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Skin in the Game by Nassim Nicholas Taleb

Introduction

If you give an opinion, and someone follows it, you are morally obligated to be, yourself, exposed to its consequences. In case you are giving economic views: Don’t tell me what you “think,” just tell me what’s in your portfolio.
never engage in detailed overexplanations of why something important is important: one debases a principle by endlessly justifying it.
How is it that we have more slaves today than we did during Roman times?
Skin in the game, applied as a rule, reduces the effects of the following divergences that grew with civilization: those between action and cheap talk (tawk), consequence and intention, practice and theory, honor and reputation, expertise and charlatanism, concrete and abstract, ethical and legal, genuine and cosmetic, merchant and bureaucrat, entrepreneur and chief executive, strength and display, love and gold-digging, Coventry and Brussels, Omaha and Washington, D.C., human beings and economists, authors and editors, scholarship and academia,

Prologue, Part 1: Antaeus Whacked

The abrasions of your skin guide your learning and discovery, a mechanism of organic signaling, what the Greeks called pathemata mathemata (“guide your learning through pain,” something mothers of young children know rather well).
in Antifragile that most things that we believe were “invented” by universities were actually discovered by tinkering and later legitimized by some type of formalization. The knowledge we get by tinkering, via trial and error, experience, and the workings of time, in other words, contact with the earth, is vastly superior to that obtained through reasoning, something self-serving institutions have been very busy hiding from us.
Decentralization is based on the simple notion that it is easier to macrobullt than microbullt. Decentralization reduces large structural asymmetries.
The Bob Rubin trade? 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.”
It is not just bailouts: government interference in general tends to remove skin in the game.
In the decentralized hedge fund space, on the other hand, owner-operators have at least half of their net worth in the funds, making them relatively more exposed than any of their customers, and they personally go down with the ship.
The same mechanism of transferring risk also impedes learning. More practically, You will never fully convince someone that he is wrong; only reality can. Actually, to be precise, reality doesn’t care about winning arguments: survival is what matters. For The curse of modernity is that we are increasingly populated by a class of people who are better at explaining than understanding, or better at explaining than doing.
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.
To summarize so far, Skin in the game keeps human hubris in check. Let us now go deeper with the second part of the prologue, and consider the notion of symmetry.

Prologue, Part 2: A Brief Tour of Symmetry

What is a tail? Take for now that it is an extreme event of low frequency.
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. More robust? How? 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.
Effectively, there is no democracy without such an unconditional symmetry in the rights to express yourself, and the gravest threat is the slippery slope in the attempts to limit speech on grounds that some of it may hurt some people’s feelings. Such restrictions do not necessarily come from the state itself, rather from the forceful establishment of an intellectual monoculture by an overactive thought police in the media and cultural life.
So 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.
Skin in the game helps to solve the Black Swan problem and other matters of uncertainty at the level of both the individual and the collective: what has survived has revealed its robustness to Black Swan events and removing skin in the game disrupts such selection mechanisms.
Without skin in the game, we fail to get the Intelligence of Time (a manifestation of the Lindy effect,
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.
There are some risks we just cannot afford to take. And there are other risks (of the type academics shun) that we cannot afford to not take. This dimension, which bears the name “ergodic,” is belabored in Chapter 19.
Replacing the “natural,” that is age-old, processes that have survived trillions of high-dimensional stressors with something in a “peer-reviewed” journal that may not survive replication or statistical scrutiny is neither science nor good practice.
Sextus Empiricus Against the Professors. The rule is: Those who talk should do and only those who do should talk
Let those with skin in the game select what they need. Let us get more practical about the side effect of modernism: as things get more technological, there is a growing separation between the maker and the user.
Things designed by people without skin in the game tend to grow in complication (before their final collapse).
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.
When there was risk on the line, suddenly a second brain in me manifested itself, and the probabilities of intricate sequences became suddenly effortless to analyze and map. When there is fire, you will run faster than in any competition. When you ski downhill some movements become effortless. Then I became dumb again when there was no real action.
But if you muster the strength to weight-lift a car to save a child, above your current abilities, the strength gained will stay after things calm down. So, unlike the drug addict who loses his resourcefulness, what you learn from the intensity and the focus you had when under the influence of risk stays with you. You may lose the sharpness, but nobody can take away what you’ve learned.
If a big corporation pollutes your neighborhood, you can get together with your neighbors and sue the hell out of it. Some greedy lawyer will have the paperwork ready. The enemies of the corporation will be glad to help. And the potential costs of the settlement would be enough of a deterrent for the corporation to behave.
If you can’t effectively sue, regulate. fn5
Honor implies that there are some actions you would categorically never do, regardless of the material rewards. She accepts no Faustian bargain, would not sell her body for $500; it also means she wouldn’t do it for a million, nor a billion, nor a trillion. And it is not just a via negativa stance, honor means that there are things you would do unconditionally, regardless of the consequences.
People who are not morally independent tend to fit ethics to their profession (with a minimum of spinning), rather than find a profession that fits their ethics.
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.
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.
Having an assistant (except for the strictly necessary) removes your soul from the game.
Think of the effect of using a handheld translator on your next trip to Mexico in place of acquiring a robust vocabulary in Spanish by contact with locals. Assistance moves you one step away from authenticity.
Companies beyond the entrepreneur stage start to rot. One of the reasons corporations have the mortality of cancer patients is the assignment of time-defined duties.
The skills at making things diverge from those at selling things.
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. Many people made fun of my decision, as most of my income comes from overseas and, if I took official residence in, say, Cyprus or Malta, I would be making many more dollars. 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. Skin in the game.
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. So remember that the heroes of history were not classicists and library rats, those people who live vicariously in their texts.

Prologue, Part 3: The Ribs of the Incerto

Thou shalt not become antifragile at the expense of others. Simply, asymmetry in risk bearing leads to imbalances and, potentially, to systemic ruin.
This book came after a deep—nonacademic—unplanned flirtation with mathematics. For after finishing Antifragile, I thought of retiring my pen for a while and settling into the comfortable life of a quarter university position, enjoying squid-ink pasta in bon vivant company, lifting weights with my blue-collar friends, and playing bridge in the afternoon, the kind of tranquil, worry-free life of the nineteenth-century gentry. What
For those familiar with the idea of nonlinear effects from Antifragile, 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, provided of course that said text has some depth of content.

Chapter 1. Why Each One Should Eat His Own Turtles: Equality in Uncertainty

So, “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.
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.
No person in a transaction should have certainty about the outcome while the other one has uncertainty.
It may not be ethically required, but the most effective, shame-free policy is maximal transparency, even transparency of intentions.
When Athenians treat all opinions equally and discuss “democracy,” they only apply it to their citizens, not slaves or metics (the equivalent of green card or H-1B visa holders).
But we don’t have to go very far to get the importance of scaling. You know instinctively that people get along better as neighbors than roommates.
Let us get into the gut of Ostrom’s idea. 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. But it is a critical mistake to think that people can function only under a private property system.
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.
medicine, while wrapping the garment of science around it, is fundamentally apprenticeship-based and, like engineering, grounded in experience, not just experimentation and theories. While economists say “assume that …” and produce some weird theory, doctors have none of that.
More realistically, say a cancer doctor or hospital is judged by the five-year survival rates of patients, and needs to face a variety of modalities for a new patient: what choice of treatment would they elect to do? 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.
Now, say you happen to visit a cardiologist and turn out to be in the mild risk category, something that doesn’t really raise your risk of a cardiovascular event, but precedes the stage of a possibly worrisome condition. (There is a strong nonlinearity: a person classified as prediabetic or prehypertensive is, in probability space, 90 percent closer to a normal person than to one with the condition.) But the doctor is pressured to treat you to protect himself.
patient to avoid treatment when he or she is mildly ill, but use medicine for the “tail events,” that is, for rarely encountered severe conditions. The problem is that the mildly ill represent a much larger pool of people than the severely ill—and are people who are expected to live longer and consume drugs for longer—hence pharmaceutical companies have an incentive to focus on them. (Dead people, I am told, stop taking drugs.)

Chapter 2. The Most Intolerant Wins: The Dominance of the Stubborn Minority

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.
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.”
Rory wrote to me about the beer-wine asymmetry and the choices made for parties: “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 you serve only wine—the universal donor, to use the language of blood groups.”
my heuristic is that the more pagan, the more brilliant one’s mind, and the higher one’s ability to handle nuances and ambiguity.
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.
IMPOSING VIRTUE ON OTHERS This idea of one-sidedness can help us debunk a few more misconceptions. How do books get banned? Certainly not because they offend the average person—most persons are passive and don’t really care, or don’t care enough to request the banning. From past episodes, it looks like all it takes is a few (motivated) activists for the banning of some books, or the blacklisting of some people.
Let us conjecture that the formation of moral values in society doesn’t come from the evolution of the consensus. No, it is the most intolerant person who imposes virtue on others precisely because of that intolerance. The same can apply to civil rights.
Once a moral rule is established, it will suffice to have a small, intransigent minority of geographically distributed followers to dictate a norm in society. The sad news is that one person looking at mankind as an aggregate may mistakenly believe that humans are spontaneously becoming more moral, better, and more gentle, with better breath, when this applies to only a small proportion of mankind.
Yes, the most motivated rules. Indeed this is something that only traders seem to understand: why a price can drop by ten percent because of a single seller. All you need is a stubborn seller. Markets react in a way that is disproportional to the impetus. The overall stock markets currently represent more than thirty trillion dollars, but a single order in 2008, only fifty billion, that is, less than two-tenths of a percent of the total, triggered a drop of close to 10 percent, causing losses of around three trillion dollars.
My personal adage is: The market is like a large movie theater with a small door.
Science isn’t the sum of what scientists think, but exactly as with markets, it is a procedure that is highly skewed. Once you debunk something, it is now wrong. Had science operated by majority consensus, we would be still stuck in the Middle Ages, and Einstein would have ended as he started, a patent clerk with fruitless side hobbies.
“Never doubt that a small group of thoughtful citizens can change the world. Indeed, it is the only thing that ever has,” wrote Margaret Mead.
Revolutions are unarguably driven by an obsessive minority. And the entire growth of society, whether economic or moral, comes from a small number of people.

Appendix to Book 3: A Few More Counterintuitive Things About the Collective

The average behavior of the market participant will not allow us to understand the general behavior of the market.
Understanding how the subparts of the brain (say, neurons) work will never allow us to understand how the brain works.
So far we have no f***ing idea how the brain of the worm C. elegans works, which has around three hundred neurons.
Understanding the genetic makeup of a unit will never allow us to understand the behavior of the unit itself.
Using cellular automata, a technique similar to renormalization, the late Thomas Schelling showed a few decades ago how a neighborhood can be segregated without a single segregationist among its inhabitants.
You 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.

Chapter 3. How to Legally Own Another Person

f*** you money, which we can more easily get by being at the lowest rung than by joining the income-dependent classes.
There is a trader’s expression: “Never buy when you can rent the three Fs: what you Float, what you Fly, and what you … (that something else).” Yet many people own boats and planes, and end up stuck with that something else.
His style is so rigorous that he is known for the Coase Theorem (about how markets are very smart about allocating resources and nuisances such as pollution), an idea that he posited without a single word of mathematics, but which is as fundamental as many things written in mathematics.
Had economists, Coase or Shmoase, had any interest in the ancients, they would have discovered the risk-management strategy relied upon by Roman families who customarily had a slave for treasurer, the person responsible for the finances of the household and the estate.
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. In
Most people prefer to adopt puppies, not grown-up dogs; in many countries, unwanted dogs are euthanized. A wolf is trained to survive. Employees abandoned by their employers, as we saw in the IBM story, cannot bounce back.
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.
So cursing today is a status symbol, just as oligarchs in Moscow wear blue jeans at special events to signal their power.
What matters isn’t what a person has or doesn’t have; it is what he or she is afraid of losing.
People whose survival depends on qualitative “job assessments” by someone of higher rank in an organization cannot be trusted for critical decisions.

Chapter 4. The Skin of Others in Your Game

To make ethical choices you cannot have dilemmas between the particular (friends, family) and the general.
Far-fetched comparisons are more likely to discredit the commentator than the commentated.
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?
To be free of conflict you need to have no friends.
The only way we have left to control suicide-terrorists would be precisely to convince them that blowing themselves up is not the worst-case scenario for them, nor the end scenario at all. Making their families and loved ones bear a financial burden—just as Germans still pay for war crimes—would immediately add consequences to their actions.

Chapter 5. Life in the Simulation Machine

A god who didn’t really suffer on the cross would be like a magician who performed an illusion, not someone who actually bled after sliding an icepick between his carpal bones.
Because, to repeat, life is sacrifice and risk taking, and nothing that doesn’t entail some moderate amount of the former, under the constraint of satisfying the latter, is close to what we can call life. If you do not undertake a risk of real harm, reparable or even potentially irreparable, from an adventure, it is not an adventure.
The reason a dream is not reality is that when you suddenly wake up from falling from a Chinese skyscraper, life continues, and there is no absorbing barrier, the mathematical name for that irreversible state that we will discuss at length in Chapter 19, along with ergodicity, the most powerful concept I know.
Before we end, take some Fat Tony wisdom: always do more than you talk. And precede talk with action. For it will always remain that action without talk supersedes talk without action.

Chapter 6. The Intellectual Yet Idiot

With psychology studies replicating less than 40 percent of the time, dietary advice reversing after thirty years of dietary fat phobia, macroeconomics and financial economics (while trapped in an intricate Gargantuan patch of words) scientifically worse than astrology (this is what the reader of the Incerto has known since Fooled by Randomness), the reappointment of Bernanke (in 2010) who was less than clueless about financial risk as the Federal Reserve boss, and pharmaceutical trials replicating at best only a third of the time, people are perfectly entitled to rely on their own ancestral instincts and to listen to their grandmothers (or to Montaigne and such filtered classical knowledge), who have a better track record than these policymaking goons.
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.
Beware the slightly erudite who thinks he is an erudite, as well as the barber who decides to perform brain surgery.
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.
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.

Chapter 7. Inequality and Skin in the Game

Michèle Lamont, the author of The Dignity of Working Men, cited by Williams, did a systematic interview of blue-collar Americans and found a resentment of high-paid professionals but, unexpectedly, not of the rich.
It is safe to say that the American public—actually all publics—despises people who make a lot of money on a salary, or, rather, salarymen who make a lot of money. This is indeed generalized to other countries: a few years ago the Swiss, of all people, ran a referendum for a law capping salaries of managers to a set multiple of the lowest wage. The law didn’t pass, but the fact that they thought in these terms is rather significant.
For the same Swiss hold rich entrepreneurs, and people who have derived their celebrity by other means, in some respect.
In this chapter, I will propose that what people resent—or should resent—is the person at the top who has no skin in the game, that is, because he doesn’t bear his allotted risk, he is immune to the possibility of falling from his pedestal, exiting his income or wealth bracket, and waiting in line outside the soup kitchen.
There is something respectable in losing a billion dollars, provided it is your own money.
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 spent a year in the top 10 percent. fn3
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.
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.
Jean de La Bruyère wrote that jealousy is to be found within the same art, talent, and condition. fn10
Traders, when they make profits, have short communications; when they lose they drown you in details, theories, and charts.
So I’ve discovered, with experience, that when you buy a thick book with tons of graphs and tables used to prove a point, you should be suspicious. It means something didn’t distill right!
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.
(Regulators, you may recall, have an incentive to make rules as complex as possible so their expertise can later be hired at a higher price.)

Chapter 8. An Expert Called Lindy

In probability, volatility and time are the same. The idea of fragility helped put some rigor around the notion that the only effective judge of things is time—by things we mean ideas, people, intellectual productions, car models, scientific theories, books, etc.
That which is “Lindy” is what ages in reverse, i.e., its life expectancy lengthens with time, conditional on survival.
The idea of the Lindy effect is itself Lindy-proof. 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.
And recall that, a free person does not need to win arguments—just win. fn2
Peers devolve honors, memberships in academies, Nobels, invitations to Davos and similar venues, tea (and cucumber sandwiches) with the Queen, requests by rich name-droppers to attend cocktail parties where you see only people who are famous. Believe me, 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.
citation ring in place that can lead to all manner of rotting. Macroeconomics, for instance, can be nonsense since it is easier to macrobullt than microbullt—nobody can tell if a theory really works. 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.
I have no sympathy for moaning professional researchers. I for my part spent twenty-three years in a full-time, highly demanding, extremely stressful profession while studying, researching, and writing my first three books at night; it lowered (in fact, eliminated) my tolerance for career-building research.
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.
For if you read Paul Feyerabend’s account of the history of scientific discoveries, you can clearly see that anything goes in the process—but not with the test of time. That appears to be nonnegotiable.
By the Lindy effect, if an idea has skin in the game, it is not in the truth game, but in the harm game. An idea survives if it is a good risk manager, that is, not only doesn’t harm its holders, but favors their survival—this also applies to superstitions that have crossed centuries because they led to some protective actions.
For in fact, by the Lindy effect, robustness to time, that is, doing things under risk-taking conditions, is checked by survival. Things work 1) if those who have been doing the doing took some type of risk, and 2) their work manages to cross generations.
Consider that a recent effort to replicate the hundred psychology papers in “prestigious” journals of 2008 found that, out of a hundred, only thirty-nine replicated. Of these thirty-nine, I believe that fewer than ten are actually robust and transfer outside the narrowness of the experiment.
So everything that holds in social science and psychology has to be Lindy-proof, that is, have an antecedent in the classics; otherwise it will not replicate or not generalize beyond the experiment.
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.

Chapter 9. Surgeons Should Not Look Like Surgeons

Now there may be some correlation between looks and skills (someone who looks athletic is likely to be athletic), but, conditional on having had some success in spite of not looking the part, it is potent, even crucial, information.
The late Jimmy Powers, a die-hard New York Irishman with whom I worked in an investment bank early in my trading career, was successful in spite of being a college dropout, with the background of a minor Brooklyn street gangster. He would discuss our trading activities in meetings with such sentences as: “We did this and then did that, badaboom, badabing, and then it was all groovy,” to an audience of extremely befuddled executives who didn’t mind not understanding what he was talking about, so long as our department was profitable.
I also learned, in my early twenties, that the people you understand most easily were necessarily the bull***tters.
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.
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.
It took medicine a long time to realize that 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.” But most “consultants” and others paid by the hour are not there yet.
People who are bred, selected, and compensated to find complicated solutions do not have an incentive to implement simplified ones.
A BS DETECTION HEURISTIC The heuristic here would be to 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.
You can tell if a discipline is BS if the degree depends severely on the prestige of the school granting it. I remember when I applied to MBA programs being told that anything outside the top ten or twenty would be a waste of time. On the other hand a degree in mathematics is much less dependent on the school

Chapter 10. Only the Rich Are Poisoned: The Preferences of Others

food does better through minute variations from Sicilian grandmother to Sicilian grandmother.
Poison is drunk in golden cups
Further, 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. 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.
My idea of the good life is to not attend a gala dinner, one of those situations where you find yourself stuck seated for two hours between the wife of a Kansas City real estate developer (who just visited Nepal) and a Washington lobbyist (who just returned from a vacation in Bali).
CONVERSATION 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. Indeed, the classical art of conversation is to avoid any imbalance, as in Baldassare Castiglione’s Book of the Courtier: people need to be equal, at least for the purpose of the conversation, otherwise it fails.

Chapter 11. Facta non Verba (Deeds Before Words)

The ethical system of the Assassins held that political assassination helped prevent war; threats of the dagger-by-your-bed variety are even better for bloodless control. fn1 They supposedly aimed at sparing civilians and people who were not directly targeted. Their precision was meant to reduce what is now called “collateral damage.”

Chapter 13. The Merchandising of Virtue

Sticking up for truth when it is unpopular is far more of a virtue, because it costs you something—your reputation. If you are a journalist and act in a way that risks ostracism, you are virtuous. Some people only express their opinions as part of mob shaming, when it is safe to do so, and, in the bargain, think that they are displaying virtue. This is not virtue but vice, a mixture of bullying and cowardice.
Finally, 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. 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.

Chapter 18. How to Be Rational About Rationality

How much you truly “believe” in something can be manifested only through what you are willing to risk for it.
This allows us to summarize: Rationality does not depend on explicit verbalistic explanatory factors; it is only what aids survival, what avoids ruin. Why? Clearly as we saw in the Lindy discussion: Not everything that happens happens for a reason, but everything that survives survives for a reason.

Chapter 19. The Logic of Risk Taking

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

It came to my notice that in countries with high rent-seeking, wealth is seen as something zero-sum: you take from Peter to give to Paul. On the other hand, in places with low rent-seeking (say the United States before the Obama administration), wealth is seen as a positive-sum game, benefiting everybody.