Skin in the Game: Hidden Asymmetries in Daily Life
Taleb strikes again with "Skin in the Game". This incendiary book is the source of his notorious "Intellectual Yet Idiot" essay, as well as several other fiery gems, such as "How to Legally Own Another Person." This book feels a bit more discombobulated than his previous works - it is really a collection of essays only mildly related to each other by the idea that fair exposure to downside risk is important for a well-functioning society. Yet his fresh, clear argumentation makes this book a joy to read. It's trademark Taleb with a pompous wit, brutal naming of names, and a profound breadth of source material. In fact, Taleb's arguments range so widely that I'm reluctant to accept that he's really qualified to weigh in on some of these topics (GMOs? Really?). Has he really discovered a universal law with such wide applicability? Who are you to question?? Do you even lift bro?!
No one is safe from Taleb - be it Thomas Piketty (whose flood of data blinded him to "the rise of what is called the knowledge economy") or Barack Obama (who used office to enrich himself, accepting "a sum of more than $40 million to write his memoirs"). Much of his ire is focused on the global policy elites and "rich slaves" who presume to have the rest of us shoulder all of the risks. One of his key policy recommendations is that:
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.
Most of "Skin in the Game" felt like a straightforward (although a bit rebellious and very "manly") application of incentive theory with a dash of anecdotal spice. There wasn't much in here that surprised me, although I did love Taleb's quotes about the moral exploitability of family men. His take on economic mobility in the US vs. Europe was also news to me - I had no idea that "more than half of all Americans will spend a year in the top 10 percent."
The "science vs. scientism" section of the book also caught my eye because of its relevance to my 2017 reading theme on "The Integrity of Western Science." Taleb historically has little respect for the ivory tower of academia, and he lays it on thick in this book, calling out entire fields (economics, social science, etc.) as "charlatanic" because of their disconnect from reality or consequences. He also condemns "scientism" which views science as a bunch of complicated models rather than a skeptical mindset. Speaking of skepticism, Taleb doesn't explicitly comment about climate science, but he does say:
Take for now that forecasting, especially when done with “science,” is often the last refuge of the charlatan, and has been so since the beginning of times.
Then Taleb starts to get into the philosophy of science. He doesn't have a very fair reading of Karl Popper (see "Theory and Reality" for a great intro to the philosophy of science) even though Popper's ideas about falsifiability are the intellectual precursors of Taleb's whole "skin in the game" schtick. Taleb also loses some points for his endorsement of the "emergent behavior" view - see Yudkowsky's thoughts on "emergence" in "Rationality: From AI to Zombies".
I also got a good chuckle out of Taleb's hat tip to the notorious anarchist David Graeber (see my review of his "Debt: The First 5,000 Years").
My highlights below.
Book 1 - Introduction
Skin in the Game is about four topics in one: a) uncertainty and the reliability of knowledge (both practical and scientific, assuming there is a difference), or in less polite words bull***t detection, b) symmetry in human affairs, that is, fairness, justice, responsibility, and reciprocity, c) information sharing in transactions, and d) rationality in complex systems and in the real world.
Don’t tell me what you “think,” just tell me what’s in your portfolio.
But, to this author, skin in the game is mostly about justice, honor, and sacrifice, things that are existential for humans.
We retain from this first vignette that, just like Antaeus, you cannot separate knowledge from contact with the ground.
Prologue , Part 1 - Antaeus Whacked
As I am writing these lines, a few thousand years later, Libya, the putative land of Antaeus, now has slave markets, as a result of a failed attempt at what is called “regime change” in order to “remove a dictator.” Yes, in 2017, improvised slave markets in parking lots, where captured sub-Saharan Africans are sold to the highest bidders.
Their three flaws: 1) they think in statics not dynamics, 2) they think in low, not high, dimensions, 3) they think in terms of actions, never interactions.
This 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.
Robert Rubin, a former Secretary of the United States Treasury, one of those who sign their names on the banknote you just used to pay for coffee, collected more than $120 million in compensation from Citibank in the decade preceding the banking crash of 2008. When the bank, literally insolvent, was rescued by the taxpayer, he didn’t write any check—he invoked uncertainty as an excuse. Heads he wins, tails he shouts “Black Swan.”
You will never fully convince someone that he is wrong; only reality can.
Evolution can only happen if risk of extinction is present. Further, There is no evolution without skin in the game.
Prologue, Part 2 - A Brief Tour of Symmetry
As one old alcoholic ruddy-faced English banker told me when I graduated from school, volunteering career advice: “I give long-term loans only. When they mature I want to be long gone. And only reachable long distance.”
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.
For Isocrates, the wise Athenian orator, warned us as early as the fifth century B.C. that nations should treat other nations according to the Silver Rule. He wrote: “Deal with weaker states as you think it appropriate for stronger states to deal with you.”
“Conduct yourself toward your parents as you would have your children conduct themselves toward you.”
So we will skip Kant’s drastic approach for one main reason: Universal behavior is great on paper, disastrous in practice. Why? As we will belabor ad nauseam in this book, we are local and practical animals, sensitive to scale.
universalism taken two or three steps too far — conflating the micro and the macro.
Entire fields (say economics and other social sciences) become themselves charlatanic because of the absence of skin in the game connecting them back to earth (while the participants argue about “science”).
Take for now that forecasting, especially when done with “science,” is often the last refuge of the charlatan, and has been so since the beginning of times.
Intellectualism has a sibling: scientism, a naive interpretation of science as complication rather than science as a process and a skeptical enterprise.
And I will keep mentioning that I have no other definition of success than leading an honorable life.
Primo, artisans do things for existential reasons first, financial and commercial ones later. Their decision making is never fully financial, but it remains financial. Secundo, they have some type of “art” in their profession; they stay away from most aspects of industrialization; they combine art and business. Tertio, they put some soul in their work: they would not sell something defective or even of compromised quality because it hurts their pride. Finally, they have sacred taboos, things they would not do even if it markedly increased profitability.
But there are exceptions, such as Alexandre Dumas père who was said to run a workshop of ghostwriters (forty-five), which allowed him to scale his production up to one hundred and fifty novels, with the joke that he read some of his own books. But in general, output is not scalable (even if the sales of a book are).
One of the best pieces of advice I have ever received was the recommendation by a very successful (and happy) older entrepreneur, Yossi Vardi, to have no assistant. The mere presence of an assistant suspends your natural filtering — and its absence forces you to do only things you enjoy, and progressively steer your life that way.
A country should not tolerate fair-weather friends. There is something offensive in having a nationality without skin in the game, just to travel and pass borders, without the downside that comes with the passport.
the notion of incentives as limited to financial gain cannot otherwise explain the very existence of an economics academia that promotes the idea of self-interest.
There is actually an argument in favor of duels: they prevent conflicts from engaging broader sets of people, that is, wars, by confining the problem to those with direct skin in the game.
Prologue, Part 3 - The Ribs of the Incerto
Seeing the psychologist Steven Pinker making pronouncements about things intellectual has a similar effect to encountering a drive-in Burger King while hiking in the middle of a national park.
Book 2 - A First Look at Agency
Chapter 1 - Why Each One Should Eat His Own Turtles: Equality in Uncertainty
And, before Ostrom, our old friend Friedrich Nietzsche got the point: Sympathy for all would be tyranny for thee, my good neighbor.
And, as the anthropologist David Graeber has observed, even the investment bank Goldman Sachs, known for its aggressive cupidity, acts like a communist community from within, thanks to the partnership system of governance.
A saying by the brothers Geoff and Vince Graham summarizes the ludicrousness of scale-free political universalism. I am, at the Fed level, libertarian; at the state level, Republican; at the local level, Democrat; and at the family and friends level, a socialist.
In general, skin in the game comes with conflict of interest. What I hope this book will do is show that the former is more important than the latter.
You need to remember that, when you visit a medical office, you will be facing someone who, in spite of his authoritative demeanor, is in a fragile situation. He is not you, not a member of your family, so he has no direct emotional loss should your health experience a degradation. His objective is, naturally, to avoid a lawsuit, something that can prove disastrous to his career.
It is always convenient to invoke universalism when you are in the majority.
Book 3 - That Greatest Asymmetry
Chapter 2 - The Most Intolerant Wins: The Dominance of the Stubborn Majority
For that, one needs to understand an ant colony as an ant colony, no less, no more, not a collection of ants. This is called an “emergent” property of the whole, by which parts and whole differ because what matters are the interactions between such parts.
It suffices for an intransigent minority — a certain type of intransigent minority—with significant skin in the game (or, better, soul in the game) to reach a minutely small level, say 3 or 4 percent of the total population, for the entire population to have to submit to their preferences.
Ray Kotcher, chairman of Ketchum the contemptible public relations firm, the enemy of scientists and scientific whistleblowers.
What we saw in the renormalization group was the “veto” effect, as a person in a group can steer choices. The advertising executive (and extremely bon vivant) Rory Sutherland suggested to me that this explains why some fast-food chains, such as McDonald’s, thrive. It’s not because they offer a great product, but because they are not vetoed in a certain socio-economic group—and by a small proportion of people in that group at that.
So all Islam did was out-stubborn Christianity, which itself won thanks to its own stubbornness. For before Islam, the original spread of Christianity in the Roman empire was largely due to…the blinding intolerance of Christians; their unconditional, aggressive, and recalcitrant proselytizing.
When Julian the Apostate tried to go back to ancient paganism, it was like trying to sell French food in South Jersey: it simply had no market. It was like trying to keep a balloon under water. And it was not because pagans had an intellectual deficit: in fact, my heuristic is that the more pagan, the more brilliant one’s mind, and the higher one’s ability to handle nuances and ambiguity. Purely monotheistic religions such as Protestant Christianity, Salafi Islam, or fundamentalist atheism accommodate literalist and mediocre minds that cannot handle ambiguity.
So, we need to be more than intolerant with some intolerant minorities. Simply, they violate the Silver Rule. It is not permissible to use “American values” or “Western principles” in treating intolerant Salafism (which denies other peoples’ right to have their own religion). The West is currently in the process of committing suicide.
Appendix to Book 3 - A Few More Counterintuitive Things About the Collective
There has been a storm around work by Martin Nowack and his colleagues (which include the biologist E. O. Wilson) about the terminal flaws in the selfish gene theory.
Book 4 - Wolves Among Dogs
Chapter 3 - How to Legally Own Another Person
So 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.
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 by 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.
It is much easier to do business with the owner of the business than some employee who is likely to lose his job next year; likewise it is easier to trust the word of an autocrat than a fragile elected official.
The academic tenure system is meant to give people the security to express their opinions freely. However, tenure is given (in the ideological disciplines, such as the “humanities” and social science) to the submissive ones who play the game and have shown proofs of such domestication. It’s not working.
Chapter 4 - The Skin of Others in Your Game
You are aware of what Monsanto shills did to the French scientist Gilles-Éric Séralini, who, until he won his defamation suit, lived in total scientific disgrace, the reputational equivalent of leprosy.
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 vulnerability of heads of households has been remarkably exploited in history. The samurai had to leave their families in Edo as hostages, thus guaranteeing to the authorities that they would not take positions against the rulers. The Romans and Huns partook of the practice of exchanging permanent “visitors,” the children of rulers on both sides, who grew up at the courts of the foreign nation in a form of gilded captivity.
It is no secret that large corporations prefer people with families; those with downside risk are easier to own, particularly when they are choking under a large mortgage.
Celibacy has been a way to force men to implement such heroism: for instance, the rebellious ancient sect the Essenes were celibate.
Financial independence is another way to solve ethical dilemmas, but such independence is hard to ascertain: many seemingly independent people aren’t particularly so.
I abide by Cato’s injunction: he preferred to be asked why he didn’t have a statue rather than why he had one.
In addition, 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. Did any of your business-smart, streetwise, or academically gifted peers in high school declare that their dream was to become the 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. Which is why Cleon was said to have renounced all of his friendships during his office.
Book 5 - Being Alive Means Taking Certain Risks
Chapter 5 - Life in the Simulation Machine
This argument (that real life is risk taking) reveals the theological weakness of Pascal’s wager, which stipulates that believing in the creator has a positive payoff in case he truly exists, and no downside in case he doesn’t. Hence the wager would be to believe in God as a free option. But there are no free options. If you follow the idea to its logical end, you can see that it proposes religion without skin in the game, making it a purely academic and sterile activity.
If you do not undertake a risk of real harm, reparable or even potentially irreparable, from an adventure, it is not an adventure.
Chapter 6 - The Intellectual Yet Idiot
They can’t tell science from scientism — in fact in their eyes scientism looks more scientific than real science. For instance, it is trivial to show the following: much of what the Cass Sunstein and Richard Thaler types — those who want to “nudge” us into some behavior — much of what they would classify as “rational” or “irrational” (or some such categories indicating deviation from a desired or prescribed protocol) comes from their misunderstanding of probability theory and cosmetic use of first-order models.
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.
While rich people believe in one tax dollar one vote, more humanistic ones in one man one vote, Monsanto in one lobbyist one vote, the IYI believes in one Ivy League degree one vote, with some equivalence for foreign elite schools and PhDs, as these are needed in the club.
The IYI has been wrong, historically, about Stalinism, Maoism, GMOs, Iraq, Libya, Syria, lobotomies, urban planning, low carbohydrate diets, gym machines, behaviorism, trans-fats, Freudianism, portfolio theory, linear regression, HFCS (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 convinced that his current position is right.
he has never read Frédéric Dard, Libanius Antiochus, Michael Oakeshott, John Gray, Ammianus Marcellinus, Ibn Battuta, Saadia Gaon, or Joseph de Maistre;
The Intellectual Yet Idiot knows at any given point in time what his words or actions are doing to his reputation. But a much easier marker: he doesn’t even deadlift.
Chapter 7 - Inequality and Skin in the Game
There may be something dissonant in the spectacle of a rich slave.
Consider that about 10 percent of Americans will spend at least a year in the top 1 percent, and more than half of all Americans will spend a year in the top 10 percent. This is visibly not the same for the more static — but nominally more equal — Europe. For instance, only 10 percent of the wealthiest five hundred American people or dynasties were so thirty years ago; more than 60 percent on the French list are heirs and a third of the richest Europeans were the richest centuries ago. In Florence, it was just revealed that things are even worse: the same handful of families have kept the wealth for five centuries.
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.
And no downside for some means no upside for the rest.
Piketty’s theory about the increase in the return of capital in relation to labor is patently wrong, as anyone who has witnessed the rise of what is called the “knowledge economy” (or anyone who has had investments in general) knows.
We’ve made a big deal out of Piketty here because the widespread enthusiasm for his book was representative of the behavior of that class of people who love to theorize and engage in false solidarity with the oppressed, while consolidating their privileges.
Later, Jean de La Bruyère wrote that jealousy is to be found within the same art, talent, and condition.
Another lesson from Piketty’s ambitious volume: it was loaded with charts and tables. There is a lesson here: what we learn from professionals in the real world is that data is not necessarily rigor. One reason I — as a probability professional — left data out of The Black Swan (except for illustrative purposes) is that it seems to me that people flood their stories with numbers and graphs in the absence of solid or logical arguments. Further, people mistake empiricism for a flood of data. Just a little bit of significant data is needed when one is right, particularly when it is disconfirmatory empiricism, or counterexamples: only one data point (a single extreme deviation) is sufficient to show that Black Swans exist.
When, on leaving office, Barack Obama accepted a sum of more than $40 million to write his memoirs, many people were outraged. His supporters, statists who were defending him, on the other hand, were critical of the rich entrepreneurs hired by the subsequent administration. Money is greed, for them — but those who did not earn the money via commerce were illogically exempt. I had a rough time explaining that having rich people in a public office is very different from having public people become rich — again, it is the dynamics, the sequence, that matters.
A good rule for society is to oblige those who start in public office to pledge never subsequently to earn from the private sector more than a set amount; the rest should go to the taxpayer.
The IYI-cum-cronyist former Treasury Secretary Tim Geithner — with whom I share the Calabrese barber of the Prologue — was overtly rewarded by the industry he helped bail out. He helped bankers get bailouts, let them pay themselves from the largest bonus pool in history after the crisis, in 2010 (that is, using taxpayer money), and then got a multimillion-dollar job at a financial institution as his reward for good behavior.
Complex regulations allow former government employees to find jobs helping firms navigate the regulations they themselves created.
Chapter 8 - An Expert Called Lindy
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. For time operates through skin in the game.
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.
You can define a free person precisely as someone whose fate is not centrally or directly dependent on peer assessment.
Being reviewed or assessed by others matters if and only if one is subjected to the judgment of future — not just present — others.
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 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...
Although Popper saw the statics, he didn’t study the dynamics, nor did he look at the risk dimension of things. The reason science works isn’t because there is a proper “scientific method” derived by some nerds in isolation, or some “standard” that passes a test similar to the eye exam of the Department of Motor Vehicles; rather it is because scientific ideas are Lindy-prone, that is, subjected to their own natural fragility.