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Skin in the Game: Hidden Asymmetries in Daily Life

Skin in the Game: Hidden Asymmetries in Daily Life

Date read: 2020-05-26
How strongly I recommend it: 9.58/10
(See my list of books, for more.)

Go to the Amazon book for details and reviews.

Skin in the Game: Hidden Asymmetries in Daily Life

Risk and Learning

What you learn under the intensity and focus because of risk taking will stay with you.

Interventionists and Learning

Interventionists don't learn because they are not the victims of their mistakes.

Filtering and saying no

“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.”

Focus on action

What other people do is tangile and measurable.

That's what we want to focus on rather than what they say.

Being right vs being rich

What matters in life is not how frequent one is right, but how much he makes when he's right, (and how little he loses when he's wrong).

Knowledge and Tinkering

Knowledge gained by tinkering, trial and error, experience and the working of time is far more superior to that obtain through other means.

Different kinds of risks

“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.”

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

Risk of ruin vs variations and fluctuations

“people confuse risk of ruin with variations and fluctuations”

“I make the case for risk loving, for systematic “convex” tinkering, and for taking a lot of risks that don’t have tail risks but offer tail profits. Volatile things are not necessarily risky, and the reverse is also true. Jumping from a bench would be good for you and your bones, while falling from the twenty-second floor will never be so. Small injuries will be beneficial, never larger ones, those that have irreversible effects.”

Doing vs Understanding

We are much better at doing than understanding.

Skin in the game and learning

Putting your skin in the game guides your learning and discovery.

Employable person and history

“Perhaps, by definition, an employable person is the one you will never find in a history book, because these people are designed to never leave their mark on the course of events.”

Owner vs employee

“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.”

Evolution

“Society doesn’t evolve by consensus, voting, majority, committees, verbose meetings, academic conferences, tea and cucumber sandwiches, or polling; only a few people suffice to disproportionately move the needle.”

Assessment and trusted decision

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

Romans and politics

“The Romans judged their political system by asking not whether it made sense but whether it worked”

Verbal threats

“Verbal threats reveal nothing beyond weakness and unreliability”

Advice and skin in the game

"Be aware of people who give advices, telling you a certain action is good for you, while it's also good for him, but when it's bad for you, it will never affect him."

Time and expert

“Fragility is the expert, hence time and survival.”

“Use laws that are old but food that is fresh.”

Freedom and peer assessment

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

Risk and belief

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

Risk and decision making

Those who don't take risk should never be involved in a decision making process.

Wealth and option

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

The most convincing statements

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

Losing and fragility

“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. ”

Beliefs and survival

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

Individual fragility and system solidity

“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.”

Being nice

Start by being nice to everyone you meet. But once the other tries to exercise power over you, you can exercise power over him.

Errors and discoveries

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

Rationality, action and survival

“This chapter will ease us to the next section: a) rationality resides in what you do, not in what you think or in what you “believe” (skin in the game), and b) rationality is about survival.”

Dynamic wealth of America

“about 10 percent of Americans will spend at least a year in the top 1 percent, and more than half of all Americans will spent a year in the top 10 percent.fn3 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.”

Structure and participants

“The underlying structure of reality matters much more than the participants”

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

Revolution and obsessive minority

“Revolutions are unarguably driven by an obsessive minority. And the entire growth of society, whether economic or moral, comes from a small number of people.”

Skin in the game and company name

Product or company name bearing the owner's name conveys valuable message.

They are shouting that they have something to lose.

Intolerant minorities and the silver rule

“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.”

Talk and action

“Always do more than you talk. And precede talk with action. For it will always remain that action without talk supersedes talk without action.”

Argument vs Winning

You don't want to win an argument. You want to win.

Intelligence of time

* Time removes the fragile and keeps the robust.

* The life of the antifragile lengthens as time passes.

Time is the friend of a good business but the enemy of a bad business.

Principles and Justification

One debases a principle by endlessly justifying it.

Minority rule

“an intolerant minority can control and destroy democracy. Actually, it will eventually destroy our world.”

Complex system

“The main idea behind complex systems is that the ensemble behaves in ways not predicted by its components. The interactions matter more than the nature of the units.”

“This is called an “emergent” property of the whole, by which parts and whole differ because what matters are the interactions between such parts. And interactions can obey very simple rules.”

Downside and uncertainty

Avoiding engaging in an activity with obvious big downside and unknown outcome.

Convince people

You can never convince people they are wrong. Only the reality can.

Freedom and real victory

“a free person does not need to win arguments—just win”

Skin in the game and the Black Swan

Skin in the game is the solution to the Black Swan.

Because what's survived reveal their robustness towards the Black Swan events. Removing skin in the game destroys the selection process and make the system weaker.

Time and assessment

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

Exposure and nonlinearity

Many exposures are highly nonlinear: you can benefit from a shower or bath, but not flood or tsunami.

Survive for a reason

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

Army and leader

“it was preferable to have an army of sheep led by a lion than an army of lions led by a sheep”

complex system and multi-dimensional

Empirically, complex system doesn't have a one dimensional cost and effect mechanisms.

Employee's value

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

Complication and scam

“It is easy to scam people by getting them into complications—the poor are spared that type of scamming. This is the same complication that makes academics sell the most possibly complicated solution when a simple one can do”

Risk and expected return

“Assume a collection of people play Russian roulette a single time for a million dollars—this is the central story in Fooled by Randomness. About five out of six will make money. If someone used a standard cost-benefit analysis, he would have claimed that one has an 83.33 percent chance of gains, for an “expected” average return per shot of $833,333. But if you keep playing Russian roulette, you will end up in the cemetery. Your expected return is … not computable.”

Decentralization

Decentralization reduce large structure asymmetric.

It's based on the fact that it's easier to macro bullshit than micro bullshit.

Learning and convexity

Learning is based on repetition and convexity.

Reading a in-depth book twice is more benefitial to the reader than reading two books once.

Taking advice

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

Genes and languages

“Genes follow majority rule; languages minority rule.

Languages travel; genes less so.”

Families and risk

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

Universal behavior

Universal behavior is great on paper and disastrous in practice.

Veto Effect

“ 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.”

Simplicity and skin in the game

Things designed by people without skin in the game tend to be over complicated (until they collapse).

When your work is judged by perception rather than results, you need to show sophistication.

Systematic Ruin

“One may be risk loving yet completely averse to ruin.

The central asymmetry of life is:

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

Further:

Ruin and other changes in condition are different animals.

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

Finally:

Rationality is avoidance of systemic ruin.”

Stupidity and money

If something stupid works (and makes money), it cannot be stupid.

Society and evolution

“Society doesn’t evolve by consensus, voting, majority, committees, verbose meetings, academic conferences, tea and cucumber sandwiches, or polling; only a few people suffice to disproportionately move the needle.”

Government interference

Government interference generally removes skins in the game.

The danger of universalism

The danger of universalism is it has taken 2 or 3 steps too far - conflating micro and macro.

System and Learning

The system learns by selecting people who are less prone to a certain mistake and eliminate the others.

Decentralization and variations

“decentralization is convex to variations”