When your own actual skin is involved in a situation, you are more likely to care, particularly if you directly suffer the negative consequences of your actions. This could explain why today’s world reeks with so much corruption and the fall of character, as the consequences are not felt by the person committing those actions. Tenants frequently trash the place they live in and end up leaving the mess for the landlord to deal with, even at the expense of the security deposit initially paid. Often times the expenses are far more than the security deposit. Abhorrent as this behavior may be, it makes logical sense given that they do not own the place. Financial fraud in its various forms now seems to be a common occurrence now. Given that the penalty is a mere slap on the wrist, there seems to be all the reward and none of the risk involved. In his book, Nassim Taleb explains in detail this whole concept.
-when you don’t let things fail, you will have a concentration of mistakes
-when you have skin in the game, you learn much more (I.e. if you host parties)
-you can’t walk away from risks you’ve created for others
-“hidden asymmetries in daily life”
-true risk-taking is virtuous, not false risk or humble brags
Intro
-it is asymmetrical to only be judged by similar peers, need a broader lens than that
-need skin in the game
Symmetry is key. Symmetric rewards and risks to understand the world and for fairness and efficiency
-reciprocation in human relationships, rationality, Information sharing, a filter for nonsense
-don’t give an opinion unless you do it
-do not give money to charities as they do not give out the money fairly
-only share information if you yourself are held responsible if things go sideways or are also doing it (which is rarely the case). Do not give your two cents
-if you’re only judged by similar peers, you will lose touch with reality and fail in life. So, if you and all your friends are the same, or they are different but you don’t care what they think, you will suffer in life. You end up with a convoluted mind that complicated things if you are judged by your peers rather than experts
-you should own and bear your risks if you created them
Prologue, Part 1 (page 20)
-pathemata mathemata – guide learning through pain.
-Learning through experience is better than learning through reasoning
-academics think in static fixed environments not dynamic changing environments (real life), low not high dimensions, and in one sided action, but not two-sided interactions
-skin in the game naturally leads to survival of the fittest
-without skin in the game, people, who have already been crazy, can now destroy the world
-bureaucracy separates consequences from actions. E.g. layoffs. It used to be the boldest and those who risked their lives ended up in positions of power. Now, the people who use their sacrifice psychopathically end up in the top places of society
-Bob Rubin stole $120m from Citibank as CEO and in 2008 got away with it all. Skin in the game was not solved in 2008, which is why bailouts keep happening
-Hedge funds are better than mutual funds as the founders have their own money in the fund
-only reality can convince someone they are wrong by suffering the consequences
-evolution doesn’t happen without skin in the game; mainly, of systems, not individuals
Prologue, part 2 – symmetry
-skin in the game, until very recently in society, was the rule of life. Builders would die if the building collapsed.
-Lex Talionis; an eye for an eye, a tooth for a tooth, and many other cultural references to symmetry of life, skin in the game
-worry about the micro, not the macro
-fat tony: “be nice to everyone unless they exercise power over you. Then, exercise power over them”
-we as such are now living in a world where problems are being hidden, and once unleashed, cause problems
-avoid to taking advice from someone who advises you for a living, unless they incur a penalty for bad advice. This implies youtubers should not be listened to and most people as they do not get a penalty for me suffering their bad advice
-avoid crooks, fools or both. The system eliminates them over time (fools disappear and get scammed, crooks go to jail)
-one shot transactions don’t end well
-you may not know in your mind where you are going, but you know by what you are doing
-survival talks and bs walks
-There are some risks we cannot afford to take, and some risk we cannot afford to not take
-those who talk should do and only those who do should talk
-things designed by peoples without skin in the game tend to grow in complication. Before the final collapse
-people without skin in the game don’t have simplicity
-with skin in the game, you have increased sharpness and intelligence (more interest in viewing financial statements). Same for work, more interest in work with others relying on you
-Regulations curtail growth and freedom
-if you do not take risks on your opinions, you are nothing
-success: leading an honourable life. Honor states there are things we won’t do
-have your soul in the game of life (if it goes against your soul, you shouldn’t do it). Have passion
-his peers fill days with unnecessary meetings
-do not have assistants, do things yourself
-finance tip: once the entrepreneur leaves the company, they start to rot. Do not invest in companies where the entrepreneur is not still the CEO
-heroes were not library rats; they went out and did things
-fragmentation leads to identity, but then harder to connect with
Prologue, Part 3 – the Foundation of the Incerto
-there is more incentive to play the black swan game (asymmetrical trades) as society is incentivized that way now
-only do stuff where your soul is in the game. If it isn’t, then do other things that turn you on
-learning is rooted in repetition and convexity. Reading the same good book twice is better than reading two good books once. One should re-read good books
-Virtue requires risk taking. Non-virtue does not require any risk taking
-people who sacrifice for others are rare now. Most talked about people do not have skin in the game: politicians, bankers, journalists, reporters, those who seek status, awards, or prizes, government, large corporations, bureaucrats
Book 2 – a first look at agency
-detect if others want you for the right reasons
-when people say something is “good for you”, it’s usually good for them. Be wary of those who give unsolicited advice
-Salespeople are experts in psychological manipulation
-led come and go, ethics stay
-no person in a transaction should have certainty while the other has uncertainty
-in groups ethics goes away
-multiculturalism doesn’t work as extreme views put together, especially religious, lead to conflict
-people get along better if they are not too close; once too close it’s no good majority of the time. E.g. neighbors vs roommates
-the objective of people is to transfer risk to others or into the future
Book 3 – the greatest asymmetry
-chapter 2; the stubborn vocal minority, the most intolerant, wins. One bad nut can ruin the entire nest.
-an honest person will not commit criminal acts, but a criminal will commit legal acts
-minorities are inflexible, intransigent, while the majority is flexible
-Genes follow a majority rule
-under Islam, one cannot stop being Muslim as they would get the death penalty for apostasy. A non-Muslim marrying a Muslim would have to convert. At least one parent must be Muslim. Judaism only requires the mother to be religious
-The most intolerant person is the one to impose the rules in others, good or bad
-the minority rules, which leads to black and white thinking and a polarized society
-if left unchecked, the intolerant minority will destroy the world, as they violate the silver rule
-the stock market is like a large movie theatre with one small door. If a big buyer or seller makes a move, that stock will move by greater than the proportion they bought at
Appendix to book 3
-understanding individuals in a sub level to see how they operate on a group level is not easy
-capitalism works because of the invisible hand; free markets will work even if the participants have no intelligence
-good structures lead to better behaviour, not the improvement of behaviour amongst the individuals (this only occurs for some)
Book 4 – predators within the pack
Chapter 3 – how legally own another person
-the expat life ends one day
-employees are lazy and scared, that is why they are employees. Submissive, risk-averse. That used to work until now employees are freely laid off, leading to licenses and competition for climbing the ladder
-Expats are created as a clever muse to trick people into constantly being expats
-freedom is not free – it entails risks. Company men are not risk takers. The best employees are usually those that can’t be controlled, due to having more options. High-achievers aren’t worried about reputation
-the more you have to lose, the more risk averse you are. That is why single young men take the biggest risks, as they have the least to lose. This explains why old successful married men who are happy are the most risk averse, they have the most to lose.
-people whose livelihood depends on others rating of them should not be trusted for critical decisions
Chapter 4 – the skin of anothers in your game
-large corporations prefer people with families and big debts; it makes them stay longer as reliable underpaid slaves
-to be free of conflict is to have no friends
Book 5 – Existence entails embracing specific risks.
chapter 5; Existence within the Simulated Mechanism
-Always do more than you talk, always signal skin in the game. The failed version of you expressed honestly is better than the covered-up version of you
Chapter 6, intellectual idiot
-2014 to 2018, rebellion against those with no skin in the game at the top
-modern phenomenon: intellectual yet idiot (IYI), since mid-twentieth century
-The IYI knows what’s happening with his reputation and is obsessed with that
Chapter 7; Disparity and Personal Stake
-we resent people who got rich in white collar without skin in the game, but don’t for people with skin in the game and not in our industries (envy)
-large/strong states with lots of bureaucracy have low downward mobility
-capitalism is now winner take all
-empathy is the opposite of envy. Those high in envy do not have empathy
Chapter 8 – an expert called Lindy
-those who are fragile do not like volatility, while those who are anti fragile welcome volatility
-Lindy effect: those that are well with time. Ideas that have stood the test of time should be used. Widely popular old ideas have lots of wisdom (value investing, Buddhism, Christianity, etc)
-burn old things, drink old wine, read old books, keep old friends
-time is the ultimate test of who the winners are
-in investing, it’s easier to macro nonsense but not easy to on the micro level, which no one ever does
-those that take risks with their opinions by looking controversial are honest people and not likely to lie
Old wisdom
-Negative advice: the good is not nearly as good as the absence of bad; Cicero
-Cognitive dissonance
-Loss aversion
-Skin in the game
-Time discounting: a bird in the hand is better than ten in the tree (Levantine proverb)
-madness is rare in individuals, but is very common in crowds. Nietzsche. Thus, the stock market is madness
-Less is more; truth is lost with alteration
Book 6 – Deep and deep into agency
Chapter 9 – surgeons should not seems like surgeons
-investing; most executives sound the same and look the same. The successful CEOs and companies to invest in are where the founder is still the CEO, has a lot of his own worth in the company stock, and is unique in manners, speech, vision, look
-the great majority of people know the talk, play the part, and have knowledge, but are actually clueless fakers
-the ones you understand the least will probably most likely be successful as their idea is so innovative you don’t even know how to evaluate it
-the people you understand the most easily or are best at sales are usually the least honest, as they are the least candid
-intellectuals are just talkers who don’t do anything
-people try to achieve false balance in life by oversimplifying complicated stuff, while over complicating simple things, same as uniqueness and tokenism.
-skin in the game: like simple, decentralized
-without skin in the game: like complicated, centralized
-up to 85% of costs come from storage, transportation, waste, spillage. Companies with no expenses or little such as online and own warehouses will do well (Amazon)
-the minute one is judged by others than reality is when failure comes (I.e. evaluation forms)
-wealth leads to education, not education leading to wealth
-no point spending more money at a brand name university
Chapter 10- only the rich persons are poisoned in the preferences of others peoples
-if wealth is giving you less options, you are doing it wrong
-few people understand their own choices
-Hide your erudition (learning) and wealth to have genuine friends (rather than those that come after you for knowledge or wealth)
-too much wealth starts to ruin things
Chapter 11 – deeds before words
-a living enemy is worth ten dead ones
-large cities people become evil due to anonymity
Chapter 12 – the facts and reality are true, the news is fake
Chapter 13 – The Commercialization of Virtue
-virtue is what you do when nobody is looking
-call someone lonely on Saturday afternoon after sports
-people now often do virtue signalling for selfish upside
-when people say they know what’s best for you, it often means they know that this is best for them
-virtue is about others and what’s best for the collective
-courage is the only virtue not able to be faked. Taking a risk is the highest virtue
-those who express their opinions only when it is popular to do so, safe to do so, or if they can gain, are cowards and dishonest
Chapter 14 – peace, neither ink nor blood
-real people are interested in commonalities and peace, not war and conflict
-do you derive knowledge from books, or real life and business?
Book 7 -religion, belief, skin in the game
Chapter 15 – what is religion?
-In religion, you are paying for the label
-when different people say the same thing, they often mean different things
-religion is thought controlling
Chapter 16 –True Reverence Demands Personal Involvement
-Love without sacrifice is theft
-Most Christians act the same as atheists in all areas of life, few can tell the difference
Book 8 – Risk and rationality
Chapter 18 – being rational about rationality
-survival comes first, later living, truth, understanding
-those of us who take tail protected risks have our priorities straight (tail effects like divorce lead to disaster)
-asking people what they think doesn’t work as everyone lies or doesn’t know. Instead, thoughts become values, values become words, words become actions, actions become destiny. Thus, ask about their past actions, their track record, to find out where their destiny is headed
-invert, always invert. Start from the destiny, the end to get to the beginning
-anything that hinders one’s ability to survive is irrational
Chapter 19 – logic of risk taking
-take the risk if it doesn’t have a negative effect for the rest of your life
-take Ray Dalio’s system at Bridgewater. People who know what they are doing are assigned a higher basis for their opinion. Adding more people with no fundamental insight does not increase any fundamental insight. Adding people who don’t know what they are doing makes it worse; hence why the majority is always wrong
-because of time probability, playing a game or adding a risk that could occasionally super harm you are not smart and those should be avoided. Thus, playing in the casino should be avoided entirely
-courage is sacrificing for others. Selfish courage is not the same; selfish courage benefits only yourself, while potentially hurting other people in the process
–An individual might embrace risk while still shunning utter downfall.
-A strategy that contains ruin isn’t worth the benefits
-risks can reduce life expectancy
-rationality is avoidance of systemic ruin (divorce, destitution, bad debt, death, depression, disease)
-you get nothing without skin in the game
Disclaimer
This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.