Summary

Key Quotes

The people you understand the most easily are necessarily the BSers

Never pay for complexity of presentation when all you need is results

would you rather be the world’s greatest lover but have everyone think you’re the worst lover, or would you rather be the world’s worst lover but have everyone think you’re the world’s greatest?

Asymmetry of risk — where decision-makers don't bear the consequences of their decisions — is the root of most systemic fragility. Skin in the game isn't just about fairness; it's an epistemological filter that ensures survival of sound practices through via negativa (learning from what fails). The minority rule shows how small intransigent groups drive societal norms. Intellectuals Yet Idiots lack practical understanding because they've never been exposed to real consequences. Ethics isn't about what you say or intend — it's about what you risk. Systems work when participants pay for their own mistakes.

Key Takeaways

• Simple models are better
• Four main points:
  • Uncertainty, BS identification
  • Fairness, symmetry in responsibility
  • Information sharing during transactions
  • Rationality in systems, the real world

Notes

1: Introduction

• The golden rule, the silver rule
• Agency problem: conflict of interest inherent when one is acting on behalf of another
• Top-down progress: ↑ separation between decision maker and user / stakeholder
• ↑ modernism, increasing specialization
• Faulty solutions: regulation, suing
• Skin vs soul: risk on behalf of others

2: A first look at agency

• Agency problem in risk sharing
• Equality in uncertainty
• Bottom-up gov’t: “we” can’t be too big
• Tragedy of the commons
• Asymmetry of medicine

3: That greatest asymmetry

• Emergent properties
• Minority rule: dominance of vocal minorities
• Veto effect: “the most intolerant wins” (3%)
• Democracy vs minority rule
• Regulatory capture

4: Wolves among dogs

• Employees are dependable as they have skin in the game (vs contractors)
• Vulgarity is a power play, status symbol
• Family, employer: taken over higher morals

5: Life in the simulation machine

• Jesus had soul in the game
• Trump had skin in the game
• 5-10x ↑ gov’t over past century (% GDP)
• Wealth as zero-sum vs positive sum
  • Eg. salaried bankers vs entrepreneurs
• 10% of US will spend 1+ year in top 1%
  • 39% in top 5%, 56% in top 10%
• Dynamic equality: need risk of being on top
• Envy ↔︎ empathy
• Lindy effect: future life expectancy proportional to current age (when no priors)
  • Applies to non-perishables (eg. ideas)
• Better to be disliked, go against the grain
• Older ideas that have stood the test of time are more reputable (conservatism)
• Cognitive dissonance, loss aversion, negative advice, anti-fragility, time discounting, madness of crowds
• Paradox of progress, paradox of choice

6: Deeper into agency

• Playing the part vs subverting expectation
• “The people you understand the most easily are necessarily the BSers”
• “Never pay for complexity of presentation when all you need is results”
• Do we behave how we do due to our character or because we’re being watched?
• Precautionary principle: practice more hesitancy when relying on complex statistical models to justify behavior
• Virtue: individual → reflect collective action
• To be or to seem:
  • “would you rather be the world’s greatest lover but have everyone think you’re the worst lover, or would you rather be the world’s worst lover but have everyone think you’re the world’s greatest?” - Charlie Munger
• Virtue of courage, taking risks

7: Religion, belief, and skin in the game

• Libertarianism is inherently decentralized, can’t be a political movement

8: Risk and rationality

• Bounded rationality: can’t know everything
• Revealed preferences:
• Bias variance tradeoff: need to explore
• Rationality: that which allows for survival
• Shared beliefs and trust
• “Rationality is risk management”
• Ensemble time problem:
• Ergodicity:
• Repeated tail risk of ruin
• Chirnov bound: bathtub death vs pandemic, terrorism long tail vs normal