Background : “IQ” is a stale test meant to measure mental capacity but in fact mostly measures extremeunintelligence (learning difficulties), as well as, to a lesser extent, a form of intelligence, stripped of 2nd order effects. It is via negativa not via positiva. It is meant to select exam-takers, paper shufflers, obedient IYIs (intellectuals yet idiots), ill adapted for “real life”.
Definition: Argument involving children to prop up a rationalization and make the opponent look like an asshole, as people are defenseless and suspend all skepticism in front of suffering children: nobody has the heart to question the authenticity or source of the reporting. Often done with the aid of pictures.
Can also describe the exploitation of babies by professional beggars who rent them from their parents and use them as potent appendage in their trade(remember that children tend to grow and need to be replaced).
What is Skin in the Game? The phrase is often mistaken for one-sided incentives: the promise of a bonus will make someone work harder for you. For the central attribute is symmetry: the balancing of incentives and disincentives, people should also penalized if something for which they are responsible goes wrong and hurts others: he or she who wants a share of the benefits needs to also share some of the risks.
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From the New York Times bestselling author of The Black Swan, a bold new work that challenges many of our long-held beliefs about risk and reward, politics and religion, finance and personal responsibility
In his most provocative and practical book yet,one of the foremost thinkers of our time redefines what it means to understand the world, succeed in a profession, contribute to a fair and just society, detect nonsense, and influence others. Citing examples ranging from Hammurabi to Seneca, Antaeus the Giant to Donald Trump, Nassim Nicholas Taleb shows how the willingness to accept one’s own risks is an essential attribute of heroes, saints, and flourishing people in all walks of life.
As always both accessible and iconoclastic, Taleb challenges long-held beliefs about the values of those who spearhead military interventions, make financial investments, and propagate religious faiths. Among his insights:
• For social justice, focus on symmetry and risk sharing. You cannot make profits and transfer the risks to others, as bankers and large corporations do. You cannot get rich without owning your own risk and paying for your own losses. Forcing skin in the game corrects this asymmetry better than thousands of laws and regulations. • Ethical rules aren’t universal. You’re part of a group larger than you, but it’s still smaller than humanity in general. • Minorities, not majorities, run the world. The world is not run by consensus but by stubborn minorities imposing their tastes and ethics on others. • You can be an intellectual yet still be an idiot. “Educated philistines” have been wrong on everything from Stalinism to Iraq to low-carb diets. • Beware of complicated solutions (that someone was paid to find). A simple barbell can build muscle better than expensive new machines. • True religion is commitment, not just faith. How much you believe in something is manifested only by what you’re willing to risk for it.
The phrase “skin in the game” is one we have often heard but rarely stopped to truly dissect. It is the backbone of risk management, but it’s also an astonishingly rich worldview that, as Taleb shows in this book, applies to all aspects of our lives. As Taleb says, “The symmetry of skin in the game is a simple rule that’s necessary for fairness and justice, and the ultimate BS-buster,” and “Never trust anyone who doesn’t have skin in the game. Without it, fools and crooks will benefit, and their mistakes will never come back to haunt them.”
The anachronism shown. The Phyla and Waves Models of Classification by Semiticists is not very scientific.
It would be an anachronism to assert that Italian is a dialect of Catalan, but safe to say that Italian comes from Latin. But when it comes to Lebanese (more generally NorthWestern Levantine), the “politically correct” Arabist-think-tank view is that is is derived from Arabic (Lebanese “dialect” of Arabic) to accommodate sensitivities — even linguists find arguments to violate the arrow of time to serve the interest of panArabism. In situations where there are similarities between a word used in Leb and Arabic, they insist it comes from Arabic not from a common root. (Most Lebanese are confused by diglossia as one is not supposed to write in the spoken language).
The difference between 100 people going to a casino and one person going to a casino 100 times, i.e. between (path dependent) and conventionally understood probability. The mistake has persisted in economics and psychology since age immemorial.
A central chapter that crystallizes all my work. In forth. Skin in the Game
Time to explain ergodicity, ruin and (again) rationality. Recall from the previous chapter that to do science (and other nice things) requires survival but not the other way around?
Consider the following thought experiment.
First case, one hundred persons go to a Casino, to gamble a certain set amount each and have complimentary gin and tonic –as shown in the cartoon in Figure x. Some may lose, some may win, and we can infer at the end of the day what the “edge” is, that is, calculate the returns simply by counting the money left with the people who return. We can thus figure out if the casino is properly pricing the odds. Now assume that gambler number 28 goes bust. Will gambler number 29 be affected? No.
You can safely calculate, from your sample, that about 1% of the gamblers will go bust. And if you keep playing and playing, you will be expected have about the same ratio, 1% of gamblers over that time window.
Now compare to the second case in the thought experiment. One person, your cousin Theodorus Ibn Warqa, goes to the Casino a hundred days in a row, starting with a set amount. On day 28 cousin Theodorus Ibn Warqa is bust. Will there be day 29? No. He has hit an uncle point; there is no game no more.
No matter how good he is or how alert your cousin Theodorus Ibn Warqa can be, you can safely calculate that he has a 100% probability of eventually going bust.
The probabilities of success from the collection of people does not apply to cousin Theodorus Ibn Warqa. Let us call the first set ensemble probability, and the second one time probability (since one is concerned with a collection of people and the other with a single person through time). Now, when you read material by finance professors, finance gurus or your local bank making investment recommendations based on the long term returns of the market, beware. Even if their forecast were true (it isn’t), no person can get the returns of the market unless he has infinite pockets and no uncle points. The are conflating ensemble probability and time probability. If the investor has to eventually reduce his exposure because of losses, or because of retirement, or because he remarried his neighbor’s wife, or because he changed his mind about life, his returns will be divorced from those of the market, period.
We saw with the earlier comment by Warren Buffet that, literally, anyone who survived in the risk taking business has a version of “in order to succeed, you must first survive.” My own version has been: “never cross a river if it is on average four feet deep.” I effectively organized all my life around the point that sequence matters and the presence of ruin does not allow cost-benefit analyses; but it never hit me that the flaw in decision theory was so deep. Until came out of nowhere a paper by the physicist Ole Peters, working with the great Murray Gell-Mann. They presented a version of the difference between the ensemble and the time probabilities with a similar thought experiment as mine above, and showed that about everything in social science about probability is flawed. Deeply flawed. Very deeply flawed. For, in the quarter millennia since the formulation by the mathematician Jacob Bernoulli, and one that became standard, almost all people involved in decision theory made a severe mistake. Everyone? Not quite: every economist, but not everyone: the applied mathematicians Claude Shannon, Ed Thorp, and the physicist J.-L. Kelly of the Kelly Criterion got it right. They also got it in a very simple way. The father of insurance mathematics, the Swedish applied mathematician Harald Cramér also got the point. And, more than two decades ago, practitioners such as Mark Spitznagel and myself build our entire business careers around it. (I personally get it right in words and when I trade and decisions, and detect when ergodicity is violated, but I never explicitly got the overall mathematical structure –ergodicity is actually discussed in Fooled by Randomness). Spitznagel and I even started an entire business to help investors eliminate uncle points so they can get the returns of the market. While I retired to do some flaneuring, Mark continued at his Universa relentlessly (and successfully, while all others have failed). Mark and I have been frustrated by economists who, not getting ergodicity, keep saying that worrying about the tails is “irrational”.
Now there is a skin in the game problem in the blindness to the point. The idea I just presented is very very simple. But how come nobody for 250 years got it? Skin in the game, skin in the game.
It looks like you need a lot of intelligence to figure probabilistic things out when you don’t have skin in the game. There are things one can only get if one has some risk on the line: what I said above is, in retrospect, obvious. But to figure it out for an overeducated nonpractitioner is hard. Unless one is a genius, that is have the clarity of mind to see through the mud, or have such a profound command of probability theory to see through the nonsense. Now, certifiably, Murray Gell-Mann is a genius (and, likely, Peters). Gell-Mann is a famed physicist, with Nobel, and discovered the subatomic particles he himself called quarks. Peters said that when he presented the idea to him, “he got it instantly”. Claude Shannon, Ed Thorp, Kelly and Cramér are, no doubt, geniuses –I can vouch for this unmistakable clarity of mind combined with depth of thinking that juts out when in conversation with Thorp. These people could get it without skin in the game. But economists, psychologists and decision-theorists have no genius (unless one counts the polymath Herb Simon who did some psychology on the side) and odds are will never have one. Adding people without fundamental insights does not sum up to insight; looking for clarity in these fields is like looking for aesthetic in the attic of a highly disorganized electrician.
The diversity discourse appears to serve an insidious form of racism and Northern Euro supremacist agenda (with a redefinition of the Western world and a reframing of the classics). Please stop classifying people according to race, and stop creating racial stereotypes and divisions in the name of “diversity”, while doing some smug virtue signaling. Look up “framing” in a decision theory textbook and you can see what I mean. This is no different from funding Al Qaeda headcutters and women-enslavers in Syria in the name of “democracy”.
What was meant to be a “typical” of Roman Britain by the BBC: flowing quotas of political correctness backward in time.
The BBC did some kind of educational cartoon on Roman Britain and represented “diversity” in terms of someone looking African in the show as representative of “diversity” at the time. The BBC was effectively applying quotas retroactively (I mean, really retroactively). Any dissent from the statistical errors made by the politically correct police is treated as apostasy. Effectively, scholarship is dead in the U.K.
When did Lebanese Christians Start Speaking French?
The current narrative (and, I am not joking, given by “experts” in international relations, etc.) is that the Lebanese Christians, like inhabitants of the Maghreb, picked up French from something called “French colonialism”. But the French only spent two decades in Lebanon, replacing the Ottomans after the great war, a period during which it was a “mandate”, something like a concession. Unlike the Maghreb, there was no settlers, no nothing. And not one noticed that the French language was heavily ingrained in the Christian bourgeoisie during the Ottoman Empire.
Take the Titanic. Among the passengers sunk in 1912 (hence before “colonialism”) are the following Lebanese names: Eugénie Baqlini, Catherine Dawud, Helene Barbara, Charles Tannous, Marie-Sophie Abrahim. A decade before the French army arrived. And my own family has among those, born before 1920, names such as Marcel, Edouard, Angele, Laure, Evelyne, Mathilde, Victoire (later adapted to Victoria), Philomene, etc. My mother was named after her aunt, Minerve (born 1905). Many archaic French names.
Let us take the idea of the last chapter [the intransigent minority’s disproportional influence] one step further, get a bit more technical, and generalize. It will debunk some of the fallacies we hear in psychology, “evolutionary theory”, game theory, behavioral economics, neuroscience, and similar fields not subjected to proper logical (and mathematical) rigor, in spite of the occasional semi-complicated equations. For instance we will see why behavioral economics will necessarily fail us even if its results were true at the individual level and why use of brain science to explain behavior has been no more than great marketing for scientific papers.
Consider the following as a rule. Whenever you have nonlinearity, the average doesn’t matter anymore. Hence:
The more nonlinearity in the response, the less informational the average.
For instance, your benefit from drinking water would be linear if ten glasses of water were ten times as good as one single glass. If that is not the case, then necessarily the average water consumption matters less than something else that we will call “unevenness”, or volatility, or inequality in consumption. Say your average daily consumption needs to be one liter a day and I gave you ten liters one day and none for the remaining nine days, for an average of one liter a day. Odds are you won’t survive. You want your quantity of water to be as evenly distributed as possible. Within the day, you do not need to consume the same amount water every minute, but at the scale of the day, you want maximal evenness.
The effect of the nonlinearity in the response on the average –and the informational value of such an average –is something I’ve explained in some depth in Antifragile, as it was the theme of the book, so I will just assume a summary here is sufficient. From an informational standpoint, someone who tells you “We will supply you with 0ne liter of water liter day on average” is not conveying much information at all; there needs to be a second dimension, the variations around such an average. You are quite certain that you will die of thirst if his average comes from a cluster of a hundred liters every hundred days.
Note that an average and a sum are mathematically the same thing up to a simple division by a constant, so the fallacy of the average translate into the fallacy of summing, or aggregating, or looking at collective that has many components from the properties of a single unit.
As we saw, complex systems are characterized by the interactions between their components, and the resulting properties of the ensemble not (easily) seen from the parts.
There is a rich apparatus to study interactions originating from what is called the Ising problem, after the physicist Ernst Ising, originally in the ferromagnetic domain, but that has been adapted to many other areas. The model consists of discrete variables that represent atoms that can be in one of two states called “spins” but are in fact representing whether the state is what is nicknamed “up” or “down” (or can be dealt with using +1 or −1). The atoms are arranged in a lattice, allowing each unit to interact with its neighbors. In low dimensions, that is that for every atom you look at an interaction on a line (one dimensional) between two neighbors one to its left and one to its right, on a grid (two dimensional), the Ising model is simple and lend itself to simple solutions.
One method in such situations called “mean field” is to generalize from the “mean”, that is average interaction and apply to the ensemble. This is possible if and only if there is no dependence between one interaction and another –the procedure appears to be the opposite of renormalization from the last chapter. And, of course, this type of averaging is not possible if there are nonlinearities in the effect of the interactions.
More generally, the Übererror is to apply the “mean field” technique, by looking at the average and applying a function to it, instead of averaging the functions –a violation of Jensen’s inequality [Jensen’s Inequality, definition: a function of an average is not an average of a function, and the difference increases with disorder]. Distortions from mean field techniques will necessarily occur in the presence of nonlinearities.
What I am saying may appear to be complicated here –but it was not so with the story of the average water consumption. So let us produce equivalent simplifications across things that do not average.
From the last chapter [Minority Rule],
The average dietary preferences of the population will not allow us to understand the dietary preferences of the whole.
Some scientist observing the absence of peanuts in U.S. schools would infer that the average student is allergic to peanuts when only a very small percentage are so.
Or, more bothersome
The average behavior of the market participant will not allow us to understand the general behavior of the market.
These points appear clear thanks to our discussion about renormalization. They may cancel some stuff you know. But to show how under complexity the entire field of social science may fall apart, take one step further,
The psychological experiments on individuals showing “biases” do not allow us to understand aggregates or collective behavior, nor do they enlighten us about the behavior of groups.
Human nature is not defined outside of transactions involving other humans. Remember that we do not live alone, but in packs and almost nothing of relevance concerns a person in isolation –which is what is typically done in laboratory-style work.
Some “biases” deemed “irrational” by psycholophasters interested in pathologizing humans are not necessarily so if you look at their effect on the collective.
What I just said explains the failure of the so-called field of behavioral economics to give us any more information than orthodox economics (itself rather poor) on how to play the market or understand the economy, or generate policy.
But, going further, there is this thing called, or as Fat Tony would say, this ting called game theory that hasn’t done much for us other than produce loads of verbiage. Why?
The average interaction as studied in game theory insofar as it reveals individual behavior does not allow us to generalize across preferences and behavior of groups.
Groups are units on their own. There are qualitative differences between a group of ten and a group of, say 395,435. Each is a different animal, in the literal sense, as different as a book is from an office building. When we focus on commonalities, we get confused, but, at a certain scale, things become different. Mathematically different. The higher the dimension, in other words the number of possible interactions, the more difficult to understand the macro from the micro, the general from the units.
Or, in spite of the huge excitement about our ability to see into the brain using the so-called field of neuroscience:
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***g idea how the brain of the worm C elegans works, which has around three hundred neurons. C elegans was the first living unit to have its gene sequenced. Now consider that the human brain has about one hundred billion neurons. and that going from 300 to 301 neurons may double the complexity. [I have actually found situations where a single additional dimension may more than double some aspect of the complexity, say going from a 1000 to 1001 may cause complexity to be multiplied by a billion times.] So use of never here is appropriate. And if you also want to understand why, in spite of the trumpeted “advances” in sequencing the DNA, we are largely unable to get information except in small isolated pockets of some diseases.
Understanding the genetic make-up of a unit will never allow us to understand the behavior of the unit itself.
A reminder that what I am writing here isn’t an opinion. It is a straightforward mathematical property.
I cannot resist this:
Much of the local research in experimental biology, in spite of its seemingly “scientific” and evidentiary attributes fail a simple test of mathematical rigor.
This means we need to be careful of what conclusions we can and cannot make about what we see, no matter how locally robust it seems. It is impossible, because of the curse of dimensionality, to produce information about a complex system from the reduction of conventional experimental methods in science. Impossible.
My colleague Bar Yam has applied the failure of mean-field to evolutionary theory of the selfish-gene narrative trumpeted by such aggressive journalists as Richard Dawkins and Steven Pinker and other naive celebrities with more mastery of English than probability theory. He shows that local properties fail, for simple geographical reasons, hence if there is such a thing as a selfish gene, it may not be the one they are talking about. We have addressed the flaws of “selfishness” of a gene as shown mathematically by Nowak and his colleagues.
Hayek, who had a deep understanding of the properties of complex systems, promoted the idea of “scientism” to debunk statements that are nonsense dressed up as science, used by its practitioners to get power, money, friends, decorations, invitations to dinner with the Norwegian minister of culture, use of the VIP transit lounge at Kazan Airport, and similar perks. It is easier to take a faker seriously, since science doesn’t look neat and cosmetically appealing. So with the growth of science, we will see a rise of scientism, and my general heuristics are as follows: 1) look for the presence of simple nonlinearity, hence Jensen’s Inequality. If there is such nonlinearity, then call Yaneer Bar Yam at the New England Complex Systems Institute for a friendly conversation about the solidity of the results ; 2) If the paper writers use anything that remotely looks like a “regression” and “p-values”, ignore the quantitative results.