Skin in the Game - by Nassim Nicholas Taleb

ISBN: 0425284646
Date read: 2020-08-15
How strongly I recommend it: 9/10
(See my list of 360+ books, for more.)

Go to the Amazon page for details and reviews.

Taleb is always filled with surprising ideas and confrontational bragging. Ignore the hot air and gather the gems. Great thoughts around putting your ass on the line with consequences — not just thinking things in theory but doing things in reality — in the real world.

my notes

Have exposure to the real world.
Pay a price for its consequences.

The knowledge we get by experience and the workings of time is vastly superior to that obtained through reasoning.

Freeing ourselves from having warriors at the top does not mean civilization and progress.

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

Atheists refuse the notion of design by a creator who knows everything, while at the same time, they want to impose human design as if they knew all the consequences.

We know with much more clarity what is bad than what is good.

Universal behavior is great on paper, disastrous in practice.

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

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

Do your theories. Don’t tell people in the real world how to apply them. Let people select what they need.

Things designed by people without skin in the game tend to grow in complication. There is no benefit for them to propose something simple: when you are rewarded for perception, not results, you need to show sophistication.

When there was risk on the line, suddenly a second brain in me manifested itself.
When there is fire, you will run faster than in any competition.
I become dumb again when there was no real action.

If you muster the strength, the strength gained will stay after things calm down.
What you learn from the intensity and the focus you had when under the influence of risk stays with you.

Many kids would learn to love mathematics if they had some investment in it.

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

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

Artisans have their soul in the game.
Artisans do things for existential reasons first, financial and commercial ones later.

Villainy takes the short road, virtue the longer one.

Have no assistant. The mere presence of an assistant suspends your natural filtering. Its absence forces you to do only things you enjoy, and progressively steer your life that way.
(By assistant here I exclude someone hired for a specific task, such as grading papers, helping with accounting, or watering plants; just some guardian angel overseeing all your activities.)

To “explain” to an assistant how to do things requires more mental effort than doing the thing itself.

Having an assistant (except for the strictly necessary) removes your soul from the game.

Entrepreneurs fail for the rest of us.

Many entrepreneurs fail to have true skin in the game in the sense that their aim is to either cash out by selling the company they helped create to someone else, or “go public” by issuing shares in the stock market. The true value of the company, what it makes, and its long-term survival are of small relevance to them. This is a pure financing scheme and we will exclude this class of people from our “entrepreneur” risk-taker class (this form of entrepreneurship is the equivalent of bringing great-looking and marketable children into the world with the sole aim of selling them at age four). We can easily identify them by their ability to write a convincing business plan.

Products or companies that bear the owner’s name convey very valuable messages. They are shouting that they have something to lose. Eponymy indicates both a commitment to the company and a confidence in the product.

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.
Unless I developed an emotional attachment to France via skin in the game, I couldn’t take French citizenship.
But I came to the U.S., embraced the place, and took the passport as commitment: it became my identity, good or bad, tax or no tax.

If wanted to lower taxes for myself, and I do, I am obligated to fight for it, for both myself and the collective, other taxpayers, and to not run away.

The thing you can learn from a professor is how to be a professor.
The thing you can learn from a life coach or inspirational speaker is how to become a life coach or inspirational speaker.

It is not irrational to leave money on the table because of your personal preference.
Incentives are not limited to financial gain.

Subcontracting my research and writing would (perhaps) increase my productivity, but deprive me of my identity.

People want to have their soul in the game. Just to do things, because they feel it is part of their identity.
A shoemaker wants to be a shoemaker.
Even if his so-called “economic” condition might benefit from letting a Chinese factory make the shoes and converting to another profession.
Even if such a new system allows him to buy fancy things, something is missing.
It may be cruel to cheat people of their profession.

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

Learning is rooted in repetition and convexity, meaning that the reading of a single text twice is more profitable than reading two different things once.

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.

Laws come and go; ethics stay.

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

The more confined our ethics, the less abstract, the better it works.

People get along better as neighbors than roommates.

Commons: a space in which you are treated by others the way you treat them.

I am:
at the Fed level, libertarian
at the state level, Republican
at the local level, Democrat
at the family and friends level, a socialist.

I own no Microsoft stock, I am short no Microsoft stock, hence I can’t talk about it.
Don’t tell me what you think, tell me what you have in your portfolio.

People may hate McDonald’s, but they certainly hate uncertainty even more.

All it takes is a small number of intolerant, virtuous people with skin in the game, in the form of courage, for society to function properly.

This is the equivalent of entering a game in which one needed to not just win more points than the adversary, but win 97 percent of the total points just to be safe.

One in a family of four eats only non-GMO food (which includes organic).
This one imposes her rule on the four and now all will opt for non-GMO.
Now the family goes to a BBQ party attended by three other families. As they are known to only eat non-GMO, the hosts will cook only organic.
The local grocery store, realizing the neighborhood is only non-GMO, switches to non-GMO to simplify life, which impacts the local wholesaler.
... and the system continues to renormalize.

Once you have 10 percent or more women at a party, you cannot serve only beer. But most men will drink wine. So you only need one set of glasses.

If one of the persons in the room doesn’t speak German, the entire meeting will be run in English.

All it takes is a few (motivated) activists for the banning of some books, or the blacklisting of some people.

It is the most intolerant person who imposes virtue on others precisely because of that intolerance. The same can apply to civil rights.

It took seven or eight Poles to help one Jew.
It took only one Pole, acting as an informer, to turn in a dozen Jews.

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.

Markets aren’t the sum of market participants, but price changes reflect the activities of the most motivated buyer and seller.
That's why a price can drop by ten percent because of a single seller. All you need is a stubborn seller.

Leadership: Better to have an army of sheep led by a lion than an army of lions led by a sheep.

There's a large payoff from stubborn courage.

A small group of thoughtful citizens can change the world. Indeed, it is the only thing that ever has.

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.
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.

Leave people alone under a good structure and they will take care of things.

People who are employees for a living don’t behave so opportunistically.
Contractors are exceedingly free. Employees are expensive.
Bu you are buying dependability.

Cursing today is a status symbol.
The highest status, that of a free man, is usually indicated by voluntarily adopting the mores of the lowest class.

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 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.

Intellectual and ethical freedom requires the absence of the skin of others in one’s game.

Always do more than you talk. And precede talk with action.
Action without talk supersedes talk without action.

Rich people believe in one tax dollar one vote.
Humanists ones in one man one vote.
Monsanto in one lobbyist one vote.
IYI believes in one Ivy League degree one vote.

You do not create dynamic equality just by raising the level of those at the bottom, but rather by making the rich rotate - or by forcing people to incur the possibility of creating an opening.
The way to make society more equal is by forcing 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.
No downside for some means no upside for the rest.

Traders, when they make profits, have short communications; when they lose they drown you in details, theories, and charts.

Things that have survived are hinting to us ex post that they have some robustness - conditional on their being exposed to harm.
Things' life expectancy lengthens with time, conditional on survival.

Use laws that are old but food that is fresh.
Burn old logs.
Drink old wine.
Read old books.
Keep old friends.

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

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

Rich name-droppers attend cocktail parties where you see only people who are famous.
There are rich people whose lives revolve around these things.
They usually claim to be trying to save the world, the bears, the children, the mountains, the deserts - all the ingredients of the broadcasting of virtue.
If you spend your time trying to impress others in the New York club 21, there may be something wrong with you.

Contemporary peers are valuable collaborators, not final judges.

The longer an idea has been around without being falsified, the longer its future life expectancy.

We know the wrong better than what’s right.

Madness is rare in individuals, but in groups, parties, nations, it is the rule.

Human nature knows no upper bound, as if to punish itself.

When a patient shows up with a headache, it is much better to give him aspirin or recommend a good night’s sleep than do brain surgery, although the latter appears to be more scientific.

People without skin in the game seek the complicated and centralized, and avoid the simple like the plague.
Practitioners, on the other hand, have opposite instincts, looking for the simplest heuristics.

Use education in reverse: hire, conditional on an equal set of skills, the person with the least label-oriented education. It means that the person had to succeed in spite of the credentialization of his competitors and overcome more serious hurdles. In addition, people who didn’t go to Harvard are easier to deal with in real life.

Real gyms don’t look like gyms.

The rich start using “experts” and “consultants.” An entire industry meant to swindle you will swindle you: financial consultants, diet advisors, exercise experts, lifestyle engineers, sleeping councilors, breathing specialists, etc.

Most people are happier in close quarters, in a real barrio-style neighborhood, where they can feel human warmth and company. But when they have big bucks they end up pressured to move into outsized, impersonal, and silent mansions, far away from neighbors.

Some things can be, simply, too large for your heart.
If wealth is giving you fewer options instead of more (and more varied) options, you’re doing it wrong.

The classical art of conversation is to avoid any imbalance.
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.

Web-shaming is much more powerful than past reputational blots, and more of a tail risk.

“I will save people from drowning only if others too save other people from drowning.”
They want others to do so as well - they require a systemic solution to every local perceived problem.

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.

Hotel bathroom signs: “PROTECT THE ENVIRONMENT”.
They want you to hold off from sending the towels to the laundry and reuse them for a while, because avoiding excess laundry saves them tens of thousands of dollars a year.
They wouldn’t advertise it so loudly if it weren’t good for their bottom line.

Global causes are the last refuge of the scoundrel advertising virtue.

The highest form of virtue is unpopular.
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,” my suggestion is:
1) Never engage in virtue signaling
2) Never engage in rent-seeking
3) 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.

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.
This is similar to vision: the purpose of your eyes is to orient you in the best possible way, and get you out of trouble when needed, or help you find prey at a distance.
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.
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.
What is rational is that which allows for survival.

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

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

In real life, every single bit of risk you take adds up to reduce your life expectancy.
If you climb mountains and ride a motorcycle and hang around the mob and fly your own small plane and drink absinthe, and smoke cigarettes, and play parkour on Thursday night, your life expectancy is considerably reduced, although no single action will have a meaningful effect.
This idea of repetition makes paranoia about some low-probability events, even that deemed “pathological,” perfectly rational.
All it takes is for my paranoia to be right once, and it saves my life.

Ecocide: the irreversible destruction of our environment.