Search Results for: skin in the game

Nassim on Journalists

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On facebook, Nassim recently posted the following statement about journalistic ethics in light of the current controversy over Hulk Hogan’s successful lawsuit for $140 million dollars against Gawker Media. Hulk Hogan was backed by tech billionaire Peter Thiel in his efforts:

PUTTING SKIN IN THE GAME OF JOURNALISTS
[CITIZENS vs GAWKER and CITIZENS vs JOURNALISM]

Journalists –as any guild, care about their peers and their community more than the general public. Except that we cannot afford to have such a community engage in a conspiracy against the laymen since they represent our interests, us the lay crowd; they are supposed to stand for the general public against inner circles of power. Journalism arose from the need to expose falsehood, take risks in exposing matters detrimental to the public; in short, counter the agency problem of the powerful. But, it is turning out, the journalism model can also work in the opposite manner: members have been effective in escaping having skin in the game –only whistleblowers and war correspondents currently do.

So one can see how this severe agency problem can explode with the Gawker story. The English tabloid machine came to the U.S. in full force with Gawker, founded by a firm that specializes in dirt on the internet. By dirt I don’t mean a fraudulent transaction abetted by some power: no, the kind of dirt that takes place in bedrooms (and even in bathrooms).

They sell voyeurism, predator voyeurism.

In other words they want to harm citizens by disclosing their private information and posting their videos without their permission in the interest of selling information. And without being accountable for it.

Gawker having posted a video of a celebrity having sex without his permission incurred a monstrous judgment of $140 million. The suit will bankrupt Gawker. Most of all, the judgment revealed that such a predatory business model will not survive, not because it is immoral, but because it has tail risks. For America has tort laws and a legal mechanism by which people harmed by corporations can be compensated for it –a mechanism that flourished thanks to Ralph Nader. It, along with the First Amendment protect citizens by putting skin in the game of the corporations.

Gawker is trying to make a First Amendment argument and unfortunately journos appear to find this justified –while normal citizens are horrified. Liberty in the thoughts of the founding fathers was not about voyeurism, but about public matters.

Gawker argued that because the person committing sex on the video they posted was a public person, that it became a “public” matter exempted from privacy protection. People failed to see that should that argument be true, then next someone spying on any public figure should be allowed to post their bedroom activity (including Hillary Clinton, Obama, anyone)… (Gawker has ruined the lives of 21 year olds posting their sex tapes and their reaction was outrageous; in one instance their lawyer Gaby Darbyshire e-mailed the woman who was in a revenge sex tape, defending the video as “completely newsworthy” and scolding her about how “one’s actions can have unintended consequences.”)

Peter Thiel, a billionaire with a vendetta against Gawker funded a law suit. Revenge motives perhaps, but this is how the market works: Gawker tries to make money therefore they need to live with the risk of someone trying to make money from their demise.

(You make money from the demise of a 21 yo, someone will make money from yours. You make yourself a vehicle for revenge porn; you become the subject of someone’s revenge. You engage in bullying someone financially weaker than you; someone stronger will bully you. There is no reason Gawker should be the only one to use asymmetry given that their very business is asymmetry against weak people–and this is general as the media is asymmetrically strong against citizens, what is commonly called “bullying” ).
I would have personally shorted Gawker (if they were publicly listed) to make money from their collapse. And I am ready to fund lawsuits against journalists who break some intellectual rules and distort people’s positions (strawman arguments).

Any journalist who supports Gawker in the name of the First Amendments fails to understand that they as a community are committing suicide because they are trivializing the reasons behind the First Amendment –and they make it conflict with other fundamental rights. And a corporation trying to warp our sacred values should go bankrupt. And anyone, like Peter Thiel, who accelerates such bankruptcy, should be thanked.

Nassim in Evonomics: How To Legally Own Another Person

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Nassim shares an excerpt from his work-in-progess Skin in the Game, at Evonomics. In a fascinating article called How To Legally Own Another Person, he discusses how and why well-paid employees behave much like slaves. It begins:

In its early phase, as the church was starting to get established in Europe, there was a group of itinerant people called the gyrovagues. They were gyrating and roaming monks without any affiliation to any institution. Theirs was a free-lance (and ambulatory) variety of monasticism, and their order was sustainable as the members lived off begging and from the good graces of townsmen who took interest in them. It is a weak form of sustainability, as one can hardly call sustainable a group of a people with vows of celibacy: they cannot grow organically and would need continuous enrollment. But their members managed to survive thanks to help from the population, which provided them with food and temporary shelter.

Sometimes around the fifth century, they started disappearing –they are now extinct. The gyrovagues were unpopular with the church, banned by the council of Chalcedon in the Fifth Century, then again by the second council of Nicaea about three hundred years later. In the West, Saint Benedict of Nurcia, their greatest detractor, favored a more institutional brand of monasticism and ended up prevailing with his rules that codified the activity, with a hierarchy and strong supervision by an abbot. For instance, Benedict’s rulesiii, put together in a sort of instruction manual, stipulate that a monk’s possessions should be in the hands of the abbot (Rule 33) and Rule 70 bans angry monks from hitting other monks.

Why were they banned? They were, simply, totally free. They were financially free, and secure, not because of their means but because of their wants. Ironically by being beggars, they had the equivalent of f*** you money, the one can get more easily by being at the lowest rung than by being member of the income dependent class.

You can read the rest of the article at Evonomics.

Video: Nassim’s Keynote at the 2015 Fletcher Conference on Managing Political Risk

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This video is of Nassim’s keynote address at this year’s Fletcher Conference on Managing Political Risk.

The conference’s website provides the text of some of the address, as follows:

Keynote address by Nassim Nicholas Taleb

Nadim Shehadi, moderator

Let’s start with the notion of fat tails. A fat tail is a situation in which a small number of observations create the largest effect. When you have a lot of data, and the event is explained by the smallest number of observations. In finance, almost everything is fat tails. A small number of companies represent most of the sales; in pharmaceuticals, a small number of drugs represent almost all the sales. The law of large numbers: the outlier determines outcomes. In wealth, if you sample the top 1% of wealthy people you get half the wealth. In violence – a few conflicts (e.g. World Wars I and II) represent most of the deaths in combat: that is a super fat tail.

So why is the world becoming more and more characterized by fat tails? Because of globalization. More “winner takes all” effects. You have fewer crises, but when they happen they are more consequential. And the mean is not visible by conventional methods.

Now, moral hazard. Banks like to make money. Under fat tails, large numbers operate slowly. Let’s say you get a bonus for each year you make money. Then in 1982, banks lost more money than they did in their history. Then in 2007-2008, $4.7 trillion were lost. Then bankers wrote letters about how the odds were so low that the event was as much of a surprise to them as it was to you. Any situation in which you see the upside without the downside, you are inviting risks. People will tell you something is very safe, when in fact it is dangerous. Visible profits, and invisible losses. People are getting bonuses on things that are extremely high risk. And then the system collapses.

If you have skin in the game at all times, this does not happen. Modernity: a situation in which people get benefits from the action, but the adverse effects do not touch them. You hide risks to improve your year end job assessment. Bear Stearns never lost money – until they lost money.

Hedge fund managers are forced to eat their own cooking. When the fund loses money, the hedge fund manager loses his own money: he has skin in the game. You have fools of randomness, and crooks of randomness. Driving on a highway, you could go against traffic and kill 30 people – why does that not happen more often? Because types of people who would do this kill themselves along with others, so they filter themselves out of the system. Entrepreneurs, who make mistakes, are effectively dead if there is a filtering system. Suicide bombers kill themselves – so we can’t talk about them as a real threat to the system. So there is a filtering mechanism. People don’t survive high risk. If they have skin in the game, traders don’t like high risk.

Let’s now talk about fragility. The past does not predict the future. The black swan idea is not to predict – it is to describe this phenomena, and how to build systems that can resist black swan events. We define fragility as something that does not like disorder. What is disorder? Imagine driving a car 50 times into a wall at 1 mph, and then once at 50 mph: which would hurt you more. So there is an acceleration of fragility. The goal is to be anti-fragile.

There are two types of portfolios: 1) if there is bad news you lose money, 2) if there is bad news you win money. One doesn’t like disorder, one likes disorder. One is fragile, one is anti-fragile. Size (such as size of debt, size of a corporation) makes you more fragile to disorder.

 

Questions & Answers:

  •  Do the people of ISIS returning home pose a risk?
    • This is not a risk. Debt is a risk. ISIS makes the newspapers and people talk about it but the real risks are not ISIS – the real risk is ebola, because it can spread. And the next ebola will be worse. So when people ask me to talk about risk, an epidemic is the biggest risk.
  •  Can you discuss some examples in the world that are fragile, examples of the fat tail?
    • The Soviet Union did not collapse because of the regime but because of the size. Similarly, a lot of people don’t fully understand the history of Italy, before unification. There was constant, low grade turmoil. After unification, there were infrequent but deep problems. The risks facing us today, are the real things that can harm us and spread uncontrollably.
  •  Should we still think about risks on a country level? How do we think about transnational risks?
    • Cybersecurity – banks spend 5% of their money on it. Netflix engineers failures every day. They pay an army of agents to try to destroy their system, to discover their vulnerabilities. Things that experience constant stress are more stable. In cybersecurity, there are a lot of risks, but we’re doing so much to protect against it that we don’t need to worry much. But eventually the cost of controlling these risks might explode.
  •  What is your blind spot?
    • If I knew my blind spots, they wouldn’t be blind spots. I’m developing something that is improving stress testing. The good thing about fragility theory is you can touch a lot of things. I want to make narrow improvements, little by little, not try to save the world.
  •  Is statistics useless or are there some redeeming qualities?
    • Any science becomes applied mathematics and if it’s not applied mathematics yet, it is not a science. Stats is used mechanistically. Statisticians need to make risk an application of probability theory. A lot of the people doing this come from the insurance industry.
  •  How does bad data effect your work?
    • When you have a lot of variables, but not much data per variable, you are more likely to have spurious correlations. And when you have a lot of data, you are likely to find a stock figure that correlates with your blood pressure – that’s spurious. More data is not always good.
    • Another problem is that if I want to write a paper, I test, test, test something until it fits my expectations – and I won’t reveal to you how many times I have tried. If there is someone doing this for a living, for money, then I don’t trust them.
  •  This is a great system you’re developing but can it be misused?
    • The problem is in the math and in the ethics.
  •  If we stop using statistics, how can we make decisions? Don’t we have to make assumptions?
    • Have skin in the game. Only use statistics for decisions if the stats are reliable. Joseph Stiglitz is blocking evolution – he made a prediction about Fannie Mae not collapsing, and it collapsed – and yet he’s still lecturing us on what to do next.

 

Nassim Taleb talks to Margareta Pagano in The Independent about banking, Babylon and birdsong

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the-independantLong article in The Independent Nassim Taleb: ‘The Black Swan’ author in praise of the risk-takers, some excerpts:

 

“If you take risks and face your fate with dignity, there is nothing you can do that makes you small; if you don’t take risks, there is nothing you can do that makes you grand, nothing.”

“I’m a capitalist but one who is smallist and localist, and who favours businesses where owners are still in charge. We also need to look after the less well-off – so they have skin in the game too. Inequalities of wealth lead to a dispersion in wealth for all.”

“Small is powerful. We should be breaking up the big bureaucratic corporations; use anti-trust laws as Roosevelt did in the US.”
His reasoning is deliciously simple: “It’s much easier to bullshit at the macro-level than it is to bullshit at the micro-level.”

“No public servant or politician should profit more from private business than they earned before. You know who are the worst? Robert Rubin (ex-US Treasury Secretary who made $120m at Citibank) and your Tony Blair. It’s outrageous how they have profited.”

“Top-down knowledge is an illusion. Education without erudition is nothing. Steve Jobs, Bill Gates and Mark Zuckerberg didn’t finish college. Too much emphasis is placed on formal education – I told my children not to worry about their grades but to enjoy learning.”

For him, the ancients had the right notions of justice. “You know Hammurabi’s Code? Well, he was the Babylonian king whose laws were based on an ” eye for an eye” – or lex talionis. So, if a builder built a house and the house collapsed and caused the death of the owner of the house – the builder was put to death. And so on.”

Much has been written about what the paradoxical Taleb doesn’t like. So what does he enjoy? “Aah,” he says, pondering while getting into position for our photographer, whose south London accent he admires, and wishes he had had while trading options: “Walking, anywhere, around cities or the country, running (in five-finger shoes), sitting in cafés listening to chatter, parties, working in my study in the New York suburbs, listening to the birds, to the noises of the countryside, the mathematics of Steve Wolfram, Andalucian music, philology and the history of the Mediterranean and now the Maghreb. That’s my new obsession.” Watch out.

Nassim Taleb Ask Me Anything (AMA) on Reddit.com

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reddit-logoNassim has just completed a AMA (Ask Me Anything) on Reddit.com

I am interested in decision making under opacity (when we don’t know what’s going on) without being harmed by mistakes, disorder, and volatility, and be potentially helped by them. Antifragility at the gobal level is achieved through the skin in the game rule: people should be harmed by their mistakes if these harm others. At the personal (local) level… let’s discuss. Home Page (Verified on twitter @nntaleb)

http:// www. reddit. com/ r/ IAmA/ comments/ 1aoi0s/ iam_ nassim_ taleb_ author_ of_ antifragile_ ama/? sort= confidence

BBC News – Meet the Author with Nick Higham: Nassim Taleb On Disorder, Variability & Banking Crises

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Nassim Nicholas Taleb wrote a book called ‘The Black Swan’ which was about randomness and the inevitability of improbable, unpredictable but hugely disruptive events like the banking crash of 2008. Taleb, a derivatives trader, made a great deal of money out of that and other crashes by prudently investing on the assumption that something would go wrong even though nobody knew what that was. He talks about his follow-up book called ‘Anti-fragile: How to live in a world we don’t understand’

(Taleb)
“Once you define fragility as one who does not like volatility and variability, and for statistical reasons you can, then the exact opposite is something that loves volatility, gains from disorder, variability, stresses and similar phenomena. This category of object doesn’t have a name, it is not resilient, it is not robust, it is something beyond. A lot of things require disorder and variability to function [Beautiful]. And of course we are harming by depriving them of disorder and variability”.

[Systems that appear to be robust, like the banking system, are in fact fragile?]

“Exactly. There are systems where the errors are small and systems where the errors are large. In a transport system, an accident lowers the probability of another accident. We never let an error go to waste. On the other hand the banking system, the failure of a bank makes the next bank failure more likely. It is not a healthy system”.

[In a world of big top-down organisations it is very difficult to organize?]

“It is actually simple. You can come up with single rules. The big thing for me is to transfer fragility from the individual to the system. Skin in the game. You get harmed by your mistake. A bureaucrat in Whitehall is not harmed, but if you live in a village you feel you’ve made a mistake. You have this kind of shame checking you. Decentralisation is a must. Mathematically I show how size compounds mistakes.” [Amazing]

Reason.tv: Nassim Taleb Talks Antifragile, Libertarianism, and Capitalism’s Genius for Failure

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Taleb doesn’t identify as a libertarian, but he often sounds like one. He has argued that we need to build a society where major actors have “skin in the game” and our public intellectuals can bloviate without subjecting the rest of us to the consequences of their bad ideas. He supported Ron Paul in the 2012 presidential election and has cited the libertarian economist Friedrich Hayek as an influence.

Taleb has called New York Times columnist Thomas Friedman “vile and harmful” and coined the phrase the “Stiglitz Syndrome” after Nobel-prize winning economist Joseph Stiglitz, which refers to the phenomenon of public intellectuals being held utterly unaccountable for their bad predictions. Paul Krugman and Paul Samuelson are among Taleb’s other Nobel laureate bête noires.

Antifragile: Things That Gain from DisorderTaleb’s new book is Antifragile: Things that Gain with Disorder, which argues that in order to create robust institutions we must allow them to build resilience through adversity. The essence of capitalism, he argues, is encouraging failure, not rewarding success.

Reason’s Nick Gillespie sat down with Taleb for a wide-ranging discussion about why debt leads to fragility (5:16); the importance of “skin in the game” to a properly functioning financial system (10:45); why large banks should be nationalized (21:47); why technology won’t rule the future (24:20); the value of studying the classics (26:09); his intellectual adversaries (33:30); why removing things is often the best way to solve problems (36:50); his intellectual influences (39:10); why capitalism is more about disincentives than incentives (43:10); why large, centralized states are prone to fail (44:50); his libertarianism (47:30); and why he’ll never take writing advice from “some academic at Cambridge who sold 2,200 copies” (51:49).

Produced by Jim Epstein; camera by Epstein and Anthony L. Fisher.

Approximately 56 minutes.

Go to http:// reason. com/ reasontv/ 2013/ 01/ 20/ interview- with- nassim- nicholas- taleb for downloadable versions and subscribe to Reason TV’s YouTube Channel to receive automatic updated when new material goes live.

Medium: How to be Rational about Rationality

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[One of the more technical (and optional) chapters, at the end of Skin of the Game]

Rory Sutherland claims that the real function for swimming pools is allowing the middle class to sit around in bathing suits without looking ridiculous. Same with New York restaurants: you think their mission is to feed people, but that’s not what they do. They are in the business of selling you overpriced liquor or Great Tuscan wines by the glass, yet get you into the door by serving you your low-carb (or low-something) dishes at breakeven cost. (This business model, of course, fails to work in Saudi Arabia).

Link: https://medium.com/incerto/how-to-be-rational-about-rationality-432e96dd4d1a