Skin in the Game: Hidden Asymmetries in Daily Life

by Nassim Nicholas Taleb

THE LINDY OF LINDY The idea of the Lindy effect is itself Lindy-proof. The pre-Socratic thinker Periander of Corinth wrote, more than twenty-five hundred years ago: Use laws that are old but food that is fresh. 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. The insightful and luckily nonacademic historian Tom Holland once commented: “The thing I most admire about the Romans was the utter contempt they were capable of showing the cult of youth.” He also wrote: “The Romans judged their political system by asking not whether it made sense but whether it worked,” which is why, while dedicating this book, I called Ron Paul a Roman among Greeks.

DO WE NEED A JUDGE? As I mentioned earlier in Prologue 3, I have held for most of my (sort of) academic career no more than a quarter position. A quarter is enough to have somewhere to go, particularly when it rains in New York, without being emotionally socialized and losing intellectual independence for fear of missing a party or having to eat alone. But one (now “resigned”) department head one day came to me and emitted the warning: “Just as, when a businessman and author you are judged by other businessmen and authors, here as an academic you are judged by other academics. Life is about peer assessment.” It took me a while to overcome my disgust—I am still not fully familiar with the way non-risk-takers work; they actually don’t realize that others are not like them, and can’t get what makes real people tick. No, businessmen as risk takers are not subjected to the judgment of other businessmen, only to that of their personal accountant. They just need to avoid having a documented record of (some) ethical violations. Furthermore, not only did you not want peer approval, you wanted disapproval (except for ethical matters): an old fellow pit trader once shared his wisdom: “If p...

TEA WITH THE QUEEN Peers devolve honors, memberships in academies, Nobels, invitations to Davos and similar venues, tea (and cucumber sandwiches) with the Queen, requests by rich name-droppers to attend cocktail parties where you see only people who are famous. Believe me, there are rich people whose lives revolve around these things. They usually claim to be trying to save the world, the bears, the children, the mountains, the deserts—all the ingredients of the broadcasting of virtue. But clearly they can’t influence Lindy—in fact, it is the reverse. If you spend your time tryin...

Hard science might be robust to the pathologies—even then. So let us take a look at social science. Given that the sole judges of a contributor are his “peers,” there is a citation ring in place that can lead to all manner of rotting. Macroeconomics, for instance, can be nonsense since it is easier to macrobull***t than microbull***t—nobody can tell if a theory really works.

If you say something crazy you will be deemed crazy. But if you create a collection of, say, twenty people who set up an academy and say crazy things accepted by the collective, you now have “peer-reviewing” and can start a department in a university.

Academia has a tendency, when unchecked (from lack of skin in the game), to evolve into a ritualistic self-referential publishing game.

Showing off is reasonable; it is human. As long as the substance exceeds the showoff, you are fine. Stay human, take as much as you can, under the condition that you give more than you take.

SOUL IN THE GAME, AGAIN The deprostitutionalization of research will eventually be done as follows. Force people who want to do “research” to do it on their own time, that is, to derive their income from other sources. Sacrifice is necessary. It may seem absurd to brainwashed contemporaries, but Antifragile documents the outsized historical contributions of the nonprofessional, or, rather, the non-meretricious. For their research to be genuine, they should first have a real-world day job, or at least spend ten years as: lens maker, patent clerk, Mafia operator, professional gambler, postman, prison guard, medical doctor, limo driver, militia member, social security agent, trial lawyer, farmer, restaurant chef, high-volume waiter, firefighter (my favorite), lighthouse keeper, etc., while they are building their original ideas. It is a filtering, nonsense-expurgating mechanism. I have no sympathy for moaning professional researchers. I for my part spent twenty-three years in a full-time, highly demanding, extremely stressful profession while studying, researching, and writing my first three books at night; it lowered (in fact, eliminated) my tolerance for career-building research. (There is this illusion that just as businessmen are motivated and rewarded by profits, scientists should be motivated and rewarded by honors and recognition. That’s not how it works. Remember, science is a minority rule: a few will run it, others are just back-office clerks.)

THE GRANDMOTHER VS. THE RESEARCHERS If you hear advice from a grandmother or elders, odds are that it works 90 percent of the time. On the other hand, in part because of scientism and academic prostitution, in part because the world is hard, if you read anything by psychologists and behavioral scientists, odds are that it works at less than 10 percent, unless it is has also been covered by the grandmother and the classics, in which case why would you need a psychologist?fn5 Consider that a recent effort to replicate the hundred psychology papers in “prestigious” journals of 2008 found that, out of a hundred, only thirty-nine replicated. Of these thirty-nine, I believe that fewer than ten are actually robust and transfer outside the narrowness of the experiment.

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. While our knowledge of physics was not available to the ancients, human nature was. So everything that holds in social science and psychology has to be Lindy-proof, that is, have an antecedent in the classics; otherwise it will not replicate or not generalize beyond the experiment.

A BRIEF TOUR OF YOUR GRANDPARENTS’ WISDOM Let us now close by sampling a few ideas that exist in both ancient lore and are sort of reconfirmed by modern psychology. These are sampled organically, meaning they are not the result of research but of what spontaneously comes to mind (remember this book is called Skin in the Game), then verified in the texts. Cognitive dissonance (a psychological theory by Leon Festinger about sour grapes, by which people, in order to avoid inconsistent beliefs, rationalize that, say, the grapes they can’t reach got to be sour). It is seen first in Aesop, of course, repackaged by La Fontaine. But its roots look even more ancient, with the Assyrian Ahiqar of Nineveh. Loss aversion (a psychological theory by which a loss is more painful than a gain is pleasant): in Livy’s Annals (XXX, 21) Men feel the good less intensely than the bad.fn6 Nearly all the letters of Seneca have some element of loss aversion. Negative advice (via negativa): We know the wrong better than what’s right; recall the superiority of the Silver over the Golden Rule. The good is not as good as the absence of bad,fn7 Ennius, repeated by Cicero. Skin in the game (literally): We start with the Yiddish proverb: You can’t chew with somebody else’s teeth. “Your fingernail can best scratch your itch,”fn8 picked up by Scaliger circa 1614 in Proverborum Arabicorum. Antifragility: There are tens of ancient sayings. Let us just mention Cicero. When our souls are mollified, a bee can sti...

Literature doesn’t look like literature—Donaldo hiring practitioners—The glory of bureaucracy—Teach a professor how to deadlift—Looking the part

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.

Hire the successful trader, conditional on a solid track record, whose details you can understand the least.

In any activity, hidden details are only revealed via Lindy.

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

Likewise, the illusion prevails that businesses work via business plans and science via funding. This is strictly not true: a business plan is a useful narrative for those who want to convince a sucker. It works because, as I said in Prologue 2, firms in the entrepreneurship business make most of their money packaging companies and selling them; it is not easy to sell without some strong narrative. But for a real business (as opposed to a fund-raising scheme), something that should survive on its own, business plans and funding work backward. At the time of writing, most big recent successes (Microsoft, Apple, Facebook, Google) were started by people with skin and soul in the game and grew organically—if they had recourse to funding, it was to expand or allow the managers to cash out; funding was not the prime source of creation. You don’t create a firm by creating a firm; nor do you do science by doing science.

Never hire an academic unless his function is to partake of the rituals of writing papers or taking exams.

Just as the slick fellow in a Ferrari looks richer than the rumpled centimillionaire, scientism looks more scientific than real science. True intellect should not appear to be intellectual.

THE GORDIAN KNOT Never pay for complexity of presentation when all you need is results.

ANOTHER BUSINESS OF INTERVENTION People who have always operated without skin in the game (or without their skin in the right game) seek the complicated and centralized, and avoid the simple like the plague. Practitioners, on the other hand, have opposite instincts, looking for the simplest heuristics. Some rules: People who are bred, selected, and compensated to find complicated solutions do not have an incentive to implement simplified ones. And it gets more complicated as the remedy has itself a skin-in-the-game problem. This is particularly acute in the meta-problem, when the solution is about solving this very problem. In other words, 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. This also holds true when it comes to solutions that are profitable to technologists.

EDUCATION AS LUXURY GOOD Ivy League universities are becoming in the eyes of the new Asian upper class the ultimate status luxury good. Harvard is like a Vuitton bag and a Cartier watch. It is a huge drag on the middle class, who have been plowing an increased share of their savings into educational institutions, transferring their money to bureaucrats, real estate developers, tenured professors of some discipline that would not otherwise exist (gender studies, comparative literature, or international economics), and other parasites. In the United States, we have a buildup of student loans that automatically transfer to these rent extractors. In a way it is no different from racketeering: one needs a decent university “name” to get ahead in life. But we have evidence that collectively society doesn’t advance with organized education, rather the reverse: the level of (formal) education in a country is the result of wealth.fn2

A BS DETECTION HEURISTIC The heuristic here would be to use education in reverse: hire, conditional on an equal set of skills, the person with the least label-oriented education. It means that the person had to succeed in spite of the credentialization of his competitors and overcome more serious hurdles. In addition, people who didn’t go to Harvard are easier to deal with in real life. You can tell if a discipline is BS if the degree depends severely on the prestige of the school granting it. I remember when I applied to MBA programs being told that anything outside the top ten or twenty would be a waste of time. On the other hand a degree in mathematics is much less dependent on the school (conditional on being above a certain level, so the heuristic would apply to the difference between top ten and top two thousand schools). The same applies to research papers. In math and physics, a result posted on the repository site arXiv (with a minimum hurdle) is fine. In low-quality fields like academic finance (where papers are usually some form of complicated storytelling), the “prestige” of the journal is the sole criterion.

REAL GYMS DON’T LOOK LIKE GYMS This education labeling provides a lot of cosmetic things but misses something essential about antifragility and true learning, reminiscent of gyms. People are impressed with expensive equipment—fancy, complicated, multicolored—meant to look as if it belonged on a spaceship. Things appear maximally sophisticated and scientific—but remember that what looks scientific is usually scientism, not science. As with label universities, you pay quite a bit of money to join, largely for the benefit of the real estate developer. Yet people into strength training (those who are actually strong across many facets of real life) know that users of these machines gain no strength beyond an initial phase. By having recourse to complicated equipment that typically targets very few muscles, regular users will eventually be pear-shaping and growing weaker over time, with skills that do not transfer outside of the very machine that they trained on. The equipment may have some use in a hospital or a rehabilitation program, but that’s about it. On the other hand, the simpler barbell (a metal bar with two weights on both ends) is the only standard piece of equipment that ...

It costs a lot of energy to fake that you’re not bored.

My idea of the good life is to not attend a gala dinner, one of those situations where you find yourself stuck seated for two hours between the wife of a Kansas City real estate developer (who just visited Nepal) and a Washington lobbyist (who just returned from a vacation in Bali).

LARGE FUNERAL HOMES Same with real estate: most people, I am convinced, are happier in close quarters, in a real barrio-style neighborhood, where they can feel human warmth and company. But when they have big bucks they end up pressured to move into outsized, impersonal, and silent mansions, far away from neighbors. On late afternoons, the silence of these large galleries has a funereal feel to it, but without the soothing music. This is something historically rare: in the past, large mansions were teeming with servants, head-servants, butlers, cooks, assistants, maids, private tutors, impoverished cousins, horse grooms, even personal musicians. And nobody today will come to console you for having a mansion—few will realize that it is quite sad to be there on Sunday evening.

Prosperous people of the type who don’t look rich are certainly aware of the point—they live in comfortable quarters and instinctively know that a move will be a mental burden. Many still live in their original houses.

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

CONVERSATION 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. Indeed, the classical art of conversation is to avoid any imbalance, as in Baldassare Castiglione’s Book of the Courtier: people need to be equal, at least for the purpose of the conversation, otherwise it fails. It has to be hierarchy-free and equal in contribution. You’d rather have dinner with your friends than with your professor, unless of course your professor understands “the art” of conversation.

Dead horse in your bed—Friendship via poisoned cake—Roman emperors and U.S. presidents—A living enemy is worth ten dead ones

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.

The ethical system of the Assassins held that political assassination helped prevent war; threats of the dagger-by-your-bed variety are even better for bloodless control.fn1 They supposedly aimed at sparing civilians and people who were not directly targeted. Their precision was meant to reduce what is now called “collateral damage.”

ASSASSINATION AS MARKETING Those readers who may have tried to get rid of pebbles in their shoes (that is, someone who bothers you and doesn’t get the hint) might know that “contracts” on ordinary citizens (that is, to trigger their funeral) are relatively easy to perform and inexpensive to buy. There is a relatively active underground market for these contracts. In general, you need to pay a bit more to “make it look like an accident.” However, skilled historians and observers of martial history would recommend the exact opposite: in politics, you should have to pay more to make it look intentional. In fact, what Captain Mark Weisenborn, Pasquale Cirillo, and I discovered, when we tried doing a systematic study of violence (debunking the confabulatory thesis by Steven Pinker that we mentioned earlier, holding that violence has dropped), was that war numbers have been historically inflated … by both sides. Both the Mongols (during their sweep across Eurasia in the Middle Ages) and their panicky victims had an incentive to exaggerate, which acted as a deterrent. Mongols weren’t interested in killing everybody; they just wanted submission, which came cheaply through terror. Further, having spent some time perusing the genetic imprints of invaded populations, it is clear that if the warriors coming from the Eastern steppes left a cultural imprint, they certainly left their genes at home. Gene transfer between areas happens by group migrations, inclement climate, and unaccommo...

I never said that I said—No news is mostly news—Information flows in both directions

The principle of charity stipulates that you try to understand a message as if you were yourself its author. It, and revulsion at its violations, are Lindy compatible. For instance, Isaiah 29:21 states: That make a man an offender for a word, and lay a snare for him that reproveth in the gate, and turn aside the just for a thing of nought. The wicked ensnare you. Calumny was already a very severe crime in Babylon, where the person who made a false accusation was punished as if he committed the exact crime. However, in philosophy, the principle of charity—as principle—is only sixty years old. As with other things, if the principle of charity had to become a principle, it must be because some old ethical practices were abandoned.