Source: http://fooledbyrandomness.com/SITG.html
Skin In the Game
The Logic of Risk Taking
Skin In the Game is the fifth volume of the Incerto which, to repeat, can be read in any order.
Below are selected chapters for comments. It is work in progress.
Never take advice from a salesperson The notion of equality in uncertainty
The domination of the stubborn minority How Europe will eat Halal, why GMOs will be history
The logic of risk taking The two central chapters: why rationality is precaution, how to reconcile prudence and courage, why critics of ebola-worries are idiots but not those of flying vs driving, etc.
The skin of others in your game Why celibacy has been the only way to be ethically uncompromised; how to punish terrorists; how Ketchum runs smear campaigns
How to own a slave An employee is precisely someone who signals skin in the game and fear of losing a job. A revision of Coase’s theory of the firm
The pope is overtly atheist Without skin in the game, worship never reveals preferences
Life is not a pecking order
John, once again we can tell the difference between Extremistan and Mediocristan, or between a fat tail environment and a thin tail one. And how to mitigate exposure to Extremistan and its randomness and rare events. Since FBR, Taleb has shown how traders would exposed themselves in a fat tail world and subsequently blow up for various reasons with subsequent retrospective narratives, humiliation, disrespect, and even the lost of millions.
While the thin tail world or Mediocristan is ruled by frequency, the mundane, and the average in which you can be a dumb animal (but not too dumb) without hurting anyone, indeed, nature and evolution survives by living within the thin tail world and mitigating its exposure to rare events.
So if you can tell the difference between the two you can do a lot by moving into Mediocristan and avoiding a fat tail environment since the former gives you more control while the latter is ruled by the outlandish, randomness, luck and the rare event.
What worries me, however, is that the world itself is moving into Extremistan, rather; with even more anecdotal evidence of people blowing up in it, without understanding that it is a different terrain both qualitative and quantitative. My other worry is the negative rare event, like reliving your worst nightmare over and over again, which is mostly found in Extremistan.
So if you do find yourself in Extremistan mitigate it with thin tail processes, and you have to cede a large role to luck and randomness like the stoics do, and focus instead on ethics and what you do since randomness leads the way. Think about it this way, I’m surprised by the amount of good luck we have had in having Taleb write down his ideas for his readers, since if you look at his career he has had luck in surviving, for example, he survived the murder of his class mates during the Lebanon Civil War, and he constantly reminds us that he is first a survivor of the random world. So here is an ethical principal for you:
“To thine own self be true.” Hamlet
Thanks Edvin!