Date read: June 2020
How strongly would I recommend? 6/10
Lasting Thoughts
To have skin in the game is to have a stake in the outcome. If you are in a position to reap the benefits of a positive outcome you also need to pay the price for a negative outcome. A pilot has skin in the game. An investment banker does not. We can use skin in the game to gauge knowledge or advice. Without skin in the game, there are no stakes. Skin in the game is about symmetry. Taleb says you should avoid taking advice from someone who gives advice for a living unless there is a penalty for their advice.
How The Book Changed Me
- Put your reputation and your finances on the line — get in the game.
- Don’t be an Intellectual Yet Idiot.
Most Memorable Quote
“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. And risk takers take risks because it is in their nature to be wild animals.”
Nassim Taleb
My Notes
For reference:
The bold highlights are my own emphasis
The blue highlights are passages I found noteworthy or interesting
Book 1: Introduction
Prologue, Part 1: Antaeus Whacked
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.
Prologue, Part 2: A Brief Tour of Symmetry
Avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice.
The doer wins by doing, not convincing.
You may not know in your mind where you are going, but you know it by doing.
I personally know rich horrible forecasters and poor “good” forecasters. Because what matters in life isn’t how frequently one is “right” about outcomes, but how much one makes when one is right. being wrong, when it is not costly, doesn’t count—in a way that’s similar to trial-and-error mechanisms in research.
Those who give lectures to large audiences notice that they—and other speakers—are uncomfortable on the stage. The reason, it took me a decade to figure out, is the stage light beaming into our eyes hinders our concentration.
If you are an investor in a company, doing ultra-boring things like reading the foot-notes of a financial statement (where the real information is found) becomes, well, almost not boring.
If you do not take risks for your opinion, you are nothing.
For styling courage in textbooks doesn’t make you any more courageous than eating cow meat makes you bovine.
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 2: A First Look At Agency
Ch 1: Why Each One Should Eat His Own Turtles: Equality in Uncertainty
No person in a transaction should have certainty about the outcome while the other has uncertainty.
No compensation is worth the feeling of shame.
Scaling matters, I will keep repeating until I get hoarse.
— But we don’t have to go very far to get the importance of scaling. You know instinctively that people get along better as neighbours than roommates.
Don’t tell me what you think, tell me what you have in your portfolio.
Deep down, [a doctor] may know that statins are harmful, as they willed to long-term side effects. But the pharmaceutical companies have managed to convince everyone that these unseen consequences are harmless, when the right precautionary approach is to consider the unseen as potentially harmful.
In sum, both the doctor and the patient have skin in the game, though not perfectly, but administrators don’t—and they seem to be the cause of the troubling malfunctioning of the system. Administrators everywhere on the planet, in all businesses and pursuits, and at all times in history, have been the plague.
Users of products are more reliable because of a natural filtering. I bought an electric car—a Tesla—because my neighbour was enthusiastic about his (skin in the game), and I watched him remain so for a few years. No amount of advertising will match the credibility of a genuine user.
Book 3: That Greatest Asymmetry
Ch 2: The Most Intolerant Wins: The Dominance of the Stubborn Minority
A disabled person will not use the regular bathroom, but a non disabled person will use the bathroom for disabled people.
The market is like a large movie theatre with a small door.
— And the best way to detect a sucker is to see if his focus is on the size of the theatre rather than that of the door.
“Never doubt that a small group of thoughtful citizens can change the world. Indeed, it is not the only thing that ever has,” wrote Margaret Mead.
— Revolutions are unarguably driven by an obsessive minority. And the entire growth of society, whether economic or moral, comes from a small number of people.
- All it takes is, say, a 3 percent minority, for “Merry Christmas” to become “Happy Holidays.”
Book 4: Wolves Among Dogs
Ch 3: How to Legally Own Another Person
Ironically, by being beggars, [the monks] had the equivalent of f*** you money, which we can more easily get by being at the lowest rung than by joining the income-dependent classes.
There is a trader’s expression: “Never buy when you can rent the three Fs: what you Float, what you Fly, and what you … (that something else).” Yet many people who own boats and planes, and end up stuck with that something else.
Someone who has been employed for a while is giving you strong evidence of submission.
— Evidence of submission is displayed by the employee’s going through years of depriving himself of his personal freedom for nine hours every day, has ritualistic and punctual arrival at an office, his denying himself his own schedule, and his not having beaten up anyone on the way back home after a bad day. He is an obedient, housebroken dog.
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.
— If the company man is, sort of, gone, he has been replaced by the companies person. For people are no longer owned by a company but bu something worse: the idea that they need to be employable. The employable person is embedded in an industry, with fear of upsetting not just their employer, but other potential employers.
The best slave is someone you overpay and who knows it, terrified of losing his position.
Freedom entails risks—real skin in the game. Freedom is never free.
Another aspect of the dog vs. wolf dilemma: the feeling of false stability. A dog’s life may appear smooth and secure, but in the absence of an owner, a dog does not survive. Most people prefer to adopt puppies, not grown-up dogs; in many countries, unwanted dogs are euthanized. A wolf is trained to survive.
… people like people, and they drop business when they get some generic and polite person on the phone in place of their warm and often exuberant salesperson-friend.
I recall being asked why I didn’t wear a tie, which at the time was the equivalent of walking down Fifth Avenue naked. “One part arrogance, one part aesthetics, one part convenience,” was my usual answer.
— If you were profitable you could give managers all the crap you wanted and they ate it because they needed you and were afraid of losing their own jobs.
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. And risk takers take risks because it is in their nature to be wild animals.
In my day, nobody cursed in public except for gang members and those who wanted to signal that they were not slaves: traders cursed like sailors, and I have kept the habit of strategic foul language, used only outside of my writings and family life.
— Those who use foul language on social networks (such as twitter) 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. So cursing today is a status symbol, just as oligarchs in Moscow wear blue jeans on special events to signal their power.
— Ironically, the highest status, that of a free man, is usually indicated by voluntarily adopting the mores of the lowest class.
Consider that English “manners” were imposed on the middle class as a way of domesticating them, along with instilling in them the fear of breaking rules and violating social norms.
What mattes isn’t what a person has or doesn’t have; it is what he or she is afraid of losing.
Watching [Vladimir Putin] made me realize the domesticated (and sterilized) animals don’t stand a chance against a wild predator. Not a single one. Fughedabout military capabilities; it is the trigger that counts.
People whose survival depends on qualitative “job assessments” by someone of higher rank in an organization cannot be trusted for critical decisions.
In some countries, executives and mid-level managers are given perks such as a car (in the disguise of a tax subsidy), which are things on which the employee would not spend his money had he not been given cash (odds are he may save the funds); they make the employee even more dependent.
Ch 4: The Skin of Others in Your Game
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. The entire human race, something rather abstract, becomes their family. Some martyrs, such as Socrates, had young children (although he was in his seventies), and overcame the dilemma at their expense. Many can’t.
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 cannot possibly imagine the activist Ralph Nader, when he was the target of large moron companies, raising a family with 2.2 kids and a dog.
… nobody says, “I will punish your family because you are criticizing the big agrichemical firms,” when in effect this is what happens in practice when there is the threat of the reduction in the volume of the objects under the Christmas tree, or the degradation of the quality of food in the refrigerator.
… people who collect honorary doctorates are typically hierarchy-conscious, and I abide by Cato’s injunction: he preferred to be asked why he didn’t have a statue than why he had one.
To be free of conflict you need to have no friends.
The only way we have left to control suicide-terrorists would be precisely to convince them that blowing themselves up is not the worst-case scenario for them, nor the end scenario at all. Making their families and loves ones bear a financial burden—just as Germans still pay for war crimes—would immediately add consequences to their actions. The penalty needs to be properly calibrated to be a true disincentive, without imparting any sense of heroism or martyrdom to the families in question.
- The current narrative is that terrorists think they are going to heaven and will meet virgins that look like their next-door neighbors. Not quite true: many just seek a perceived heroic death, or to impress their friends. The desire to be a hero can be quite blinding.
Book 5: Being Alive Means Taking Certain Risks
Ch 5: Life in the Simulation Machine
Because, to repeat, 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.
… always do more than you talk. And precede talk with action. For it will always remain that action without talk supersedes talk without action.
Ch 6: The Intellectual Yet Idiot
The Intellectual Yet Idiot (IYI) is a product of modernity, hence has been proliferating since at least the mid-twentieth century, to reach a local supremum today, to the point that we have experienced a takeover by people without skin in the game.
— The IYI pathologies others for doing things he doesn’t understand without ever realizing it is his understanding that may be limited.
- They are what Nietzsche called Bidungshilisters—educated philistines. Beware the slightly erudite who things he is an erudite, as well as the barber who decide to perform brain surgery.
- Typically, the IYI gets first-order logic right, but not second-order (or higher) effects, making him totally incompetent in complex domains.
The IYI has been wrong, historically, about Stalinism, Maoism, GMOs, Iraq, Libya, Syria, lobotomies, urban planning, low carbohydrate diets, gym machines, behaviourism, trans-fats, Freudianism, portfolio theory, linear regression, High-Fructose Corn Syrup, Gaussianism, Salafism, dynamic stochastic equilibrium modeling, housing projects, marathon running, selfish genes, election-forecasting models, Bernie Madoff (pre-blowup), and p-values. But he is still connived that his current position is right.
The IYI likes to use buzzwords from philosophy of science when discussing unrelated phenomena; he goes two or three levels too theoretical for a given problem.
— he knows at any given point in time that his words or actions are doing his reputation. But a much easier marker: he doesn’t even deadlift.
Ch 7: Inequality and Skin in the Game
Just as those who live by the sword die by the sword, those who earn their living taking risks will lose their livelihoods taking risks.
Traders, when they make profits, have short communications; when they lose they drown you in details, theories, and charts.
So I’ve discovered, with experience, that when you buy a thick book with too of graphs and tables used to prove a point, you should be suspicious. It means something didn’t distill right! But for the general public and those untrained in statistics, such tables appear convincing—another way to substitute the true with the complicated.
Ch 8: An Expert Called Lindy
That which is fragile has an asymmetric response to volatility and other stressors, that is, will experience more harm than benefit from it.
You can define a free person precisely as someone whose fate is not centrally dependent on peer assessment.
If you say something crazy you will be deemed crazy. But if you create a collection of, say, twenty people 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 ritualistic self-referential publishing game.
Someone with a high public presence who is controversial and takes risks for his opinions less likely to be a bull***t vendor.
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 behavioural scientists, odds are that it works at less than 10 percent, unless it has been covered by the grandmother and the classics, in which case why would you need a psychologist?
Nearly all the letters Seneca have some element of loss aversion.
I learned to avoid honours and prizes partly because, given that they are aware by the wrong judges, they are likely to hit you at the peak (you’d rather be ignored, or, better, disliked by the general media).
— Empirically, if you want an author to cross a few generations, make sure he or she never gets that something called the Nobel Prize in Literature.
Book 6: Deeper Into Agency
Ch 9: Surgeons Should Not Look Like Surgeons
So the next time you randomly pick a novel, avoid the one with the author photo representing a pensive man with an ascot in front of wall-to-wall bookshelves.
I also learned, in my early twenties, that the people you understand most easily were necessarily the bull***tters.
Never pay for complexity of presentation what all you need is results.
Things appear maximally sophisticated and scientific—but remember that what looks scientific is usually scientist, not science.
Ch 10: Only the Rick Are Poisoned: The Preferences of Others
Hamburgers, to many of us, are vastly tastier than filet mignon because of the higher fat content, but people have been convinced that the latter is better because it is more expensive to produce.
… if wealth is giving you fewer options instead of more (and more varied) options, you’re doing it wrong.
Ch 11: Facta non Verba (Deeds Before Words)
Verbal threats reveal nothing beyond weakness and unreliability. Remember, once again, no verbal threats.
We used to live in small communities; our reputations were directly determined by what we did—we were watched. Today, anonymity brings out the a**hole in people. So I accidentally discovered a way to change the behaviour of unethical and abusive persons without verbal threat.
- Take their pictures. Just the act of taking their pictures is similar to holding their lives in your hands and controlling their future behaviour thanks to your silence. They don’t know what you can do with it, and will live in a state of uncertainty.
Ch 12: The Facts Are True, the News Is Fake
If we don’t understand something and it has a systemic effect, just avoid it. Models are error-prone, something I knew well with finance; most risks only appear in analyses after harm is done.
Ch 13: The Merchandising of Virtue
It is much more immoral to claim virtue without fully living with its direct consequences.
If you manage to convince yourself that you are right in theory, you don’t really care how your ideas affect others. Your ideas give you a virtuous status that makes you impervious to how the affect others.
If your private life conflicts with your intellectual opinion, it cancels your intellectual ideas, not your private life.
So these 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.
Be careful not to practice your righteousness in front of others to be seen by them. If you do, you will have no reward from your Father in heaven.
— So when you give to the needy, do not announce it with trumpets, as the hypocrites do in the synagogues and on the streets, to be honoured by others. Truly I tell you, they have received their reward in full. But when you give to the needy, do not let your left hand know what your right hand is doing, so that your giving may be in secret. Then your Father, who sees what is done in secret, will reward you.
The investor Charlie Munger once said: “Look. 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?”
- As usual, if it makes sense, it has to be in the classics, where it is found under the name esse quad videri, which I translate as to be or to be seen as such. It can be found in Cicero, Sallust, even Machiavelli, who, characteristically, inverted in to videri quad esse, “show rather than be.”
So true virtue lies mostly in also being nice to those who are neglected by others, the less obvious cases, those people the grand charity business tends to miss. Or people who have no friends and would like someone once in awhile to just call them for a chat or a cup of fresh roasted Italian-style coffee.
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. If you are a journalist and act in a way that risks ostracism, you are virtuous. Some people only express their opinions as part of mob shaming, when it is safe to do so, and, in the bargain, think that they are displaying virtue. This is not virtue but vice, a mixture of bullying and cowardice.
… when young people who “want to help mankind” come to me asking, “What should I do? I want to reduce poverty, save the world,” and similar noble aspirations at the macro-level, my suggestion is:
- Never engage in virtue signalling;
- Never engage in rent-seeking;
- You must start a business. Put yourself on the line, start a business.
Courage (risk taking) is the highest virtue. We need entrepreneurs.
Ch 14: Peace, Neither Ink nor Blood
No peace proceeds from bureaucratic ink. If you want peace, make people trade, as they have done for millennia. They will be eventually forced to work something out.
Real people are interested in commonalities and peace, not conflicts and war.
So always keep in mind that historians and policy scholaristas are selected from a cohort of people who derive their knowledge from books, not real life and business. The same is true for State Department employees, since these are not hired among adventurers and doers, but students of these scholars.
- Let’s say it bluntly: spending part of your life reading archives in the stacks of the Yale Library doesn’t fit the nonacademic temperament of someone who has to be aware and watch his back, say, a debt-collector for the Mafia or a pit spectator in fast commodities. (If you don’t get this, you are an academic.)
Book 7: Religion, Belief, And Skin In The Game
Ch 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 legit thinks in constructs, logicians in maximally abstract operators, and … fools in words.
… outside of poetry, beware the verbalistic, the archenemy of knowledge.
Ch 16: No Worship Without Skin in the Game
Love without sacrifice is theft (Procrustes). This applies to any form of love, particularly the love of God.
Ch 17: Is The Pope Atheist?
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) but I know of nobody who is atheist in both actions and words, completely devoid of rituals, respect for the dead, and superstitions (say a belief in economics, or in the miraculous powers of the might state and its institutions.)
Book 8: Risk And Rationality
Ch 18: How to Be Rational About Rationality
Survival comes first, truth, understanding, and science later.
“Primim vivere, diede philosophari” First, live; then philosophize. — attributed to Hobbes.
The axiom of revelation of preferences 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. What matters, in the end, is what they pay for goods, not what they say they “think” about them, or the various possible reasons they give you or themselves for that. If you think about it, you will see the this is a reformulation of skin in the game.
Recall that skin in the game means that you do not pay attention to what people say, only to what they do, and to how much their necks they are putting on the line. Let survival work its wonders.
Rationality does not depend on explicit verbalistic explanatory factors; it is only what aids survival, what avoids ruin.
Rationality is risk management, period.
Not everything that happens happens for a reason, but everything that survives survives for a reason.
Ch 19: The Logic of Risk Taking
… 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.
Anyone who has survived in the risk-taking business more than a few years has some version of our by now familiar principle that “in order to succeed, you must first survive.” My own has been:
- “never cross a river if it is on average four feet deep.” I effectively organized all my life around the point that sequence matters and the presence of ruin disqualifies cost-benefit analysts …
I believe that risk aversion does not exist: what we observe is, simply, a residual of ergodicity. People are, simple, trying to avoid financial succeed and take a certain attitude to tail risks.
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.” — Warren Buffet
Epilogue
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.
Glossary
Bob Rubin Trade: pay off 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). Can be generalized to politics, anything where the penalty is weak and the victims are abstract and distributed (say taxpayers or shareholders).
Lindy Effect: when a technology, idea, corporation, or anything non-perishable has an increase in life expectancy with every additional day of survival—unlike perishable items (such as humans, cats, dogs, economic theories, and tomatoes). So a book that has been a hundred years in print is likely to stay in print another hundred years—provided its sales remain healthy.
New words:
supremum – the smallest quantities that is greater than or equal to each of a given set or subset of quantities. The opposite of infimum.
sophistry – clever but false argument. deceiving.
philistines – non intellectual
erudite – having or showing great knowledge or learning
ergodicity – relating to or denoting systems or processes with the property that, given sufficient time, they include or impinge on all points in a given space and can be represented statistically by reasonably large selection of points. ???
A History of Private Life (four volumes in English) bu Paul Veyne, Philippe Aries, and Georges Duby. [Volume 1 (Ancient Rome) has been at a comfortable distance from my bed for 30 years.]
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