Naval Ravikant and Nassim Taleb at BLOCKCON 2018

Key Takeaways

  • Read all of Nassim’s books before you read anything else this year (see below)
  • “When you’re judged by reality, it’s a completely different dynamic than when you’re judged by your peers” – Nassim
  • What does “skin in the game” mean?
    • “Though shall not have the upside without bearing the downside yourself. You need to own your own risk.” – Nassim
    • All parties that can benefit, are obligated to pay the cost
  • Society needs you to take risks
  • It’s important to think about things dynamically, as opposed to statically
  • You have to play the game to know what you need to know – Being in the game, you see things differently
  • There’s so much uncertainty in the world, and we can’t predict life’s random events – What can we do about it?
    • Try to position yourself so that you can experience more upside than downside from these random events (or at least to minimize your losses)
  • The best predictor of the survivability of something, is how long it has already survived
  • The Minority Rule
    • “The minority control the majority”
    • But for this to happen, the minority have to be intransigent (unwilling to change)


The Origins of Skin in The Game (Nassim) – 0:38

  • Nassim used to be a trader (sounds like a stock trader), for 21 years
  • He then retired – he dabbled in tennis, chess, and then began a new academic career working on mathematical modeling
    • In a sense, he went from practice, to theory
    • “Things in practice are much more complicated than theory”
    • In theory, there’s no difference between practice and theory, and in practice, there is”
  • Thus the idea of “The Ludic Fallacy” was born
    • This means that the randomness you encounter in real life, has nothing to do with the randomness you find in textbooks and games
    • “Ludic” means games
  • The Expert Problem
    • Nassim gives an example of the restaurant business
      • The restaurant business gives out yearly awards, which are voted on by newspapers and other restaurateurs
      • But the fact is, most restaurants are out of business a year later after receiving an award
      • “When you’re judged by reality, it’s a completely different dynamic than when you’re judged by your peers”
      • So businesses in which you are judged by your peers, will tend to rot over time
        • Businesses judged by reality, will flourish
    • Examples of industries/professions where people are judged by peers
      • Academia
      • Journalism
      • Macroeconomics
    • Examples of professions where people are judged by reality/actual results
      • Plumbers
      • Dentists
  • Other side effects of businesses in which a peers’ approval reigns supreme
    • When a firm becomes very large, you can’t attribute the profits and losses to a certain person – people have excess meetings, write long emails, and just “seem busy”
    • Naval – “We see this in the tech industry a lot, there’s a lot of tracking of inputs instead of tracking outputs. Great engineers will give you a billion dollars of value (like the creator of Bitcoin – an unknown character named Satoshi Nakamoto). A bad engineer can cost you value. And it has nothing to do with the amount of time they put in. Yet, there’s still managers who want the engineer there at 8am, and want them to work 40-50 hour weeks, and it’s just complete nonsense.”
  • So skin in the game… (15:40)
    • Hammurabi’s Code had a rule that if an architect built a house, and the house collapsed, the architect would be put to death
      • “It prevents you from hiding risk. You cannot hide risk and walk away from it.”
      • For example – The architect knows more about where the risk is located than you, so they could hide it (in the basement, or the foundation) and then walk away. Hammurabi’s Code prevented that.
    • Skin in the Game – “Though shall not have the upside without bearing the downside yourself. You need to own your own risk.”
      • All parties that can benefit, are obligated to pay the cost
      • Banks, for example, have never really made any money. They’re just living off of taxpayers and bank bailouts. But yet, bankers are very rich. – This is the opposite of Skin in the Game.

Signaling Risk as a Virtue (Nassim) – 25:03

  • Nowadays, leaders take far less physical risk than the common person, yet benefit the most
  • “Military generals now lead from the rear” – Naval
  • “You cannot fake risk taking (or risk), but you can fake a virtue” – Nassim
  • Havian Signaling
    • The concept that people who take risks, develop “scars”, and these scars act as an “ornaments” which signal the fact that you take risks
    • The general population can detect these scars, and tell if a person is adept at taking risks
  • “You’re not signaling any virtue, unless you take risks” – Nassim
    • “Any virtue that doesn’t entail some kind of sacrifice or cost, is not virtue” – Nassim
  • Fake Virtue
    • Example – You’ll often see in a hotel room, a sign in the bathroom asking people to reuse their towels to “save the planet/water”, but really the hotel puts these signs up so they can save on their water bill
    • There’s no risk in what they’re doing 
      • Nassim calls this “virtue signaling”
  • Society needs you to take risks
    • People who start businesses, for example – think where the world would be if everyone just got a salaried/safe job

Inequality (Nassim) – 35:38

  • It’s important to think about things dynamically, as opposed to statically
  • 60% of Americans spend at least 1 year in the top 10% (wealth wise)
  • 12% of Americans spend at least 1 year the top 1%
  • “People are willing to accept inequality, if the person getting richer, is taking risks”
    • Entrepreneurs have skin in the game – let them make as much as they can
    • Most CEOs don’t – Why should they make 50-100x what a normal employee does?
  • The average life span of a company in the S&P 500 is 11 years, and it’s dropping – it used to be 60

The Green Lumber Fallacy (Nassim) – 38:37

  • Nassim tells 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.
  • The lesson – You have to play the game to know what you need to know (Naval)
    • Being in the game, you see things differently

The Surgeon Example (Nassim) – 40:59

  • This applies to any business where there is skin in the game
  • 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 etc.
    • 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
      • “The person who looks least like a doctor, has the most skills, because he had to overcome the perception bias against him” – Nassim
  • There is similar to early stage investing, where you tend to avoid teams that looks very polished (well dressed, nice powerpoints, present their slide deck well, etc.) – Naval
    • What you really want – the person who’s been busy in front of the computer, who gets up flustered in front of a crowd, and explains things in a slightly complicated manner

The Conversation Begins – Intro – 43:25

  • Naval generally doesn’t travel for conferences because most of the time, conferences just aren’t that worthwhile
    • Attending them just makes you look busy
    • But he just had to take up this opportunity to interview Nassim – “I think Nassim’s work is the kind of work that will work for a thousand years”
  • Naval is a huge fan of Nassim’s books
    • “If you haven’t read all 5 of his books, I literally wouldn’t read anything else this year”
  • “Courage is the only virtue that cannot be faked” – Naval
  • I derive a huge amount of pleasure from Twitter fights” – Nassim
    • “If you’re bored, it wakes you up”

Symmetry vs. Asymmetry – 47:00

  • Skin in the Game is about symmetry, the consequences of your actions, learning, and feedback loops
  • Asymmetry is about extreme outcomes – this is discussed more in The Black Swan
    • Good overall advice
      • We can’t predict random events, but it’s good to try and position yourself to minimize your losses from these random events
      • “If, in general, you make more than you lose from life’s random events, you’ll do very well in the long run” – Nassim
    • Asymmetry becomes bad when you make all the upside, and transfer all the downside to someone else
    • Bitcoin is an asymmetric bet
      • If you lose, you just lose your investment. But if Bitcoin becomes digital gold, you can make 100s of times your initial investment.

The Lindy Effect – 55:07

  • Lindy essentially means “stands the test of time”
  • The best predictor of the survivability of something, is how long it has already survived 
  • If something has been around for 50 years, it’s very likely to last an additional 50 years
  • “In crypto, Bitcoin is the lindy currency” – Naval
    • “The longer it’s survived, the longer it will survive” – Then the more faith people can put into it, and the more money they can put into it
    • “Government issued currencies have never been lindy” – Nassim
      • Throughout history, governments have always debased their currencies
  • One of the big events in history was separating state from church
    • Compare this – Crypto is trying to separate money from the state
    • (@thevisualmonkey)

The Minority Rule – 1:00:05

  • What is it?
    • Nassim gives the example of a barbeque
    • If one person attending the barbeque only drinks kosher drinks, all drinks at the barbeque are likely to be kosher
      • Side note – < 0.3% of people in America are kosher eaters and drinkers, but close to 100% of drinks in America are kosher
      • Why? –  The kosher person will never drink non-kosher, the non-kosher person will drink kosher
    • If one person attending a barbeque only eats halal meat, all meat at the barbeque served will likely be halal
    • “The minority control the majority”
      • But for this to happen, the minority have to be intransigent (unwilling to change)
  • Another example – if one person in a house has a peanut allergy, it’s basically like the whole house has a peanut allergy
  • “If you’re willing to tolerate intolerance, then you’re going to live with the consequences” – Naval
    • “We live in a world that is structured around the preferences of radicals who won’t compromise. It’s not built around the will of the majority. The will of the majority does apply in some cases, but in many more cases, it’s the minority rule.” – Naval
  • “When the difference in price is small, everyone switches to the choice that the intransigent minority wants”
  • The minority rule applies in crypto
    • 10-20% of the good developers in Silicon Valley, are working on crypto related projects (or at least dabbling in them)
    • If they all announced tomorrow that they would only work for companies that paid them in cyrpto, then pretty soon you’d see every payroll system switch to also offering cyrpto payments

The Concept of Ergodicity – 1:14:05

  • What does it mean? – The sequence of things matters
  • Look at things dynamically
    • If as a gambler, you have a 1% chance of losing your net worth every day, eventually, you WILL lose you’re net worth
  • “Always look at things in sequence, not statically” – Nassim
  • Naval gives a good example
    • There’s a big difference between the following:
      • 6 people playing Russian roulette (with a gun) for $1 billion each (if they survive)
      • 1 person playing Russian roulette, for 6 times, for $1 billion
  • Don’t look at things as a single event, look at things as a series of events

Wrapping Up – 1:21:00

  • There’s much uncertainty in the world
    • The good news is there’s only 1 way to go about it – Try to position yourself to have more upside than downside
    • “The more uncertainty there is, the more we know how to act” – Nassim
  • Naval recommends everyone read Nassim’s books to improve their decision making skills


  • Naval’s favorite food is pizza – “But I shouldn’t be eating it”
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