American essayist, scholar and former trader Nassim Nicholas Taleb, whose work focuses on problems of randomness, probability, and uncertainty, discusses his latest book “Skin in the Game”.
Nassim explores the notion that ‘skin in the game’ is necessary for fairness, commercial efficiency, and risk management, and key to making sense of the world at large.
Get the book here: https://amzn.to/2Tg0Fy1
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.
“Though what Taleb was really after was a discussion with Bryan (read that here), the philosopher, mathematician, and author most recently of Skin in the Game also generously agreed to a conversation with Tyler.
[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).
On Medium, Nassim explains how once an intransigent minority reaches a tiny percentage of the total population, the majority of the population will naturally succumb to their preferences:
The best example I know that gives insights into the functioning of a complex system is with the following situation. It suffices for an intransigent minority –a certain type of intransigent minorities –to reach a minutely small level, say three or four percent of the total population, for the entire population to have to submit to their preferences. Further, an optical illusion comes with the dominance of the minority: a naive observer would be under the impression that the choices and preferences are those of the majority. If it seems absurd, it is because our scientific intuitions aren’t calibrated for that (fughedabout scientific and academic intuitions and snap judgments; they don’t work and your standard intellectualization fails with complex systems, though not your grandmothers’ wisdom).
The main idea behind complex systems is that the ensemble behaves in ways not predicted by the components. The interactions matter more than the nature of the units. Studying individual ants will never (one can safely say never for most such situations), never give us an idea on how the ant colony operates. For that, one needs to understand an ant colony as an ant colony, no less, no more, not a collection of ants. This is called an “emergent” property of the whole, by which parts and whole differ because what matters is the interactions between such parts. And interactions can obey very simple rules. The rule we discuss in this chapter is the minority rule.
The minority rule will show us how it all it takes is a small number of intolerant virtuous people with skin in the game, in the form of courage, for society to function properly.
This example of complexity hit me, ironically, as I was attending the New England Complex Systems institute summer barbecue. As the hosts were setting up the table and unpacking the drinks, a friend who was observant and only ate Kosher dropped by to say hello. I offered him a glass of that type of yellow sugared water with citric acid people sometimes call lemonade, almost certain that he would reject it owing to his dietary laws. He didn’t. He drank the liquid called lemonade, and another Kosher person commented: “liquids around here are Kosher”. We looked at the carton container. There was a fine print: a tiny symbol, a U inside a circle, indicating that it was Kosher. The symbol will be detected by those who need to know and look for the minuscule print. As to others, like myself, I had been speaking prose all these years without knowing, drinking Kosher liquids without knowing they were Kosher liquids.
Criminals With Peanut Allergies
A strange idea hit me. The Kosher population represents less than three tenth of a percent of the residents of the United States. Yet, it appears that almost all drinks are Kosher. Why? Simply because going full Kosher allows the producer, grocer, restaurant, to not have to distinguish between Kosher and nonkosher for liquids, with special markers, separate aisles, separate inventories, different stocking sub-facilities. And the simple rule that changes the total is as follows:
A Kosher (or halal) eater will never eat nonkosher (or nonhalal) food , but a nonkosher eater isn’t banned from eating kosher.
Or, rephrased in another domain:
A disabled person will not use the regular bathroom but a nondisabled person will use the bathroom for disabled people.
Granted, sometimes, in practice, we hesitate to use the bathroom with the disabled sign on it owing to some confusion –mistaking the rule for the one for parking cars, under the belief that the bathroom is reserved for exclusive use by the handicapped.
Someone with a peanut allergy will not eat products that touch peanuts but a person without such allergy can eat items without peanut traces in them.
Which explains why it is so hard to find peanuts on airplanes and why schools are peanut-free (which, in a way, increases the number of persons with peanut allergies as reduced exposure is one of the causes behind such allergies).
Let us apply the rule to domains where it can get entertaining:
An honest person will never commit criminal acts but a criminal will readily engage in legal acts.
Let us call such minority an intransigent group, and the majority a flexible one. And the rule is an asymmetry in choices.
I once pulled a prank on a friend. Years ago when Big Tobacco were hiding and repressing the evidence of harm from secondary smoking, New York had smoking and nonsmoking sections in restaurants (even airplanes had, absurdly, a smoking section). I once went to lunch with a friend visiting from Europe: the restaurant only had availability in the smoking sections. I convinced the friend that we needed to buy cigarettes as we had to smoke in the smoking section. He complied.
This is a response to an audience member at Nassim’s talk at Concordia University…