Book: 20220529 to 20220901, "Skin in the game" by Taleb, Nassim Nicholas
20220529 - BOOK 1: INTRODUCTION - The Less Obvious Aspects of Skin in the Game
20220530 - Prologue, Part 1: Antaeus Whacked
If almost everything is complicated system, it's hard to do anything to intervene. Save a life today may leads to 1000 unnecessary death 10 years later. What should we do to help then?
Taleb suggest, only the one who take risk should make decision. The problem is, many groups in the same countries take different risks. If there is no speech freedom and education system, like North Korea, what can other countries do to help? Everything would get frozen, and there would be no progress.
By the way, this is maybe the explanation of the Fermi paradox. :-)
You will never fully convince someone that he is wrong; only reality(survival) can. p14
Skin in the Game doesn't guarantee success, but it efficiently let the ones who make wrong choices die out.
Then, how to let employees work hard? This is what Tesla did: let employees own stock options(calls).
How to let government officers work hard? They don't benefit directly no matter how good they did.
How about Wall Street bankers? They should not charge "trade fee" or "administration fee". Instead, their income should depends on the profit of the company investment.
How about Tim Cook? His Apple stocks worth 25% of his net worth. Not bad.
Twitter is terrible in this case.
20220618 - Prologue, Part 2: A Brief Tour of Symmetry
A Bob Rubin trade: picking pennies in front of a steamroller, except the one making the trade receives the pennies while a third party gets to sit in front of the steamroller.https://fundamentalfinanceplaybook.com/bob-rubin-trade/
Avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice. p23
The moral investment fund should not charge admin fees. Instead, they should charge extra for profit, invest a lot from its own pocket, and pay the customers for their loss. Passive Index fund is a good alternative, as it has almost no admin fees.
But we know what is patently irrational: what threatens the survival of the collective first, then individual second. p26
So, what helps the survival of gene is rational.
Skin in the game, means thinking independently. Don't accept other people's opinion without rational thinking!
I have no other definition of success than leading an honorable life. Honor means that there are things you would do unconditionally, regardless of the consequences. p33
This definition is good. It doesn't rely on external factors, and it's not (and should not) completely objective. But it requires decent life standards. Basic food, clothes, shelter and transportation are necessary. Other parts are optional.
It's not easy to live an honorable life. For example, we should not take Singapore or New Zealand nationality to avoid paying capital gain tax. If we did that, then we lost our national identity. Does that help us to live longer and happier life? Does that help our children to live longer and happier life? What would our children and friends think of us if they know that we pay less tax through this trick? Are we proud of that?
"Skin in the game" comes from the painting regarding the corrupt Persian judge Sisamnes. He was flayed alive on the ordr of King Cambyses as a punishment for violating the rules of justice. p40
No matter what we do, in the end, that would affect our wellbeings. We cannot cheat on ourselves.
20220622 - Prologue, Part 3: The Ribs of the Incerto
20220622 - I. From Hammurabi to Kant
20220622 - II. From Kant to Fat Tony
20220622 - III. Modernism
20220622 - IV. Soul in the Game
How about software developers? As they are not the one who is going to use the software they build, they don't play with skin in the game. More importantly, they are not likely to bear the loss if their software got serious problem, and surgeons get feedback almost immediately.
How to fix this problem? Iterate quickly. Release a new version every a few weeks or even daily, so users can give them feedback quickly.
How about the bankers? Stock option is much better choice than cash, with 5 year lock-up peirod.
20220627 - BOOK 2: A FIRST LOOK AT AGENCY
20220627 - Chapter 1. Why Each One Should Eat His Own Turtles: Equality in Uncertainty
"Skin in the game" is a perfect tool to recognize traps and camouflage.
Ethics is something fundamentally local. p60
Groups behave differently at a different scale.
Don't talk about the stocks that you don't own or short. Because, if you what you said caused negative result, you don't bear the loss. That make you talking about something you don't really know, which is just meaningless noise.
Administrators everywhere on the planet, in all businesses and puursuits, and at all times in history, have been the plague. p66
But administrators are also critical to high productive societies. How to solve the problem? My opinion: make rules simple and short lifespan, keep them as less as possible. Let the players with skin in the game to get involved in modifying the rules.
The cost of reducing risk is very high. Everyone needs to be brave to bear the low probability of bad results.
What level of risk is acceptable? It changes with technical advancements. That's why we should revise rules from time to time
20220704 - BOOK 3: THAT GREATEST ASYMMETRY
20220704 - Chapter 2. The Most Intolerant Wins: The Dominance of the Stubborn Minority
This reminds me two points.
1. Meme is gene. It also tries to keep things as simple as possible. If one rule suits everyone, meme prefer to remove all other rules which only suits part of the population.
2. In "The Selfish Gene", tit for tat strategy. Cheats beat Suckers.
For a group of people, when best bet meets safe bet, safe bet always win. Does this mean that Index Fund investment will take most of the stock investment market?
It's same to gambling: 50% chance to win $1M, is better than 25% chance to win $2M. But if the bet is quite small, then the latter is better.
Religions, languages, politics, etc. are all same.
Genes follow majority rule; languages minority rule. So, Languages travel; genes less so. p79
The change of the population of gene is the result of competition, and the change of the population of language is the cause of competition. I think this is the reason that cause the difference.
The initial change in genes always starts from minority, of course.
The formation of moral values(civil rights) in society doesn't come from the evolution of the consensus. No, it is the most intolerant person who imposes virtue on others precisely because of that intolerance. p83
An intolerant minority can control and control and destroy democracy. Actually, it will eventually destroy our world. p86
Speech freedom has top priority. This means that there is no speech freedom for the support of shaping public opinion.
The stock price is not the consensus of the market. Instead, it's decided by the most motivated buyers and sellers. p86
This is the root cause of unpredictable short-term volatility.
Does Self Gene apply to large group? I think yes. Sometimes, some groups did stupid things, but most of them in most of the time they are rational..
Individuals don't need to know where they are going; markets do. p92
The invisible hand is a metaphor for how, in a free market economy, self-interested individuals operate through a system of mutual interdependence. (https://www.investopedia.com/terms/i/invisiblehand.asp)
Quantum effect exists at molecule, atom and sub-atom level. However, chemical characteristics is stable and not affected by quantum effect. Why?
Is it possible that each individual is like a atom, and a crowd is like physical material?
Or, each cell is like a atom, and our how body(especially brain) is like physical material?
Leaders are not that important. Mechanism is critical. This is what the previous chapter said: "Individuals don't need to know where they are going; markets do." p92
20220713 - BOOK 4: WOLVES AMONG DOGS
20220713 - Chapter 3. How to Legally Own Another Person
The best slave is someone you overpay and who knows it, terrified of losing his status. p101
The question is: what would you like to be, a dog or a wolf? p102
My answer: A dog who prepare to turn itself into a wolf. Give 20% of time to company, and spend 80% of time(or attention) to my own business.
What matters isn't what a person has or doesn't have; it is what he or she is afraid of losing.
The more you have to lose, the more fragile you are. p105
This is part of the reason that Elon Musk sold all his properties. Luxury external material is curse.
Don't agree with Taleb regarding autocrat. Yes, Putin has skin in the game, but he removed the "skin in the game" from other people. Other people are slaves.
Democratic countries may not have a leader with skin in the game, but they have diversity. So there are millions of people who do have skin in the game.
20220720 - Chapter 4. The Skin of Others in Your Game
The world is not kind or fair. Benefits are always associated with risks. Sometimes ridiculous and unfair risks.
Billionaires cannot go shopping like normal people, academic masters need to bear all kinds of attack.
How to crush terrorism? I agree with Taleb, that the best way is to focus on education system. Let combound effect solve the problem. Or else, the law needs to be cruel. By punishing the innocent family members and friends of the terrorists to reduce terrorism activities.
20220723 - BOOK 5: BEING ALIVE MEANS TAKING CERTAIN RISKS
20220723 - Chapter 5. Life in the Simulation Machine
Always do more than you talk, and precede talk with action. p122
No matter what we believe or disbelieve, we should try to verify it. True that individual verification is not convincing, but it's much better that talk without verification.
We are all "brain in a vat". Our body, including our skull, is the vat.
20220728 - Chapter 6. The Intellectual Yet Idiot
Typically, the IYI(Intellectual Yet Idiot) get first-order logic right, but not second-order (or higher) effects, making him totally incompetent in complex domains. p125
And, they don't have skin in the game.
How to avoid to become IYI? Always admit that we may be wrong, and be open to any alternative explanation. - "Noise by Daniel Kahneman, Olivier Sibony, Cass R. Sunstein"
20220731 - Chapter 7. Inequality and Skin in the Game
Only 10 percent of the wealthiest five hundred American people or dynastics were so thirty years ago; more thena 60 percent on the French list are heirs and a third of therichest Europeans were the richest centuries ago. p131
From tax point of view, we have GST, income tax, CGT, inheritance(estate) tax.
Let's compare Australia and Finland and USA.
| VAT/GST/Sales | Personal Income | CGT | Inheritance(estate) | |
| Australia | 10% | 45% | 23% | 0 |
| Finland | 15% | 57% | 34% | 14% |
| USA | 6% | 41% | 20% | 40% |
GST and personal income tax are mainly for normal people, CGT and Inheritance tax are mainly for rich people.
When you buy a thick book with tons of graphs and tables used to prove apoint, you should be suspicious.......another way to substitute the true with the complicated. p138
Should we allow government officers to write books to make money after retirement? I think this is fine.
Should we allow them to join financial industry after retirement? I think it depends on what they do there.
Should we allow them to join aviation industry after retirement? No, unless they have special technical skill.
This is really complicated. We need to figure out a better way to tell the differences.
20220804 - Chapter 8. An Expert Called Lindy
More technically, being fragile, it necessarily has a nonlinear reaction to stressors. p142
So, being antifragile, we need minimum rigid rules/personalities/identities. Being open to changes is critical to our lives. Same with investment, we should not have any rigid rule to follow.
How about fixed income(salary)? It's better to choose commision fee as major income before 30 or 40, as we can learn much more from it. Fixed income means we don't need to think hard, and even if we think hard, we are not likely to make more money. So fixed income is negative incentive to "think ahead, think hard". It makes us fragile.
Fragility is the expert, hence time and survival. p143
Why the first principle is so hard to follow? Because it's not verified by Lindy yet, so it has higher risk. However, all evolution is not verified by Lindy, which means that they are all fragile. Guided by the first principle, we can minimize the risks, and get good result. This is the shortcut of winning.
Lazy people rely on Lindy.
A free person does not need to win arguments - just win. p145
Anything that smacks of competition destroys knowledge. p146
I'd like to put it this way: anything that cannot be verified in the future create false knowledge. Especially in social science area.
What will you do if you have got everything you want? (Maths and Physics are still there, you cannot turn into superman)
I should skip all steps in the middle, jump to the end to do that straightaway.
20220807 - BOOK 6: DEEPER INTO AGENCY
20220807 - Chapter 9. Surgeons Should Not Look Like Surgeons
A surgeon who looks like a fat retired securityguard is more likely to be a good one, because he has to overcome all appearance bias to win the competition in career.
Many other jobs have the same trick. CEO should not look like a CEO, rich man should not look like rich man. We need to overcome our bias to see the real world. This is also based on the first principle.
Business plans don't help with business works. p159
All roads lead to Rome. We need to make the choice right, instead of making right choice.
Business plan is likely to convice investors. It's just a choice, not about "right".
Everytime we make choice, we should think it over based on the first principle. What really matters? Private school or public school? Luxury car or low price one? Which suburb is better?
20220811 - Chapter 10. Only the Rich Are Poisoned: The Preferences of Others
When people get rich, they complicate their lives unnecessarily, triggering their own misery. p167
They get much more choices, then they get distracted. Other people are other place are available now, so they may go there and waste money.
How about time? Am I going to waste more time if I got plenty of spare time? Definitely. So, how to avoid wasting time and attention? Only do things that our rationality tells us to do.
If you want to have what I call friends, you may also need to hide your erudition and learning. You'd rather have dinner with your friends than with your professor. p170
How about Socrates, Budda and Jesus? They must feel very lonely.
It's better talking about something not related to any academic stuff.
20220815 - Chapter 15. Facta non Verba (Deeds Before Words)
Verbal threats reveal nothing beyond weakness and unreliability. p174
There was no verbal threats before Russia invading Ukraine. USA didn't threat Saddam Hussein. Hitler didn't threat Portland or France.
Absolutism tempered by assassination. p176
20220816 - Chapter 12. The Facts Are True, the News Is Fake
You never cure structural defects; the system corrects itself by collapsing. p180
Why? I think MEME is powerful. It's so powerful that we can only destruct it. For example, 500 years ago, everyone think that the earth is flat. There is no way to change it. We have to wait for one generation to die out to get new concept popular.
This is also the reason that China will attack Taiwan in the end, and Chinese government will collapse because of it, I think.
Freedom of Expression is the way to change MEME, at the very beginning of an idea. If MEME has been turned into mainstream opinion, then it's too late.
20220819 - Chapter 13. The Merchandising of Virtue
"I will save people from drowning only if others too save other people from drowning." p185
My defense is different. I don't know how to save those people, and it seems themselves are the only ones who can save them. But, how to make them saving themselves?
Courage (risk taking) is the highest virtue. We need entrepreneurs. p189
We should not expect most of the people becoming entrepreneurs. Does that mean that most of people cannot get the highest virtue? I think if people respect different opinions, and create real value for the society, then they have great virtue.
20220819 - Chapter 14. Peace, Neither Ink nor Blood
We are largely collaborative - except when institutions get in the ways. p191This is wrong. People are largely collaborative if there is enough resource. But normally enough resource means population explosion, which leads to resource shortage. I think the key is not about institution, but more about MEME. If most of people that creativity brings us more wealth, then people incline to collaboration. But if they believe that land and natural resource bings us more wealth, then they prefer to choose war.
Intensity should not replace frequency. But intensity means the Black Swans.
The Black Swans interrupted the changes caused by compound effect. We should pay attention to both sides.
To handle the Black Swans, we need redundency (plan B). Compound effect is the dominant force, so we should pay more attention to it. Not the Black Swans.
20220826 - BOOK 7: RELIGION, BELIEF, AND SKIN IN THE GAME
20220826 - Chapter 15. They Don’t Know What They Are Talking About When They Talk
Different religion has different scope of requirements. They don't share the same pattern with different content.
Libertarians believe law/rule instead of authority.
20220827 - Chapter 16. No Worship Without Skin in the Game
Love without sacrifice is theft (Procrusters). p207
This suits perfectly in dating. If someone says he/she loves the other part, we need to observe what he/she sacrified.
20220827 - Chapter 17. Is the Pope Atheist?
We define atheism or secularism in deeds. p210True!
There are people who are atheists in actions, religious in words (most Orthodox and Catholic Christians), and others who are religious in actions, religious in words (Salafi Islamists and suicide bombers), but I know of nobody who is atheist in both actions and words. p210
No one is 100% religious or atheist in either actions or words. So we should not classify people this way.
20220831 - BOOK 8: RISK AND RATIONALITY
20220831 - Chapter 18. How to Be Rational About Rationality
Survival comes first, truth, understanding, and science later. p214
Illusion(superstition, bias, etc.) is useful. They are necessary for survival.("Only the Paranoid Survive"?)
If there is no illusion, then we are easier to get hit by the Black Swans under the effects of Noise. Illusion leads to less rewards, and less critical risks.
We bury dead because of superstitions, but the action itself is correct which helps with our survival. What we believe doesn't matter. Our action matters.
Almost all medical discoveries were found through errors. Error sometimes means creativity.
What is rational is that which allows for survival(of our gene). p220
This also proves that we are the vehicles of our gene.
Rationality is risk management. p221
Risk itself is tricky. Long term risk, short term risk; risk to individual, risk to group. The best way to avoid risk is to fully understand it. The first principle.
20220901 - Chapter 19. The Logic of Risk Taking
Is repetition of exposures related to compound effect? I would say, yes. The risks are accumulated, and disruptive risk is getting higher and higher eventually.If there is a bet which give you 60% of chance to win, are you going to take it? Yes, just don't put too much of your portofolio into each bet. Even if you have 99% of chance to win, still, don't put too much of your portofolio into each bet. How to figure out that how much we should put into each bet?
Like "Noise" says, any rule is better than intuition(no rule). Let the data speak. The data tells us how much risk there is.
20220901 - EPILOGUE: WHAT LINDY TOLD ME
Always try to avoid complicated solutions, as they normally has fat-tailed risk.
Risk means reversible. Ruin is irreversible.
Risk doesn't need to have fat-tailed risk.
Fat-tailed profit is good thing which worth risk if there is no fat-tailed risk.
One may be risk loving yet completely averse to ruin. p233
Rationality is avoidance of systemic ruin. p233
I think, rationality is also about increase fat-tailed profit. All entrepreneurs do that.
Most of people focus on short term risk and profit.
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