely due to … the blinding intolerance of Christians; t...

in fact, my heuristic is that the more pagan, the more brilliant one’s mind, and the higher one’s ability to handle nuances and ambiguity. Purely monotheistic religions such as Protestant Christianity, Salafi Islam, or fundamentalist atheism accommodate literalist and mediocre minds that cannot handle ambiguity.fn4

There have been many Islams, the final accretion quite different from the earlier ones. For Islam itself is ending up being taken over (in the Sunni branch) by purists simply because they are more intolerant than the rest: the Wahhabis (aka Salafis), founders of Saudi Arabia, destroyed the shrines in most parts of what is now their country during the nineteenth century. They went on to impose the maximally intolerant rule in a manner that was later imitated by ISIS. Every single accretion of Salafism seems to exist to accommodate the most intolerant of its branches.

How do books get banned? Certainly not because they offend the average person—most persons are passive and don’t really care, or don’t care enough to request the banning. From past episodes, it looks like all it takes is a few (motivated) activists for the banning of some books, or the blacklisting of some people.

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.

Once a moral rule is established, it will suffice to have a small, intransigent minority of geographically distributed followers to dictate a norm in society.

Outcomes are paradoxically more stable under the minority rule—the variance of the results is lower and the rule is more likely to emerge independently across separate populations. What emerges from the minority rule is more likely to be black-and-white, binary rules.

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.

We can say that markets aren’t the sum of market participants, but price changes reflect the activities of the most motivated buyer and seller.

The market is like a large movie theater with a small door.

And the best way to detect a sucker is to see if his focus is on the size of the theater rather than that of the door.

Science isn’t the sum of what scientists think, but exactly as with markets, it is a procedure that is highly skewed. Once you debunk something, it is now wrong. Had science operated by majority consensus, we would be still stuck in the Middle Ages, and Einstein would have ended as he started, a patent clerk with fruitless side hobbies.