So let me finish this book with 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,
science without skepticism,
religion without tolerance,

and, most of all:

nothing without skin in the game.

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.

All risks are not equal. We often hear that “Ebola is causing fewer deaths than people drowning in their bathtubs,” or something of the sort, based on “evidence.” This is another class of problems that your grandmother can get, but the semi-educated cannot.

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

Let us return to Warren Buffett. He did not make his billions by cost-benefit analysis; rather, he did so simply by establishing a high filter, then picking opportunities that pass such a threshold. “The difference between successful people and really successful people is that really successful people say no to almost everything,” he said. Likewise our wiring might be adapted to “say no” to tail risk. For there are a zillion ways to make money without taking tail risk. There are a zillion ways to solve problems (say, feed the world) without complicated technologies that entail fragility and an unknown possibility of tail blowup. Whenever I hear someone saying “we need to take (tail) risks” I know it is not coming from a surviving practitioner but from a finance academic or a banker—the latter, we saw, almost always blows up, usually with other people’s money.

Courage, according to the Greek ideal that Aristotle inherited from Homer (and conveyed by Solon, Pericles, and Thucydides) is never a selfish action:

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

Selfish courage is not courage. A foolish gambler is not committing an act of courage, especially if he is risking other people’s funds or has a family to feed.

[...] 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. If humans were immortals, they would go extinct from an accident, or from a gradual buildup of misfitness. But shorter shelf life for humans allows genetic changes across generations to be in sync with the variability of the environment.

I asked those who deemed that their worst-case outcome was their own death: “Is your death plus that of your children, nephews, cousins, cat, dogs, parakeet, and hamster (if you have any of the above) worse than just your death?” Invariably, yes. “Is your death plus your children, nephews, cousins (…) plus all of humanity worse than just your death?” Yes, of course. Then how can your death be the worst possible outcome?

Rationality is risk management, period.

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

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

[...] kashrut laws survived several millennia not because of their “rationality” but because the populations that followed them survived. It most certainly brought cohesion: people who eat together hang together.

Superstitions can be vectors for risk management rules. We have as potent information that people who have them have survived; to repeat, never discount anything that allows you to survive.

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 of their necks they are putting on the line. Let survival work its wonders.

It is therefore my opinion that 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.

[...] by a mechanism (more technically called the bias-variance tradeoff), you often get better results making “errors,” as when you aim slightly away from the target when shooting. (See Figure 3.) I have shown in 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. For instance, most medical “discoveries” are accidental to something else. An error-free world would have no penicillin, no chemotherapy…almost no drugs, and most probably no humans.

This is why I have been against the state dictating to us what we “should” be doing: only evolution knows if the “wrong” thing is really wrong, provided there is skin in the game to allow for selection.

Beliefs are…cheap talk.

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. 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 that this is a reformulation of skin in the game. Even psychologists get it; in their experiments, their procedures require that actual dollars be spent for a test to be “scientific.” The subjects are given a monetary amount, and they watch how the subject formulates choices by examining how they spend the money. However, a large share of psychologists fughedabout revealed preferences when they start bloviating about rationality. They revert to judging beliefs rather than action.

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.

Love without sacrifice is theft (Procrustes). This applies to any form of love, particularly the love of God.

We are fed a steady diet of histories of wars, fewer histories of peace. As a trader, I was trained to look for the first question people forget to ask: who wrote these books? Well, historians, international affairs scholars, and policy experts did. Can these people be fooled? Let’s be polite and say that they are in the majority no rocket scientists, and operate under a structural bias.

[...] there are very, very few predators compared to what one can call collaborative animals.

[...]

Even predators end up in some type of arrangement with their prey.

I recall, during the Lebanese war, noticing how the local conflict was metamorphosed into an “Israel vs. Iran” problem. I described in The Black Swan how war journalists who came to Lebanon got all their information from other war journalists who came to Lebanon, hence they could live in a parallel world without ever seeing the true problems—absence of skin in the game does wonders in distorting information. But to those of us on the ground, the objective was to make things work and have a life, not sacrifice our existence for the sake of geopolitics. Real people are interested in commonalities and peace, not conflicts and wars.

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. Doing business will always help (because it brings about economic activity without large-scale risky changes in the economy); institutions (like the aid industry) may help, but they are equally likely to harm (I am being optimistic; I am certain that except for a few most do end up harming).

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

[...] 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:

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. We need people to take (bounded) risks.

Verbal threats reveal nothing beyond weakness and unreliability.

THE ASSASSINS

The most interesting thing about the Assassins is that actual assassination was low on their agenda. They understood non-cheap messaging. They preferred to own their enemies. And the only enemy you cannot manipulate is a dead one.

In 1118, Ahmad Sanjar became the sultan of the Seljuk Turkish Empire of Asia minor (that is, modern-day Turkey), Iran, and parts of Afghanistan. Soon after his accession, he woke up one day with a dagger next to his bed, firmly planted in the ground. In one version of the legend, a letter informed him that the dagger thrust in hard ground was preferable to the alternative, being plunged in his soft breast. It was a characteristic message of the Hashishins, aka Assassins, making him aware of the need to leave them alone, send them birthday gifts, or hire their actors for his next movie. Sultan Sanjar had previously snubbed their peace negotiators, so they moved to phase two of a demonstrably well planned-out process. They convinced him that his life was in their hands and that, crucially, he didn’t have to worry if he did the right thing. Indeed Sanjar and the Assassins had a happy life together ever after.

The best enemy is the one you own by putting skin in his game and letting him know the exact rules that come with it. You keep him alive, with the knowledge that he owes his life to your benevolence.

[...] sophistication can, at some level, cause degradation, what economists call “negative utility.”

If anything, being rich you need to hide your money if you want to have what I call friends. This may be known; what is less obvious is that you may also need to hide your erudition and learning. People can only be social friends if they don’t try to upstage or outsmart one another.

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

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

As Vauvenargues, the French moralist, figured out, small is preferable owing to what we would call in today’s terms scale properties. Some things can be, simply, too large for your heart. Rome, he wrote, was easy to love by its denizens when it was a small village, harder when it became a large empire.

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.

I left the place starving. Now, if I had a choice, I would have had some time-tested recipe (say a pizza with very fresh ingredients, or a juicy hamburger) in a lively place—for a twentieth of the price. But because the dinner partner could afford the expensive restaurant, we ended up the victims of some complicated experiments by a chef judged by some Michelin bureaucrat. It would fail the Lindy effect: food does better through minute variations from Sicilian grandmother to Sicilian grandmother. It hit me that the rich were natural targets; as the eponymous Thyestes shouts in Seneca’s tragedy, thieves do not enter impecunious homes, and one is more likely to be drinking poison in a golden cup than an ordinary one. Poison is drunk in golden cups (Venenum in auro bibitur).

Prizes as a Curse: In fact, there is a long-held belief among traders that praise by journalists is a reverse indicator. I learned about it the hard way. In 1983, right before I became a trader, the computer giant IBM made the front cover of BusinessWeek, a U.S. magazine then influential, as the ultimate company. I naively rushed to buy the stock. I got shellacked. Then it hit me that, if anything, I should be shorting the company, to benefit from its decline. So I reversed the trade, and learned that collective praise by journos is at the least suspicious and, at best, a curse. IBM went into a decline that lasted a decade and a half; it almost went bust. Further, I learned to avoid honors and prizes partly because, given that they are awarded 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). A former trader who invests in the restaurant business, Brian Hinchcliffe, conveyed to me the following heuristic: Shops that get awards as “The Best” something (best atmosphere, best waiter service, best fermented yoghurt and other nonalcoholic beverages for visiting Sheikhs, etc.) close down before the awards ceremony. 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.

In math and physics, a result posted on the repository site arXiv (with a minimum hurdle) is fine. In low-quality fields like academic finance (where papers are usually some form of complicated storytelling), the “prestige” of the journal is the sole criterion.

[...] one needs a decent university “name” to get ahead in life. But we have evidence that collectively society doesn’t advance with organized education, rather the reverse: the level of (formal) education in a country is the result of wealth.

People who have always operated without skin in the game (or without their skin in the right game) seek the complicated and centralized, and avoid the simple like the plague. Practitioners, on the other hand, have opposite instincts, looking for the simplest heuristics.

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.

In some fake fields like economics, ritualistic and dominated by citation rings, I discovered that everything is in the presentation. So the criticism I’ve received has never been about the content, but rather the looks. There is a certain language one needs to learn through a long investment, and papers are just iterations around that language.

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

[...] a neighbor in my ancestral village (and like almost everyone there, a remote relative), who led a modest but comfortable life, ate food he grew by himself, drank his own pastis (arak), that sort of thing, left an estate of a hundred million dollars, a hundred times what one would have expected him to leave.

So the next time you randomly pick a novel, avoid the one with the author photo representing a pensive man with an ascot standing in front of wall-to-wall bookshelves.

By the same reasoning, and flipping the arguments, skilled thieves at large should not look like thieves. Those who do are more likely to be in jail.
Next, we will get deeper into the following:

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.

Much has been written about the millionaire next door: the person who is actually rich, on balance, but doesn’t look like the person you would expect to be rich, and vice versa. About every private banker is taught to not be fooled by the looks of the client and avoid chasing Ferrari owners at country clubs.

[...] it becomes no wonder that the job of chief executive of the country was once filled by a former actor, Ronald Reagan. Actually, the best actor is the one nobody realizes is an actor: a closer look at Barack Obama shows that he was even more of an actor: a fancy Ivy League education combined with a liberal reputation is compelling as an image builder.

Consider the chief executive officers of corporations: they don’t just look the part, they even look the same. And, worse, when you listen to them talk, they sound the same, down to the same vocabulary and metaphors. But that’s their job: as I will keep reminding the reader, counter to the common belief, executives are different from entrepreneurs and are supposed to look like actors.

A BRIEF TOUR OF YOUR GRANDPARENTS’ WISDOM

Let us now close by sampling a few ideas that exist in both ancient lore and are sort of reconfirmed by modern psychology. These are sampled organically, meaning they are not the result of research but of what spontaneously comes to mind (remember this book is called Skin in the Game), then verified in the texts.

Cognitive dissonance (a psychological theory by Leon Festinger about sour grapes, by which people, in order to avoid inconsistent beliefs, rationalize that, say, the grapes they can’t reach got to be sour). It is seen first in Aesop, of course, repackaged by La Fontaine. But its roots look even more ancient, with the Assyrian Ahiqar of Nineveh.

Loss aversion (a psychological theory by which a loss is more painful than a gain is pleasant): in Livy’s Annals (XXX, 21) Men feel the good less intensely than the bad.*6 Nearly all the letters of Seneca have some element of loss aversion.

Negative advice (via negativa): We know the wrong better than what’s right; recall the superiority of the Silver over the Golden Rule. The good is not as good as the absence of bad,*7 Ennius, repeated by Cicero.

Skin in the game (literally): We start with the Yiddish proverb: You can’t chew with somebody else’s teeth. “Your fingernail can best scratch your itch,”*8 picked up by Scaliger circa 1614 in Proverborum Arabicorum.

Antifragility: There are tens of ancient sayings. Let us just mention Cicero. When our souls are mollified, a bee can sting. See also Machiavelli and Rousseau for its application to political systems.

Time discounting: “A bird in the hand is better than ten on the tree.”*9 (Levantine proverb)

Madness of crowds: Nietzsche: Madness is rare in individuals, but in groups, parties, nations, it is the rule. (This counts as ancient wisdom since Nietzsche was a classicist; I’ve seen many such references in Plato.)

Less is more: Truth is lost with too much altercation,*10 in Publilius Syrus. But of course the expression “less is more” is in an 1855 poem by Robert Browning.

Overconfidence: “I lost money because of my excessive confidence,”*11 Erasmus inspired by Theognis of Megara (Confident, I lost everything; defiant, I saved everything) and Epicharmus of Kos (Remain sober and remember to watch out).

The Paradox of progress, and the paradox of choice: There is a familiar story of a New York banker vacationing in Greece, who, from talking to a fisherman and scrutinizing the fisherman’s business, comes up with a scheme to help the fisherman make it a big business. The fisherman asked him what the benefits were; the banker answered that he could make a pile of money in New York and come back to vacation in Greece; something that seemed ludicrous to the fisherman, who was already there doing the kind of things bankers do when they go on vacation in Greece.

The story was well known in antiquity, under a more elegant form, as retold by Montaigne (my translation): When King Pyrrhus tried to cross into Italy, Cynéas, his wise adviser, tried to make him feel the vanity of such action. “To what end are you going into such enterprise?” he asked. Pyrrhus answered, “To make myself the master of Italy.” Cynéas: “And so?” Pyrrhus: “To get to Gaul, then Spain.” Cynéas: “Then?” Pyrrhus: “To conquer Africa, then…come rest at ease.” Cynéas: “But you are already there; why take more risks?” Montaigne then cites the well-known passage in Lucretius’ De Rerum Natura (V, 1431) on how human nature knows no upper bound, as if to punish itself.

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. 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 (and not that of naive falsificationism, that is, according to some government-printed black-and-white guideline). The longer an idea has been around without being falsified, the longer its future life expectancy.

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

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

Now, while academia has turned into an athletic contest, Wittgenstein held the exact opposite viewpoint: if anything, knowledge is the reverse of an athletic contest. In philosophy, the winner is the one who finishes last, he said.

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. Things that have survived are hinting to us ex post that they have some robustness—conditional on their being exposed to harm. For without skin in the game, via exposure to reality, the mechanism of fragility is disrupted: things may survive for no reason for a while, at some scale, then ultimately collapse, causing a lot of collateral harm.

Lindy is a deli in New York, now a tourist trap, that proudly claims to be famous for its cheesecake, but in fact has been known for fifty or so years by physicists and mathematicians thanks to the heuristic that developed there. Actors who hung out there gossiping about other actors discovered that Broadway shows that lasted for, say, one hundred days, had a future life expectancy of a hundred more. For those that lasted two hundred days, two hundred more. The heuristic became known as the Lindy effect.

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

Probability, statistics, and data science are principally logic fed by observations—and absence of observations. For many environments, the relevant data points are those in the extremes; these are rare by definition, and it suffices to focus on those few but big to get an idea of the story. If you want to show that a person has more than, say $10 million, all you need is to show the $50 million in his brokerage account, not, in addition, list every piece of furniture in his house, including the $500 painting in his study and the silver spoons in the pantry. So I’ve discovered, with experience, that when you buy a thick book with tons of graphs and tables used to prove a point, you should be suspicious. It means something didn’t distill right!

Aristotle, in his Rhetoric, postulated that 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.

NEVER GOTTEN DRUNK WITH RUSSIANS

The IYI joins a club to get travel privileges; if he is a social scientist, he uses statistics without knowing how they are derived (like Steven Pinker and psycholophasters in general); when in the United Kingdom, he goes to literary festivals and eats cucumber sandwiches, taking small bites at a time; he drinks red wine with steak (never white); he used to believe that dietary fat was harmful and has now completely reversed himself (information in both cases is derived from the same source); he takes statins because his doctor told him to do so; he fails to understand ergodicity, and, when explained to him, he forgets about it soon after; he doesn’t use Yiddish words even when talking business; he studies grammar before speaking a language; he has a cousin who worked with someone who knows the Queen; he has never read Frédéric Dard, Libanius Antiochus, Michael Oakeshott, John Gray, Ammianus Marcellinus, Ibn Battuta, Saadia Gaon, or Joseph de Maistre; he has never gotten drunk with Russians; he never drinks to the point where he starts breaking glasses (or, preferably, chairs); he doesn’t even know the difference between Hecate and Hecuba (which in Brooklynese is “can’t tell sh**t from shinola”); he doesn’t know that there is no difference between “pseudointellectual” and “intellectual” in the absence of skin in the game; he has mentioned quantum mechanics at least twice in the past five years in conversations that had nothing to do with physics.

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.

INTELLECTUAL YET PHILISTINE

The IYI subscribes to The New Yorker, a journal designed so philistines can learn to fake a conversation about evolution, neurosomething, cognitive biases, and quantum mechanics. He never curses on social media. He speaks of “equality of races” and “economic equality,” but never goes out drinking with a minority cab driver (again, no real skin in the game, as, I will repeat until I am hoarse, the concept is fundamentally foreign to the IYI). The modern IYI has attended more than one TED talk in person or watched more than two TED talks on YouTube. Not only did he vote for Hillary Monsanto-Malmaison because she seemed electable or some such circular reasoning, but he holds that anyone who didn’t do so is mentally ill.

The IYI mistakes the Near East (ancient Eastern Mediterranean) for the Middle East.

The IYI has a copy of the first hardback edition of The Black Swan on his shelf, but mistakes absence of evidence for evidence of absence. He believes that GMOs are “science,” that their “technology” is in the same risk class as conventional breeding.

Typically, the IYI get 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, 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.

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. 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.

I note that even the fact that Trump expressed himself in an unconventional manner was a signal that he never had a boss before, no supervisor to convince, impress, or seek approval from: people who have been employed are more careful in their choice of words.

[...] always do more than you talk. And precede talk with action. For it will always remain that action without talk supersedes talk without action.

Scars signal skin in the game.

And

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

Arguments that Trump was a failed entrepreneur, even if true, actually prop up this argument: you’d even rather have a failed real person than a successful one, as blemishes, scars, and character flaws increase the distance between a human and a ghost.

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

Financial independence is another way to solve ethical dilemmas, but such independence is hard to ascertain: many seemingly independent people aren’t particularly so. While, in Aristotle’s days, a person of independent means was free to follow his conscience, this is no longer as common in modern days.

To make ethical choices you cannot have dilemmas between the particular (friends, family) and the general.

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.

Since 2001 the policy for fighting Islamic terrorists has been, to put it politely, missing the elephant in the room, sort of like treating symptoms and completely missing the disease. Policymakers and slow-thinking bureaucrats stupidly let terrorism grow by ignoring its roots—because that was not a course that was optimal for their jobs, even if optimal for the country. So we lost a generation: someone who went to grammar school in Saudi Arabia (our “ally”) after September 11 is now an adult, indoctrinated into believing and supporting Salafi violence, hence encouraged to finance it. Even worse, the Wahhabis have accelerated their brainwashing of East and West Asians with their madrassas, thanks to high oil revenues. Instead of invading Iraq or blowing up “Jihadi John” and other individual terrorists, thus causing a multiplication of these agents, it would have been better to focus on the source of the problems: Wahhabi/Salafi education and the promotion of intolerant beliefs according to which a Shiite or an Ezidi or a Christian are deviant people. But, to repeat, this is not a decision that can be made by a collection of bureaucrats with a job description.

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 more you have to lose, the more fragile you are. Ironically, in my debates, I’ve seen numerous winners of the so-called Nobel in Economics (the Riksbank Prize in Honor of Alfred Nobel) concerned about losing an argument. I noticed years ago that four of them were actually concerned that I, a nonperson and trader, publicly called them frauds. Why did they care? Well, the higher you go in that business, the more insecure you get, as losing an argument to a lesser person exposes you more than if you lose to some hotshot.

What matters isn’t what a person has or doesn’t have; it is what he or she is afraid of losing.

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.

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 the famous tale by Ahiqar, later picked up by Aesop (then again by La Fontaine), the dog boasts to the wolf all the contraptions of comfort and luxury he has, almost prompting the wolf to enlist. Until the wolf asks the dog about his collar and is terrified when he understands its use. “Of all your meals, I want nothing.” He ran away and is still running.*

The question is: what would you like to be, a dog or a wolf?

The original Aramaic version had a wild ass, instead of a wolf, showing off his freedom. But the wild ass ends up eaten by the lion. 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.

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.

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.

[...] consider that an employee will always have more risk. And conditional on someone being an employee, such a person will be risk averse. By being employees they signal a certain type of domestication.

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 depriving himself of his personal freedom for nine hours every day, his 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.

[...] employees are expensive. You have to pay them even when you’ve got nothing for them to do. You lose your flexibility. Talent for talent, they cost a lot more. Lovers of paychecks are lazy…but they would never let you down at times like these.

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.

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. Alexander (or whoever produced this probably apocryphal saying) understood the value of the active, intolerant, and courageous minority.

[...] 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. 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.

Another attribute of decentralization, and one that the “intellectuals” opposing an exit of Britain from the European Union (Brexit) don’t get: if one needs, say, a 3 percent threshold in a political unit for the minority rule to take its effect, and on average the stubborn minority represents 3 percent of the population, with variations around the average, then some states will be subject to the rule, but not others. If, on the other hand, we merge all states in one, then the minority rule will prevail all across. This is the reason the U.S.A. works so well. As I have been repeating to everyone who listens, we are a federation, not a republic. To use the language of Antifragile, decentralization is convex to variations.

[...] we can observe in the history of Mediterranean “religions” or, rather, rituals and systems of behavior and belief, a drift dictated by the intolerant, actually bringing the system closer to what we can call a religion. Judaism might have almost lost because of the mother rule and its confinement to a tribal base, but Christianity ruled, and for the very same reasons, Islam did. Islam? There have been many Islams, the final accretion quite different from the earlier ones. For Islam itself is ending up being taken over (in the Sunni branch) by purists simply because they are more intolerant than the rest: the Wahhabis (aka Salafis), founders of Saudi Arabia, destroyed the shrines in most parts of what is now their country during the nineteenth century. They went on to impose the maximally intolerant rule in a manner that was later imitated by ISIS. Every single accretion of Salafism seems to exist to accommodate the most intolerant of its branches.

While Turks are Mediterraneans who speak an East Asian language, the French (North of Avignon) are largely of Northern European stock, yet they speak a Mediterranean language.

So:

Genes follow majority rule; languages minority rule.

Languages travel; genes less so.

When there are few choices, McDonald’s appears to be a safe bet. It is also a safe bet in shady places with few regulars where the food variance from expectation can be consequential—I am writing these lines in the Milan train station and, as offensive as it can be to someone who spent all this money to go to Italy, McDonald’s is one of the few restaurants there. And it is packed. Shockingly, Italians are seeking refuge there from a risky meal. They may hate McDonald’s, but they certainly hate uncertainty even more.

Assume the smaller unit contains four people, a family of four. One of them is in the intransigent minority and eats only non-GMO food (which includes organic). The color of this box is dark, and the others light. We “renormalize once” as we move up: the stubborn daughter manages to impose her rule on the four and the unit is now all dark, i.e., will opt for non-GMO. Now, step three, you have the family going to a barbecue party attended by three other families. As they are known to only eat non-GMO, the guests 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.”

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.

There is a tradeoff between laser surgery (a precise surgical procedure) and radiation therapy, which is toxic to both patient and cancer. Statistically, laser surgery may have worse five-year outcomes than radiation therapy, but the latter tends to create second tumors in the longer run and offers comparatively reduced twenty-year disease-specific survival. Given that the window used for the calculation of patient survival is five years, not twenty, the incentive is to shoot for radiation.

So the doctor is likely to be in the process of shifting uncertainty away from him or her by electing the second-best option.

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.

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.

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.

If that saying doesn’t convince you of the fatuousness of left vs. right labels, nothing will.

The “tragedy of the commons,” as exposed by economists, is as follows—the commons being a collective property, say, a forest or fishing waters or your local public park. Collectively, farmers as a community prefer to avoid overgrazing, and fishermen overfishing—the entire resource becomes thus degraded. But every single individual farmer would personally gain from his own overgrazing or overfishing under, of course, the condition that others don’t. And that is what plagues socialism: people’s individual interests do not quite work well under collectivism.

[...] we exercise our ethical rules, but there is a limit—from scaling—beyond which the rules cease to apply. It is unfortunate, but the general kills the particular. The question we will reexamine later, after deeper discussion of complexity theory, is whether it is possible to be both ethical and universalist. In theory, yes, but, sadly, not in practice. For whenever the “we” becomes too large a club, things degrade, and each one starts fighting for his own interest. The abstract is way too abstract for us. This is the main reason I advocate political systems that start with the municipality, and work their way up (ironically, as in Switzerland, those “Swiss”), rather than the reverse, which has failed with larger states. Being somewhat tribal is not a bad thing—and we have to work in a fractal way in the organized harmonious relations between tribes, rather than merge all tribes in one large soup. In that sense, an American-style federalism is the ideal system.

Diogenes held that the seller ought to disclose as much as civil law requires. As for Antipater, he believed that everything ought to be disclosed—beyond the law—so that there was nothing that the seller knew that the buyer didn’t know.

Clearly Antipater’s position is more robust—robust being invariant to time, place, situation, and color of the eyes of the participants. Take for now that

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

Hence:
Laws come and go; ethics stay.

[...] “giving advice” as a sales pitch is fundamentally unethical—selling cannot be deemed advice. We can safely settle on that. You can give advice, or you can sell (by advertising the quality of the product), and the two need to be kept separate.

You who caught the turtles better eat them, goes the ancient adage.*

The origin of the expression is as follows. It was said that a group of fishermen caught a large number of turtles. After cooking them, they found out at the communal meal that these sea animals were much less edible than they thought: not many members of the group were willing to eat them. But Mercury happened to be passing by—Mercury was the most multitasking, sort of put-together god, as he was the boss of commerce, abundance, messengers, the underworld, as well as the patron of thieves and brigands and, not surprisingly, luck. The group invited him to join them and offered him the turtles to eat. Detecting that he was only invited to relieve them of the unwanted food, he forced them all to eat the turtles, thus establishing the principle that you need to eat what you feed others.

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

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—and the chief thing you can learn from, say, a life coach or inspirational speaker is how to become a life coach or inspirational speaker.

Artisans

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.

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.

Compendiaria res improbitas, virtusque tarda—the villainous takes the short road, virtue the longer one. In other words, cutting corners is dishonest.

[...] skin in the game is about honor as an existential commitment, and risk taking (a certain class of risks) as a separation between man and machine and (some may hate it) a ranking of humans.

If you do not take risks for your opinion, you are nothing.

Let us return to pathemata mathemata (learning through pain) and consider its reverse: learning through thrills and pleasure. People have two brains, one when there is skin in the game, one when there is none. Skin in the game can make boring things less boring. When you have skin in the game, dull things like checking the safety of the aircraft because you may be forced to be a passenger in it cease to be boring. If you are an investor in a company, doing ultra-boring things like reading the footnotes of a financial statement (where the real information is to be found) becomes, well, almost not boring.

[...] skin in the game brings simplicity—the disarming simplicity of things properly done. People who see complicated solutions do not have an incentive to implement simplified ones.

Another small example of top-down progress: Metro North, the railroad between New York City and its northern suburbs, renovated its trains, in a total overhaul. Trains look more modern, neater, have brighter colors, and even have such amenities as power plugs for your computer (that nobody uses). But on the edge, by the wall, there used to be a flat ledge where one can put the morning cup of coffee: it is hard to read a book while holding a coffee cup. The designer (who either doesn’t ride trains or rides trains but doesn’t drink coffee while reading), thinking it is an aesthetic improvement, made the ledge slightly tilted, so it is impossible to put the cup on it.

This explains the more severe problems of landscaping and architecture: architects today build to impress other architects, and we end up with strange—irreversible—structures that do not satisfy the well-being of their residents; it takes time and a lot of progressive tinkering for that. Or some specialist sitting in the ministry of urban planning who doesn’t live in the community will produce the equivalent of the tilted ledge—as an improvement, except at a much larger scale.

Specialization, as I will keep insisting, comes with side effects, one of which is separating labor from the fruits of labor.

[...] the twenty-two-century-old diatribe by Sextus Empiricus Against the Professors.

The rule is:

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

At the time of writing, science has been taken over by vendors using it to sell products (like margarine or genetically modified solutions) and, ironically, the skeptical enterprise is being used to silence skeptics.

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.

By definition, what works cannot be irrational; about every single person I know who has chronically failed in business shares that mental block, the failure to realize that if something stupid works (and makes money), it cannot be stupid.

[...] 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 of research.

There is a difference between a charlatan and a genuinely skilled member of society, say that between a macrobull***ter political “scientist” and a plumber, or between a journalist and a mafia made man. The doer wins by doing, not convincing. 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”).

[...] there is this other instance where filtering plays a role: fools of randomness are purged by reality so they stop harming others. Recall that it is at the foundation of evolution that systems get smart by elimination.

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

In New Jersey, symmetry can simply mean, in Fat Tony’s terms: don’t give crap, don’t take crap. His more practical approach is

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

[...] things that get complicated have a problem. So we will skip Kant’s drastic approach for one main reason:

Universal behavior is great on paper, disastrous in practice.

We know with much more clarity what is bad than what is good. The Silver Rule can be seen as the Negative Golden Rule, and as I am shown by my Calabrese (and Calabrese-speaking) barber every three weeks, via negativa (acting by removing) is more powerful and less error-prone than via positiva (acting by addition*1).

Leviticus is a sweetening of Hammurabi’s rule. 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.

The well-known lex talionis, “an eye for one eye,” comes from Hammurabi’s rule. It is metaphorical, not literal: you don’t have to actually remove an eye—hence the rule is much more flexible than it appears at first glance.

[...] we saw that people don’t learn so much from their—and other people’s—mistakes; rather it is the system that learns by selecting those less prone to a certain class of mistakes and eliminating others.

Systems learn by removing parts, via negativa.*

Many bad pilots, as we mentioned, are currently in the bottom of the Atlantic, many dangerous bad drivers are in the local quiet cemetery with nice walkways bordered by trees. Transportation didn’t get safer just because people learn from errors, but because the system does.

We saw that interventionistas don’t learn because they are not the victims of their mistakes, and, as we hinted at with pathemata mathemata:

The same mechanism of transferring risk also impedes learning.

[...] if we do not decentralize and distribute responsibility, it will happen by itself, the hard way: 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.

Decentralization is based on the simple notion that it is easier to macrobull***t than microbull***t.

Decentralization reduces large structural asymmetries.

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

The first flaw is that they are incapable of thinking in second steps and unaware of the need for them—and about every peasant in Mongolia, every waiter in Madrid, and every car-service operator in San Francisco knows that real life happens to have second, third, fourth, nth steps. The second flaw is that they are also incapable of distinguishing between multidimensional problems and their single-dimensional representations—like multidimensional health and its stripped, cholesterol-reading reduction. They can’t get the idea that, empirically, complex systems do not have obvious one-dimensional cause-and-effect mechanisms, and that under opacity, you do not mess with such a system.

These interventionistas and their friends in the U.S. State Department helped create, train, and support Islamist rebels, then “moderates,” but who eventually evolved to become part of al-Qaeda, the same, very same al-Qaeda that blew up the New York City towers during the events of September 11, 2001. They mysteriously failed to remember that al-Qaeda itself was composed of “moderate rebels” created (or reared) by the U.S. to help fight Soviet Russia because, as we will see, these educated people’s reasoning doesn’t entail such recursions.

So we tried that thing called regime change in Iraq, and failed miserably. We tried that thing again in Libya, and there are now active slave markets in the place. But we satisfied the objective of “removing a dictator.” By the exact same reasoning, a doctor would inject a patient with “moderate” cancer cells to improve his cholesterol numbers, and proudly claim victory after the patient is dead, particularly if the postmortem shows remarkable cholesterol readings. But we know that doctors don’t inflict fatal “cures” upon patients, or don’t do it in such a crude way, and there is a clear reason for that. Doctors usually have some modicum of skin in the game, a vague understanding of complex systems, and more than a couple of millennia of incremental ethics determining their conduct.