July 16, 2018

The Likeville Podcast: A Celebration of What Works with Nassim Taleb

Intro

• Nassim (@nntaleb) is the bestselling author of:
  • The Black Swan: The Impact of the Highly Improbable
  • Fooled by Randomness: The Hidden Role of Chance in Life and in the Market
  • Antifragile: Things That Gain from Disorder
  • The Bed of Procrustes: Philosophical and Practical Aphorisms
  • And most recently Skin in the Game: Hidden Asymmetries in Daily Life
    • This is Naval Ravikant’s favorite book this year
•  Nassim groups the above books together, calling them “The Incerto”

Skin in The Game

• “The west is presently committing suicide”
  • Some people are so naive that they think religions are like colors, making them easily comparable
    • This isn’t the case, because some religions are full blown political systems – they don’t have a distinction between the sacred and the profane
    • Christianity does have a built in separation of church and state
  • “In the West, because we’ve been managed more and more by a bunch of nerds who don’t have a grasp of reality, we’re in trouble”
    • Why is this just now the case? – The GDP that is attributed to government is between 5-10x higher than it was a century ago
    • Thus, bureaucrats command 10x more control of your life
  • Check out the book Bullshit Jobs: A Theory by David Graeber
    • The premis – The number of bullshit jobs in government has grown just as fast as the number of bullshit jobs in big corporations
      • This is why big corporations just don’t last as long nowadays
      • The survival of a large corporation in the S&P 500 used to be around 60 years (its life expectancy), today it’s around 10
      • “Corporations are, luckily, like governments that go bust every once in a while”
        • However, with governments, this isn’t a bad thing, as you want governments to reset every once in a while, or you end up with a metastatic bureaucracy
  • “At no point in history have people taken risks killing others, harming others, bankrupting others, and milking others, without themselves being subjected to at least the same risk”
• The Green Lumber Fallacy, a story:
  • There was once a successful trader of green lumber (described in the book What I Learned Losing a Million Dollars) who thought “green lumber” was lumber painted green, rather than freshly cut lumber (that is, not yet dried). A talker would dismiss him as an idiot, whose success must be luck. But the trader learned what he needed by doing – he didn’t need to know what green lumber was.
  • What’s key here – this successful trader, never realized that green lumber = freshly cut lumber
  • “What you need to know in a profession, isn’t what people from the top think, it’s a bottom up thing”
  • The lesson – You have to play the game to know what you need to know
    • Being in the game, you see things differently
• Things driven by survival do not have rationalization
  • A profession where you have to please the boss – you’ll play actor, dress nicely, write complicated articles etc.
  • In a profession where you have to perform – it’s very different
  • Ask – Who would you rather hire as a surgeon?:
    • Someone who looks like the Hollywood version of a surgeon – they look the part, lots of diplomas on the wall
    • The second guy, who looks like a butcher, who has no diplomas on the wall
    • Answer – #2 – Where people are judged by performance, they don’t need to look the part
      • It means you know your stuff and succeeded despite not looking the part
  • Very often, in any industry or profession where you’re judged by your peers (not by the end users) – eventually you’ll rot or go bust
    • Example – restaurant awards for the best sushi, best etc., in a certain city … these are very often voted upon by restaurant owners themselves and often quickly go out of business…
      • Restaurants judged by customers, don’t care about the opinions of other restaurant owners
    • Example – academia
    • The more something is built around people being judged by their peers, the more likely the system is to be gamed
  • “Survival is the only metric that you cannot game”
    • This is why, often, people who do a shitty job at work, but have good relationships with their superiors, often do well
  • “The only virtue you cannot fake is risk taking”
    • We need risk takers more than ever, but risk taking is becoming more frowned upon
• The difference between courage and recklessness
  • “Embrace risk, but be averse to ruin”
  • Recklessness is NOT courage/risk taking
  • Risk taking for the sake of risk taking is foolish
  • Anyone who risks something to protect others, is doing a good thing
  • It’s dishonorable when you transfer your risk to others
  • “Society needs you to take risks”
    • Right now – we have very few risk takers, and a lot of actors
• The main idea of Skin in the Game
  • “I don’t really care about what you think, I care what you do”
    • For this reason, it doesn’t make sense to ask a person how much they like a restaurant. Instead, ask how much they spend there yearly.
    • Talk is cheap
  • People respect risk taking, not talk
  • “Life without risk taking, is like a video game”
  • Jesus had skin in the game – he died for an idea

More Skin in the Game

• Skin in the Game is an evolutionary argument
  • “Without skin in the game, we cannot have evolution”
• Scaling – a large town is not like a village
  • They have different properties depending upon the size
  • Example – if you saw one particular guy walking by you in the park, you’d say “hi”. However, if while walking on a crowded street, you saw that same person, you probably wouldn’t even bother to look at them.
• Static vs Dynamic Risk (Risk and Time)
  • Over estimating risk locally, means having the right assessment long term
  • If you take the a deathly risk many times over (say jumping in a tiger’s cage) , over many generations, you end up dead
  • So, it’s wrong to look at risk as a static thing, you should have more of a dynamic view (think about risk in the long term) 
  • Ask – If I had to take this risk 1,000 times, what would I do?
    • Think dynamically – You’re seeing someone at a particular point in time – Someone may be rich now, but 5 years ago they were poor.

The Media

• Why does Nassim not read the paper?
  • Think about it – journalists are writing those articles, why would he take advice from a journalist?
• Bigoteering – accusing someone of something, when it’s unjustified, to gain advantage over someone
  • Anyone can bigoteer anyone, so it’s dangerous
• “Ignore the media”
  • The media started in the 1960s, it hasn’t stood the test of time
  • At no point in time before today, were people recipients of information without being creators of information
• Social Media
  • In the markets, the price is not determined by the loudest information, but by the most reliable
  • Nassim pays particular attention to how reliable a person is on social media
  • “Never judge someone by what they say, look at how they act, or have acted in the past”
  • “Never judge someone by what they say, focus on what they meant” – to get what they mean, it may require some homework
• Book reviews
  • Nassim doesn’t read them
  • “I have other things to do than worry about my previous books”

Religion

• “Religion prevents you from thinking you yourself are God”
• It also forces you to follow rules you wouldn’t follow otherwise
• “So long as religion doesn’t harm those who bear it, or others, it’s okay”
  • For these reasons, Nassim sees no problem with religion

Jordan Peterson and Burn Out

• Nassim recalls that after the success of the The Black Swan, he became “commodified”, and did way too many TV/radio interviews, which burned him out
  • “You lose control of your life, your ideas, and your activities via success”
  • After 6 months of constant interviews, Nassim said enough is enough, and decided to draw a line
  • After that, he promised himself he’d only do a few lectures/talks/interviews a year
• Perhaps Jordan Peterson is going through the same thing now after the success of his book, 12 Rule for Life: An Antidote to Chaos

Nassim’s Next Project

• Nassim is working on The Technical Incerto 
  • The first portion is called – “The Statistical Consequences of Fat Tails – Volume 1 of the Technical Incerto”
  • Volume 2 is about fragility and antifragility