Skin in the Game by Nassim Nicholas Taleb Book Summary

Skin in the Game by Nassim Nicholas Taleb

Skin in the Game Book Review

We have experienced number of situations in personal and public life where the decisions are made by some but the consequences are borne by others. This is a very common example of absence of skin in the game.

Skin in the Game by Nassim Nicholas Taleb is filled with practical wisdom like below examples.

  • Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions.
  • The principle of intervention, like that of healers, is first do no harm; even more, we will argue, those who don’t take risks should never be involved in making decisions.
  • Avoid taking advice from someone who gives advice for a living, unless they bear a penalty should the advice be wrong.
  • Things designed by people without skin in the game tend to grow in complication (before their final collapse).
  • If you give an opinion, and someone follows it, you are morally obligated to be, yourself, exposed to its consequences. In case you are giving economic views: Don’t tell me what you ‘think,’ just tell me what’s in your portfolio.

The book provides a framework to assess the situations for skin in the game of different players and the correct courses of action.

In the author’s words:

Skin in the Game is about four topics in one:

1. uncertainty and the reliability of knowledge (both practical and scientific, assuming there is a difference), or in less polite words bull***t detection,

2. symmetry in human affairs, that is, fairness, justice, responsibility, and reciprocity,

3. information sharing in transactions, and

4. rationality in complex systems and in the real world.

That these four cannot be disentangled is something that is obvious when one has skin in the game.

The book is part of author’s Incerto collection, which is a combination of

  • practical discussions,
    philosophical tales, and
  • scientific and analytical commentary

on the problems of randomness, and how to live, eat, sleep, argue, fight, befriend, work, have fun, and make decisions under uncertainty.

The book and the series are a must read.


Skin in the Game Book Summary

Note: This summary is made up of my notes, thoughts and highlights of important passages while reading the book. I keep updating the summary when I revisit it, and occasionally may edit it to reduce summary length. Don’t be surprised if it has changed between visits. The author’s words are in normal font, while my interpretations are in italics.

Book 1 – INTRODUCTION

Symmetry and reciprocity in life: If you have the rewards, you must also get some of the risks, not let others pay the price of your mistakes.

Skin in the game is mostly about justice, honor, and sacrifice, things that are existential for humans.

Prologue, Part 1 Antaeus Whacked

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 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.

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.

Most things that we believe were ‘invented’ by universities were actually discovered by tinkering and later legitimized by some type of formalization.

Three flaws with academia:

  • They think in statics not dynamics. They are incapable of thinking in second steps and unaware of the need for them
  • They think in low, not high, dimensions. They are also incapable of distinguishing between multidimensional problems and their single-dimensional representations. complex systems do not have obvious one-dimensional cause-and-effect mechanisms, and that under opacity, you do not mess with such a system.
  • They think in terms of actions, never interactions. They can’t forecast the evolution of those one helps by attacking, or the magnification one gets from feedback.

One should not mess with a system if the results are fraught with uncertainty,

Avoid engaging in an action with a big downside if one has no idea of the outcomes.

When you hear someone invoking abstract modernistic notions, you can assume that they got some education (but not enough, or in the wrong discipline) and have too little accountability.

The principle of intervention, like that of healers, is first do no harm (primum non nocere); even more, those who don’t take risks should never be involved in making decisions.

Idea of skin in the game is woven into history: historically, all warlords and warmongers were warriors themselves, and, with a few curious exceptions, societies were run by risk takers, not risk transferors.

One practical extension of the Silver Rule: Avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice.

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

Decentralization reduces large structural asymmetries.

A system that doesn’t have a mechanism of skin in the game, with a buildup of imbalances, will eventually blow up and self-repair that way. If it survives.

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

Absence of skin in the game has both ethical and epistemological effects (i.e., related to knowledge).

Interventionistas don’t learn because they are not the victims of their mistakes,

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

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, or better at explaining than doing.

Evolution can only happen if risk of extinction is present.

There is no evolution without skin in the game.

In general, the more people worship the sacrosanct state (or, equivalently, large corporations), the more they hate skin in the game.

It is the system that learns by selecting those less prone to a certain class of mistakes and eliminating others.

Prologue: Part 2 – A Brief Tour of Symmetry

What is a tail? Take for now that it is an extreme event of low frequency.

The well-known lex talionis, ‘an eye for one eye,’ comes from Hammurabi’s rule.

Negativa (acting by removing) is more powerful and less error-prone than via positiva (acting by addition).

Deal with weaker states as you think it appropriate for stronger states to deal with you.

Universal behavior is great on paper, disastrous in practice.

Kant did not get the notion of scaling – yet many of us are victims of Kant’s universalism.

The crux of the idea of The Black Swan was Platonification, missing central but hidden elements of a thing in the process of transforming it into an abstract construct, then causing a blowup.

Start by being nice to every person you meet. But if someone tries to exercise power over you, exercise power over him.

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

Fools of randomness are purged by reality so they stop harming others.

It is at the foundation of evolution that systems get smart by elimination.

We may not know beforehand if an action is foolish – but reality knows.

Fat Tony’s motto: You do not want to win an argument. You want to win.

We are much better at doing than understanding.

The doer wins by doing, not convincing.

You may not know in your mind where you are going, but you know it by doing.

What matters in life isn’t how frequently one is ‘right’ about outcomes, but how much one makes when one is right.

Inverse problem in mathematics, which is solved by – and only by – skin in the game.

It is harder for us to reverse-engineer than engineer; we see the result of evolutionary forces but cannot replicate them owing to their causal opacity. We can only run such processes forward. The very operation of Time and its irreversibility requires the filtering from skin in the game.

Without skin in the game, we fail to get the Intelligence of Time

In the light of causal opacity and revelation of preferences – the Intelligence of Time under skin in the game even helps define rationality.

there is no known rigorous definition of rationality that makes rejection of the ‘natural’ rational.

By definition, what works cannot be irrational.

Survival talks and BS walks.

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

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.

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.

Scientism, a naive interpretation of science as complication rather than science as a process and a skeptical enterprise.

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.
  • 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. They were people of deeds and had to be endowed with the spirit of risk taking. To get into their psyches, you will need someone other than a career professor teaching stoicism.

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

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).

When you are rewarded for perception, not results, you need to show sophistication.

Non-skin-in-the-game people don’t get simplicity.

Skin in the game can make boring things less boring.

  • When there is fire, you will run faster than in any competition.
  • If you harm me, I can sue you.
  • If you can’t effectively sue, regulate.
  • If you do not take risks for your opinion, you are nothing.

I have no other definition of success than leading an honorable life.

People who are not morally independent tend to fit ethics to their profession

Artisans have their soul in the game.

The villainous takes the short road, virtue the longer one. In other words, cutting corners is dishonest.

One of the best pieces of advice I have ever received was the recommendation by a very successful older entrepreneur, Yossi Vardi, to have no assistant. The mere presence of an assistant suspends your natural filtering. Having an assistant (except for the strictly necessary) removes your soul from the game.

Assistance moves you one step away from authenticity.

The skills at making things diverge from those at selling things.

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

Avoid the intermediary, when possible.

People might want to do things. Just to do things, because they feel it is part of their identity.

It may be cruel to cheat people of their profession. People want to have their soul in the game.

Prologue: Part 3 – The Ribs of the Incerto

Simply: if you can’t put your soul into something, give it up and leave that stuff to someone else.

Book reviews are judged according to how plausible and well written they are, never in how they map to the book.

Risk taking makes you look superficially less attractive, but vastly more convincing.

It clarifies the difference between life as real life and life as imagined in an experience machine,


Book 2 – A FIRST LOOK AT AGENCY

Chapter 1 – Why Each One Should Eat His Own Turtles: Equality in Uncertainty

You who caught the turtles better eat them.

You need to eat what you feed others.

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.

Giving advice as a sales pitch is fundamentally unethical – selling cannot be deemed advice.

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

Laws come and go; ethics stay.

No person in a transaction should have certainty about the outcome while the other one has uncertainty.

The most effective, shame-free policy is maximal transparency, even transparency of intentions.

Theory is too theoretical for humans.

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

It is unfortunate, but the general kills the particular.

People get along better as neighbors than roommates.

The skin-in-the-game definition of a commons: a space in which you are treated by others the way you treat them, where everyone exercises the Silver Rule.

Public good is something abstract, taken out of a textbook.

What has been lost for the benefit of all must be made up by the contribution of all.

The most reliable advocate for a product is its user.

Skin in the game comes with conflict of interest.

Medicine, while wrapping the garment of science around it, is fundamentally apprenticeship-based and, like engineering, grounded in experience, not just experimentation and theories.

The legal system and regulatory measures are likely to put the skin of the doctor in the wrong game.

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.

Can one make medicine less asymmetric? Not directly; the solution, as I have argued in Antifragile and more technically elsewhere, is for the patient to avoid treatment when he or she is mildly ill, but use medicine for the ‘tail events,’ that is, for rarely encountered severe conditions.


Book 3 – THAT GREATEST ASYMMETRY

Chapter 2 – The Most Intolerant Wins: The Dominance of the Stubborn Minority

An ’emergent’ property of the whole, by which parts and whole differ because what matters are the interactions between such parts.

A kosher (or halal) eater will never eat nonkosher (or nonhalal) food, but a nonkosher eater isn’t banned from eating kosher.

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

Decentralization is convex to variations.

It is the most intolerant person who imposes virtue on others precisely because of that intolerance.

The underlying structure of reality matters much more than the participants, something policymakers fail to understand.

  • Under the right market structure, a collection of idiots produces a well-functioning market.
  • 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.

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.

The minority rule produces low-variance in outcomes.

Would you agree to deny the freedom of speech to every political party that has in its charter the banning the freedom of speech?

Should a society that has elected to be tolerant be intolerant about intolerance?

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.

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. Stampedes happen in cinemas – say, when someone shouts ‘fire’ – because those who want to be out do not want to stay in,

Alexander said that it was preferable to have an army of sheep led by a lion than an army of lions led by a sheep.

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

Society doesn’t evolve by consensus, voting, majority, committees, verbose meetings, academic conferences, tea and cucumber sandwiches, or polling; only a few people suffice to disproportionately move the needle. All one needs is an asymmetric rule somewhere – and someone with soul in the game. And asymmetry is present in about everything.

The average behavior of the market participant will not allow us to understand the general behavior of the market.

The psychological experiments on individuals showing ‘biases’ do not allow us to automatically understand aggregates or collective behavior, nor do they enlighten us about the behavior of groups.

Understanding how the subparts of the brain (say, neurons) work will never allow us to understand how the brain works.

Understanding the genetic makeup of a unit will never allow us to understand the behavior of the unit itself.

More mastery of English than probability theory.

The underlying structure of reality matters much more than the participants.

Under the right market structure, a collection of idiots produces a well-functioning market.

It may be that be that some idiosyncratic behavior on the part of the individual (deemed at first glance ‘irrational’) may be necessary for efficient functioning at the collective level.

Individuals don’t need to know where they are going; markets do.


Book 4 – WOLVES AMONG DOGS

Chapter 3 – How to Legally Own Another Person

Complete freedom is the last thing you want if you have an organized religion to run.

Every organization wants a certain number of people associated with it to be deprived of a certain share of their freedom.

How do you own these people?

  • First, by conditioning and psychological manipulation.
  • Second, by tweaking them to have some skin in the game, forcing them to have something significant to lose if they disobey authority – something hard to do with gyrovague beggars who flout their scorn for material possessions.

People who are employees for a living don’t behave so opportunistically. Contractors are exceedingly free; as risk-takers, they fear mostly the law. But employees have a reputation to protect. And they can be fired.

But employees are expensive. You have to pay them even when you’ve got nothing for them to do.

Talent for talent, they cost a lot more. Lovers of paychecks are lazy but they would never let you down at times like these.

Employees exist because they have significant skin in the game – and the risk is shared with them, enough risk for it to be a deterrent and a penalty for acts of undependability, such as failing to show up on time. You are buying dependability. And dependability is a driver behind many transactions.

Someone who has been employed for a while is giving you strong evidence of submission.

If employees lower your tail risk, you lower theirs as well. Or at least, that’s what they think you do.

A company man is someone who feels that he has something huge to lose if he doesn’t behave as a company man – that is, he has skin in the game.

An employee is – by design – more valuable inside a firm than outside of it; that is, more valuable to the employer than the marketplace.

Contracts can be too costly to negotiate due to transaction costs; the solution is to incorporate your business and hire employees with clear job descriptions because you can’t afford legal and organizational bills for every transaction.

A free market is a place where forces act to determine specialization, and information travels via price point; but within a firm these market forces are lifted because they cost more to run than the benefits they bring.

Coase stopped one or two inches short of the notion of skin in the game. He never thought in risk terms to realize that an employee is also a risk-management strategy.

Roman families who customarily had a slave for treasurer, the person responsible for the finances of the household and the estate. Why? Because you can inflict a much higher punishment on a slave than a free person or a freedman.

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.

Multinational companies created the expat category, a sort of diplomat with a higher standard of living who represents the firm far away and runs its business there.

  • The person is terrified when the big boss snubs him.
  • Ninety-five percent of the employee’s mind will be on company politics, which is exactly what the company wants.
  • The big boss in the board room will have a supporter in the event of some intrigue.

Freedom entails risks – real skin in the game. Freedom is never free.

Whatever you do, just don’t be a dog claiming to be a wolf.

WOLVES AMONG THE DOGS – There is a category of employees who aren’t slaves, but these represent a very small proportion of the pool. You can identify them as follows: they don’t give a f*** about their reputation, at least not their corporate reputation.

One part arrogance, one part aesthetics, one part convenience.

Risk takers can be socially unpredictable people.

Freedom is always associated with risk taking, whether it leads to it or comes from it. You take risks, you feel part of history.

Those who use foul language on social networks are sending an expensive signal that they are free – and, ironically, competent.

You don’t signal competence if you don’t take risks for it – there are few such low-risk strategies.

Cursing today is a status symbol.

Ironically the highest status, that of a free man, is usually indicated by voluntarily adopting the mores of the lowest class.

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.

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; it is easier to trust the word of an autocrat than a fragile elected official.

People whose survival depends on qualitative ‘job assessments’ by someone of higher rank in an organization cannot be trusted for critical decisions.

Although employees are reliable by design, it remains the case that they cannot be trusted in making decisions, hard decisions, anything that entails serious tradeoffs.

The employee has a very simple objective function: fulfill the tasks that his or her supervisor deems necessary, or satisfy some gameable metric.


Chapter 4 – The Skin of Others in Your Game

History of whistleblowers, which shows that even if you end up vindicated, it may take time for the truth to emerge over the noise created by corporate shills. Meanwhile you will pay the price. A smear campaign against you will destroy any hope of getting another job.

Being ethical comes at a huge cost to others.

Society likes saints and moral heroes to be celibate so they do not have family pressures that may force them into the dilemma of needing to compromise their sense of ethics to feed their children.

Large corporations prefer people with families; those with downside risk are easier to own, particularly when they are choking under a large mortgage.

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:

Intellectual and ethical freedom requires the absence of the skin of others in one’s game, which is why the free are so rare.

I have f*** you money, so I appear to be fully independent.

By measuring the table with a ruler am I measuring the ruler or measuring the table?

I abide by Cato’s injunction: he preferred to be asked why he didn’t have a statue rather than why he had one.

Institutions are employees – vulnerable, reputation-conscious employees.

Those who engage in smear campaigning as a profession are necessarily incompetent at everything else – hence at that business too – so the industry accumulates rejects who are prone to ethical stretches.

World’s expert in smearing whistleblowers? Or even work as a lobbyist or public relations expert? These jobs are indicative of necessary failure in other things.

To be free of conflict you need to have no friends.

The answer is clear in the case of terrorism. The rule should be: You kill my family with supposed impunity; I will make yours pay some indirect price for it.

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.
  • Otherwise you will resemble the person we expose in the next chapter (which hopefully will offend many ‘intellectuals’), the insidious disease of modern times: back-office people (that is, support staff) acting as front-office ones (business generators).

Book 5 – BEING ALIVE MEANS TAKING CERTAIN RISKS

Chapter 5 – Life in the Simulation Machine

I knew very little about magicians, assumed it was all about optical illusions – the central inverse problem we mentioned in Prologue 2 that makes it easier to engineer than reverse-engineer.

The human nature of Christ makes the divine possible for all of us.

Life is sacrifice and risk taking, and nothing that doesn’t entail some moderate amount of the former, under the constraint of satisfying the latter, is close to what we can call life.

If you do not undertake a risk of real harm, reparable or even potentially irreparable, from an adventure, it is not an adventure.

Scars signal skin in the game.

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

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.

Chapter 6 – The Intellectual Yet Idiot

What we saw worldwide from 2014 to 2018, from India to the U.K. to the U.S., was a rebellion against the inner circle of no-skin-in-the-game policymaking ‘clerks’ and journalists-insiders.

The IYI pathologizes others for doing things he doesn’t understand without ever realizing it is his understanding that may be limited.

When plebeians do something that makes sense to themselves, but not to him, the IYI uses the term ‘uneducated.’

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.

Typically, the IYI get first-order logic right, but not second-order (or higher) effects, making him totally incompetent in complex domains.

Chapter 7 – Inequality and Skin in the Game

The first is the inequality people tolerate, such as one’s understanding compared to that of people deemed heroes, say, Einstein, Michelangelo.

The second is the inequality people find intolerable because the subject appears to be just a person like you, except that he has been playing the system, and getting himself into rent-seeking, acquiring privileges that are not warranted.

A resentment of high-paid professionals but, unexpectedly, not of the rich.

All publics – despises people who make a lot of money on a salary, or, rather, salarymen who make a lot of money.

Inequality, by definition, is zero sum.

What people resent – or should resent – is the person at the top who has no skin in the game, that is, because he doesn’t bear his allotted risk, he is immune to the possibility of falling from his pedestal, exiting his income or wealth bracket,

There is something respectable in losing a billion dollars, provided it is your own money.

True equality is equality in probability.

Skin in the game prevents systems from rotting.

Visibly, a problem with economists (particularly those who never took risk) is that they have mental difficulties with things that move.

Static inequality is a snapshot view of inequality; it does not reflect what will happen to you in the course of your life.

Dynamic (ergodic) inequality takes into account the entire future and past life.

You do not create dynamic equality just by raising the level of those at the bottom, but rather by making the rich rotate.

The way to make society more equal is by forcing (through skin in the game) the rich to be subjected to the risk of exiting from the 1 percent.

Someone who is rich should never be certain to stay rich.

Dynamic equality is what restores ergodicity, making time and ensemble probabilities substitutable.

Perfect ergodicity means that each one of us, should he live forever, would spend a proportion of time in the economic conditions of the entire cross-section.

Inequality is the disproportion of the role of the tail – rich people were in the tails of the distribution.

The wealth process is dominated by winner-take-all effects. Any form of control of the wealth process – typically instigated by bureaucrats – tends to lock people with privileges in their state of entitlement.

Envy does not originate with the impoverished, concerned with the betterment of their condition, but with the clerical class.

As with all communist movements, it is often the bourgeois or clerical classes who are the early adopters of revolutionary theories.

Envy is something you are more likely to encounter in your own kin: lower classes are more likely to experience envy toward their cousins or the middle class than toward the very rich.

Jean de La Bruyere wrote that jealousy is to be found within the same art, talent, and condition.

The intelligentsia therefore feels entitled to deal with the poor as a construct; one they created.

Empathy is the reverse of envy.

People mistake empiricism for a flood of data.

Probability, statistics, and data science are principally logic fed by observations.

When you buy a thick book with tons of graphs and tables used to prove a point, you should be suspicious. They substitute the true with the complicated.

It is downright unethical to use public office for enrichment.

The electrician, dentist, scholar of Portuguese irregular verbs, assistant colonoscopist, London cabby, and algebraic geometer are experts (plus or minus some local variations),


Chapter 8 – An Expert Called Lindy

Lindy effect can be best understood using the theory of fragility and antifragility,

Fragility is the sensitivity to disorder:

Time is equivalent to disorder, and resistance to the ravages of time, that is, what we gloriously call survival, is the ability to handle disorder.

That which is fragile has an asymmetric response to volatility and other stressors, that is, will experience more harm than benefit from it.

In probability, volatility and time are the same.

The only effective judge of things is time – by things we mean ideas, people, intellectual productions, car models, scientific theories, books.

Effectively Lindy answers the age-old meta-questions:

  • Who will judge the expert?
  • Who will guard the guard? (Quis custodiet ipsos custodes?)
  • Who will judge the judges?

Well, survival will.

Time operates through skin in the game. Things that have survived are hinting to us ex post that they have some robustness – conditional on their being exposed to harm.

There are two ways things handle time.

  • First, there is aging and perishability: things die because they have a biological clock, what we call senescence.
  • Second, there is hazard, the rate of accidents.

That which is ‘Lindy’ is what ages in reverse, i.e., its life expectancy lengthens with time, conditional on survival.

Only the nonperishable can be Lindy.

Fragility is the expert, hence time and survival.

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.

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 Romans judged their political system by asking not whether it made sense but whether it worked.

As an academic you are judged by other academics. Life is about peer assessment.

An old fellow pit trader once shared his wisdom: ‘If people over here like you, you are doing something wrong.’

You can define a free person precisely as someone whose fate is not centrally or directly dependent on peer assessment.

My only real judge being time, it is the stability and robustness of the readership (that is, future readers) that counts.

Being reviewed or assessed by others matters if and only if one is subjected to the judgment of future – not just present – others.

A free person does not need to win arguments – just win.

Contemporary peers are valuable collaborators, not final judges.

University administrators, who have no clue what someone is doing except via external signals, yet become the actual arbiters.

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

Anything that smacks of competition destroys knowledge.

The most convincing statements are those in which one stands to lose, ones in which one has maximal skin in the game.

Showing off is reasonable; it is human. As long as the substance exceeds the showoff, you are fine.

One should give more weight to research that, while being rigorous, contradicts other peers, particularly if it entails costs and reputational harm for its author.

Someone with a high public presence who is controversial and takes risks for his opinion is less likely to be a bull***t vendor.

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.

For things to survive, they necessarily need to fare well in the risk dimension, that is, be good at not dying.

By the Lindy effect, if an idea has skin in the game, it is not in the truth game, but in the harm game.

An idea survives if it is a good risk manager, that is, not only doesn’t harm its holders, but favors their survival – this also applies to superstitions that have crossed centuries because they led to some protective actions.

Science is a minority rule: a few will run it, others are just back-office clerks.)

Science is fundamentally disconfirmatory, not confirmatory.

Ideas need to have skin in the game. You know an idea will fail if it is not useful, and can be therefore vulnerable to the falsification of time.

For things to survive, they necessarily need to fare well in the risk dimension, that is, be good at not dying.

If an idea has skin in the game, it is not in the truth game, but in the harm game.

An idea survives if it is a good risk manager, that is, not only doesn’t harm its holders, but favors their survival.

Things work

  • If those who have been doing the doing took some type of risk, and
  • Their work manages to cross generations.

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.

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. By classics we can define the Latin (and late Hellenistic) moral literature (moral sciences meant something else than they do today): Cicero, Seneca, Marcus Aurelius, Epictetus, Lucian, or the poets: Juvenal, Horace, or the later French so-called ‘moralists’ (La Rochefoucauld, Vauvenargues, La Bruyere, Chamfort). Bossuet is a class on his own.

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).

Loss aversion (a psychological theory by which a loss is more painful than a gain is pleasant):

Negative advice (via negativa): We know the wrong better than what’s right;

Antifragility: There are tens of ancient sayings. Let us just mention Cicero. When our souls are mollified, a bee can sting.

Time discounting: ‘A bird in the hand is better than ten on the tree.’

Madness of crowds: Nietzsche: Madness is rare in individuals, but in groups, parties, nations, it is the rule.

Less is more: Truth is lost with too much altercation, in Publilius Syrus.

Overconfidence: I lost money because of my excessive confidence, Erasmus


Book 6 – DEEPER INTO AGENCY

Chapter 9 – Surgeons Should Not Look Like Surgeons

The one who doesn’t look the part, conditional on having made a (sort of) successful career in his profession, had to have much to overcome in terms of perception.

If we are lucky enough to have people who do not look the part, it is thanks to the presence of some skin in the game, the contact with reality that filters out incompetence, as reality is blind to looks.

When results come from dealing directly with reality rather than through the agency of commentators, image matters less, even if it correlates to skills.

Image matters quite a bit when there is hierarchy and standardized ‘job evaluation.’

Counter to the common belief, executives are different from entrepreneurs and are supposed to look like actors.

Conditional on having had some success in spite of not looking the part, it is potent, even crucial, information.

The best actor is the one nobody realizes is an actor:

Now if I had to pick, I would overcome my sucker-proneness and take the butcher any minute. Even more: I would seek the butcher as a third option if my choice was between two doctors who looked like doctors. Why? Simply the one who doesn’t look the part, conditional on having made a (sort of) successful career in his profession, had to have much to overcome in terms of perception. And if we are lucky enough to have people who do not look the part, it is thanks to the presence of some skin in the game, the contact with reality that filters out incompetence, as reality is blind to looks.

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.

Don’t think that beautiful apples taste better, goes the Latin saying.

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.

I also learned, in my early twenties, that the people you understand most easily were necessarily the bull***tters.

Literature should not look like literature.

The illusion prevails that businesses work via business plans and science via funding.

A business plan is a useful narrative for those who want to convince a sucker.

Firms in the entrepreneurship business make most of their money packaging companies and selling them.

For a real business (as opposed to a fund-raising scheme), something that should survive on its own, business plans and funding work backward.

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.

Intellectuals held power and separated themselves from the rest: through complex, extremely elaborate rituals, mysteries that stay within the caste, and an overriding focus on the cosmetic.

The class of intellectuals is all about rituals: without pomp and ceremony, the intellectual is just a talker, that is, pretty much nothing.

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.

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

Overintellectualizing humans in their responses to all manner of natural phenomena, rather than accepting the role of a collection of mental heuristics used for specific purposes.

Religious ‘beliefs’ are simply mental heuristics that solve a collection of problems – without the agent really knowing how.

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.

People who are bred, selected, and compensated to find complicated solutions do not have an incentive to implement simplified ones.

This is particularly acute in the meta-problem, when the solution is about solving this very problem.

Fragility is in the dosage: falling from the 20th floor is not in the same risk category as falling from your chair.

The mere fact that an evaluation causes you to be judged not by the end results, but by some intermediary metric that invites you to look sophisticated, brings some distortions.

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.

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.

If gyms should not look like gyms, exercise should not look like exercise. Most gains in physical strength come from working the tails of the distribution, close to your limit.

Chapter 10 – Only the Rich Are Poisoned: The Preferences of Others

When people get rich, they shed their skin-in-the-game-driven experiential mechanism. They lose control of their preferences, substituting constructed preferences for their own.

Constructed preferences are of course the preferences of those who want to sell them something.

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

Thieves do not enter impecunious homes, and one is more likely to be drinking poison in a golden cup than an ordinary one.

It is easy to scam people by getting them into complications – the poor are spared that type of scamming.

The rich start using ‘experts’ and ‘consultants.’ An entire industry meant to swindle you will swindle you: financial consultants, diet advisors, exercise experts,

Very few people understand their own choices, and end up being manipulated by those who want to sell them something.

If wealth is giving you fewer options instead of more (and more varied) options, you’re doing it wrong.

Baldassare Castiglione’s Book of the Courtier: people need to be equal, at least for the purpose of the conversation, otherwise it fails.

Community as a space within which many rules of competition and hierarchy are lifted, where the collective prevails over one’s interest.

Sophistication can, at some level, cause degradation, what economists call ‘negative utility.’

Chapter 11 – Facta non Verba (Deeds Before Words)

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.

An enemy you own is better than a dead one.

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.

The only enemy you cannot manipulate is a dead one.

Verbal threats reveal nothing beyond weakness and unreliability.

Gene transfer between areas happens by group migrations, inclement climate, and unaccommodating soil rather than war.

Count Ernst zu Munster’s epigrammatic description of the Russian Constitution explains it: ‘Absolutism tempered by assassination.’

Chapter 12 – The Facts Are True, the News Is Fake

One does not need complex models as a justification to avoid a certain action. If we don’t understand something and it has a systemic effect, just avoid it.

You can criticize either what a person said or what a person meant. The former is more sensational, hence lends itself more readily to dissemination.

Donald Trump said, ‘The facts are true, the news is fake’.

The principle of charity stipulates that you try to understand a message as if you were yourself its author.

Chapter 13 – The Merchandising of Virtue

It is immoral to be in opposition to the market system and not live (somewhere in Vermont or Northwestern Afghanistan) in a hut or cave isolated from it.

It is much more immoral to claim virtue without fully living with its direct consequences.

If your private life conflicts with your intellectual opinion, it cancels your intellectual ideas, not your private life.

If your private actions do not generalize, then you cannot have general ideas.

Global causes – poverty (particularly children’s), the environment, justice for some minority trampled upon by colonial powers, or some as-yet-unknown gender that will be persecuted – are now the last refuge of the scoundrel advertising virtue.

Virtue is not something you advertise. It is not an investment strategy. It is not a cost-cutting scheme. It is not a bookselling (or, worse, concert-ticket-selling) strategy.

Charlie Munger once said: ‘Look it. Would you rather be the world’s greatest lover, but have everyone think you’re the world’s worst lover? Or would you rather be the world’s worst lover but have everyone think you’re the world’s greatest lover?’

To be or to be seen as such.

Virtue requires skin in the game in terms of risk taking, particularly when it is one’s reputation that is at risk.

Virtue is doing something for the collective, particularly when such an action conflicts with your narrowly defined interests.

Courage is the only virtue you cannot fake.

Sticking up for truth when it is unpopular is far more of a virtue, because it costs you something – your reputation.

  • Never engage in virtue signaling;
  • Never engage in rent-seeking;
  • You must start a business.

Put yourself on the line, start a business. Yes, take risk, and if you get rich (which is optional), spend your money generously on others.

We need people to take (bounded) risks. The entire idea is to move the descendants of Homo sapiens away from the macro, away from abstract universal aims, away from the kind of social engineering that brings tail risks to society.

Courage (risk taking) is the highest virtue. We need entrepreneurs.

Chapter 14 – Peace, Neither Ink nor Blood

People on the ground, those with skin in the game, are not too interested in geopolitics or grand abstract principles.

No peace proceeds from bureaucratic ink. If you want peace, make people trade, as they have done for millennia.

We are largely collaborative – except when institutions get in the way.

Real people are interested in commonalities and peace, not conflicts and wars.

If the ‘law of the jungle’ means anything, it means collaboration for the most part.

We humans are prone to the availability heuristic, by which the salient is mistaken for the statistical, and the conspicuous and emotional effect of an event makes us think it is occurring more regularly than in reality.

History is largely peace punctuated by wars, rather than wars punctuated by peace.

Journalism is about ‘events,’ not absence of events, and many historians and policy scholars are glorified journalists with high fact-checking standards who allow themselves to be a little boring in order to be taken seriously.

Historians and policy scholaristas are selected from a cohort of people who derive their knowledge from books, not real life and business.


Book 7 – RELIGION, BELIEF, AND SKIN IN THE GAME

Chapter 15 – They Don’t Know What They Are Talking About When They Talk About Religion

My lifetime motto is that mathematicians think in (well, precisely defined and mapped) objects and relations, jurists and legal thinkers in constructs, logicians in maximally abstract operators, and fools in words.

Philosophy was born as rigor in discourse and disentanglement of mixed-up notions, in precise opposition to the sophist’s promotion of rhetoric.

Outside of poetry, beware the verbalistic, that archenemy of knowledge.

Beware labels when it comes to matters associated with beliefs. And avoid treating religions as if they are all the same animal.

Chapter 16 – No Worship Without Skin in the Game

The strength of a creed did not rest on ‘evidence’ of the powers of its gods, but evidence of the skin in the game on the part of its worshippers.

Chapter 17 – Is the Pope Atheist?

Nobody in the Vatican seems to ever take chances by going first to the Lord, subsequently to the doctor, and, what is even more surprising, nobody seems to see a conflict with such inversion of the logical sequence.

There are people who are atheists in actions, religious in words (most Orthodox and Catholic Christians) and others who are religious in actions, religious in words (Salafi Islamists and suicide bombers).

I know of nobody who is atheist in both actions and words, completely devoid of rituals, respect for the dead, and superstitions.


Book 8 – RISK AND RATIONALITY

Chapter 18 – How to Be Rational About Rationality

In science, belief is literal belief; it is right or wrong, never metaphorical.

In real life, belief is an instrument to do things, not the end product.

Your eyes are not sensors designed to capture the electromagnetic spectrum. Their job description is not to produce the most accurate scientific representation of reality; rather the most useful one for survival.

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

Hobbes: Primum vivere, deinde philosophari (First, live; then philosophize).

Warren Buffett truism ‘to make money you must first survive’.

I have a finite shelf life; my survival is not as important as the survival of things that do not have a limited life expectancy, such as mankind or planet earth. Hence the more ‘systemic’ things are, the more important survival becomes.

Simon formulated the notion now known as bounded rationality: we cannot possibly measure and assess everything as if we were a computer; we therefore produce, under evolutionary pressures, some shortcuts and distortions.

Judging people by their beliefs is not scientific. There is no such thing as the ‘rationality’ of a belief, there is rationality of action. The rationality of an action can be judged only in terms of evolutionary considerations.

The axiom of revelation of preferences (originating with Paul Samuelson, or possibly the Semitic gods), as you recall, states the following: you will not have an idea about what people really think, what predicts people’s actions, merely by asking them – they themselves don’t necessarily know.

Beliefs are cheap talk.

Antifragile that making some types of errors is the most rational thing to do, when the errors are of little cost, as they lead to discoveries.

Religion exists to enforce tail risk management across generations, as its binary and unconditional rules are easy to teach and enforce.

We have survived in spite of tail risks; our survival cannot be that random.

Skin in the game means that you do not pay attention to what people say, only to what they do.

Science is mainly rigor in the process.

There is a difference between beliefs that are decorative and different sorts of beliefs, those that map to action.

How much you truly ‘believe’ in something can be manifested only through what you are willing to risk for it.

What is rational is that which allows for survival.

When you consider beliefs in evolutionary terms, do not look at how they compete with each other, but consider the survival of the populations that have them.

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

Not everything that happens happens for a reason, but everything that survives survives for a reason.

Rationality is risk management, period.

Chapter 19 – The Logic of Risk Taking

To do science (and other nice things) requires survival but not the other way around.

When you read material by finance professors, finance gurus, or your local bank making investment recommendations based on the long-term returns of the market, beware. Even if their forecasts were true (they aren’t), no individual can get the same returns as the market unless he has infinite pockets and no uncle points.

In order to succeed, you must first survive.

I effectively organized all my life around the point that sequence matters and the presence of ruin disqualifies cost-benefit analyses.

A situation is deemed non-ergodic when observed past probabilities do not apply to future processes. There is a ‘stop’ somewhere, an absorbing barrier that prevents people with skin in the game from emerging from it – and to which the system will invariably tend.

The central problem is that if there is a possibility of ruin, cost-benefit analyses are no longer possible.

In real life, every single bit of risk you take adds up to reduce your life expectancy.

Idea of repetition makes paranoia about some low-probability events, even that deemed ‘pathological,’ perfectly rational.

If you incur a tiny probability of ruin as a ‘one-off’ risk, survive it, then do it again (another ‘one-off’ deal), you will eventually go bust with a probability of one hundred percent.

Ruin is indivisible and invariant to the source of randomness that may cause.

Risk aversion does not exist: what we observe is, simply, a residual of ergodicity. People are, simply, trying to avoid financial suicide and take a certain attitude to tail risks.

Unless you are perfectly narcissistic and psychopathic – even then – your worst-case scenario is never limited to the loss of only your life.

Individual ruin is not as big a deal as collective ruin.

Taking personal risks to save the collective are ‘courage’ and ‘prudence’ since you are lowering risks for the collective.

  • I have a finite shelf life, humanity should have an infinite duration.
  • I am renewable, not humanity or the ecosystem.

I have shown in Antifragile, the fragility of the system’s components (provided they are renewable and replaceable) is required to ensure the solidity of the system as a whole.

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

The difference between successful people and really successful people is that really successful people say no to almost everything.

Antifragile shows how people confuse risk of ruin with variations and fluctuations.

Volatile things are not necessarily risky, and the reverse is also true.

Risk and ruin are different tings.

Never compare a multiplicative, systemic, and fat-tailed risk to a non-multiplicative, idiosyncratic, and thin-tailed one.

Mediocristan is thin-tailed and affects the individual without correlation to the collective.

Extremistan, by definition, affects many people. Hence Extremistan has a systemic effect that Mediocristan doesn’t. Multiplicative risks – such as epidemics – are always from Extremistan.

Mediocristan risks are subjected to the Chernoff bound.

One may be risk loving yet completely averse to ruin.

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

Ruin and other changes in condition are different animals.

Every single risk you take adds up to reduce your life expectancy.

Rationality is avoidance of systemic ruin.


Epilogue

What Lindy Told Me

Per Lindy:

  • 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.

A (long) maxim, via negativa style:

  • No muscles without strength,
  • friendship without trust,
  • opinion without consequence,
  • change without aesthetics,
  • age without values,
  • life without effort,
  • water without thirst,
  • food without nourishment,
  • love without sacrifice,
  • power without fairness,
  • facts without rigor,
  • statistics without logic,
  • mathematics without proof,
  • teaching without experience,
  • politeness without warmth,
  • values without embodiment,
  • degrees without erudition,
  • militarism without fortitude,
  • progress without civilization,
  • friendship without investment,
  • virtue without risk,
  • probability without ergodicity,
  • wealth without exposure,
  • complication without depth,
  • fluency without content,
  • decision without asymmetry, s
  • cience without skepticism,
  • religion without tolerance,
  • nothing without skin in the game.

Rent Seeking: trying to use protective regulations or ‘rights’ to derive income without adding anything to economic activity, without increasing the wealth of others.

Revelation of Preferences: the theory, originating with Paul Samuelson (initially in the context of choice of public goods), that agents do not have full access to the reasoning behind their actions; actions are observables, while thought is not,

Regulatory Capture: situations where regulations end up being ‘gamed’ by an agent, often in divergence from the original intent of the regulation.

Scientism: the belief that science looks … like science, with too much emphasis on the cosmetic aspects, rather than its skeptical machinery.

Naive Rationalism: Belief that we have access to what makes the world work and that what we don’t understand doesn’t exist.

Intellectual Yet Idiot: an idiot.

Pseudo-rationalism: 1) focusing on the rationality of a belief rather than its consequences, 2) the use of bad probabilistic models to naively decry people’s ‘irrationality’ when they engage in a certain class of actions.

Agency Problem: misalignment of interest between the agent and the principal,

Bob Rubin Trade: payoff in a skewed domain where the benefits are visible (and rewarded with some compensation) and the detriment is rare (and unpunished owing to absence of skin in the game).

Interventionista: someone who causes fragility because he thinks he understands what’s going on. He is not exposed to the filter of skin in the game.

Green Lumber Fallacy: mistaking the source of important or even necessary knowledge.

Lecturing-Birds-How-to-Fly Effect: inverting the arrow of knowledge to read academia -> practice, or education -> wealth, to make it look as though technology owes more to institutional science than it actually does.

Lindy Effect: when a technology, idea, corporation, or anything nonperishable has an increase in life expectancy with every additional day of survival.

Ergodicity: In our context here, ergodicity holds when a collection of players have the same statistical properties (particularly expectation) as a single player over time. Ensemble probabilities are the same as time probabilities.

Mediocristan: a process dominated by the mediocre, with few extreme successes or failures (say, income for a dentist). No single observation can affect the aggregate.

Extremistan: a process where the total can be conceivably impacted by a single observation (say, income for a writer).

Minority Rule: an asymmetry by which the behavior of the total is dictated by the preferences of a minority. Smokers can be in smoke-free areas but nonsmokers cannot be in smoking ones.

Via Negativa: in theology and philosophy, the focus on what something is not, an indirect definition, deemed less prone to fallacies than via positiva. In action, it is a recipe for what to avoid, what not to do – subtraction, not addition, works in domains with multiplicative and unpredictable side effects.

Scalability: The qualities of entities change, often abruptly, when they get smaller or larger: cities are different from large states.

Intellectual Monoculture: Journalists, academics, and other slaves to a mode that can be manipulated and often resists empirical backing.

Virtue Merchandising: the debasing of virtue by using it as a marketing strategy. Virtue merchandisers are often hypocrites. Further, virtue devoid of courage, sacrifice, and skin in the game.

Golden Rule (symmetry): Treat others the way you would like them to treat you.

Silver Rule (negative golden rule): Do not do to others what you would not like them to do to you. Note the difference from the Golden Rule, as the silver one prevents busybodies from attempting to run your life.

Principle of Charity: Exercise symmetry in intellectual debates; represent the argument of the opponent as accurately as you would like yours to be represented.

Dynamic Risk Taking: If you take the risk – any risk – repeatedly, the way to count is in exposure per lifespan, or in the way it shortens the remaining lifespan.

Ruin Properties: Ruin probabilities are in the time domain for a single agent and do not correspond to state-space (or ensemble) tail probabilities.

Never cross a river if it is on average only 4 feet deep.

No risk should be considered a ‘one-off’ event.

The fat tails argument: The more a system is capable of delivering large deviations, the worse the ruin problem.

Ergodicity is not statistically identifiable, not observable, and there is no test for time series that gives ergodicity, similar to Dickey-Fuller for stationarity (or Phillips-Perron for integration order). More crucially: If your result is obtained from the observation of a time series, how can you make claims about the ensemble probability measure?


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