Nassim Nicholas Taleb (Scholar Investor) – RPI’s Media & War Conference (Sep 2018)
Chapters
00:00:10 Unintended Consequences of Interventionist Policies
Background and Motivations: Nassim Nicholas Taleb, renowned for his books like “The Black Swan” and “Skin in the Game,” is an empiricist, trader, and professor of engineering at New York University. Bored with conventional topics, he delved into mathematics for its brevity and concentration demands.
Research Focus: Taleb’s work centers around systems’ ability to handle disorder and uncertainty. His five-volume project, “Inserto,” explores these concepts, with “Skin in the Game” dedicated to the idea of responsibility and accountability.
Scaling and Political Systems: Taleb emphasizes the significance of scaling in political systems. Properties of a system can vary depending on its scale, making what works in one context unsuitable for another.
Interventionists and the Bob Rubin Trade: Taleb criticizes interventionists, particularly those who benefit from systemic policies while passing on the downsides to others. He cites the Bob Rubin trade as an example, where individuals make substantial gains from a system but don’t bear the consequences when it fails. This transfer of downside risk to others cannot be resolved through regulation alone.
00:06:16 Ancient Law and the Modern Risk Disconnect
Hammurabi’s Law: Hammurabi’s law, established in Babylon 3,755 years ago, emphasized that the architect who builds a house that collapses shall be put to death. This law reflected the principle that one must own the risks associated with their actions and not evade them. It marked the beginning of civilization and was the basis for the eye for an eye principle.
Risk Ownership in Different Civilizations: The Romans had a version of Hammurabi’s law, and nearly every civilization until the current generation followed the principle of risk ownership. However, in recent times, people have begun benefiting from systems without bearing the associated risks.
Warmongers and Risk-Taking: Historically, warmongers were also warriors, meaning they were directly involved in the battles they advocated for. This balance ensured that those advocating for wars were also exposed to the risks of those wars. In contrast, modern warmongers often have no personal exposure to the risks of war.
The Role of Warriors in Societies: In most societies throughout history, warriors held positions of prominence due to their willingness to take risks. Only a few societies, such as English society, had hierarchies where warriors were not at the top. In the Roman Empire, emperors like Emperor Julian and Valerian personally faced the risks of war and often died in battle.
The Importance of Risk Symmetry: The balance of risk ownership ensures that those who advocate for risky actions are also exposed to the consequences of those actions. This balance prevents reckless decision-making and helps maintain stability in society. India’s lack of risk symmetry in road usage leads to a higher mortality rate compared to countries with stricter risk ownership principles.
The Decline of Risk Ownership in America: The principle of risk ownership existed in America until the time of George Bush the father, who was the last president to be directly involved in wars. Since then, people have increasingly benefited from systems without bearing the associated risks, leading to imbalances and potential instability.
00:11:33 The Perils of Peer Review in Business and Academia
Peer Review and Decision-Making: Peer review mechanisms can filter out certain risks and decisions, leading to biased outcomes.
The Case of Restaurants: In the restaurant business, awards are given by clients, not peers, leading to a lack of accountability and potential bankruptcy.
Scaling and Peer Judgment: Restaurants with real food often cannot scale beyond 400 tables due to the challenges of maintaining quality. Peer judgment can lead to businesses rotting, as seen in academia, where researchers are judged by peers rather than by the impact of their work.
Trading and Peer Judgment: In trading, success often comes from thinking independently and not conforming to the opinions of others. Traders who are libertarians tend to be more successful because they are less likely to follow the herd.
The Disconnect Between Decision-Makers and Reality: A class of people who make decisions that have far-reaching consequences (e.g., causing wars) are often not directly involved in those consequences. This lack of involvement creates an incentive to be right, rather than to learn from mistakes.
Human Learning: Taleb believes that humans do not learn intellectually but rather through evolution. Academics often overestimate their understanding of human behavior.
00:15:21 Expert Problem: Skin in the Game and the Intellectual Yet Idiot
The Expert Problem: The expert problem refers to the difficulty in identifying true experts in a field. Unlike professions such as plumbing and dentistry, where feedback is clear, experts in fields like economics and macroeconomics often lack accountability. As a result, they can engage in micro-bullshitting without consequences.
The Role of Skin in the Game: The concept of skin in the game emphasizes the importance of personal accountability and risk-taking. Those with skin in the game are more likely to make informed and responsible decisions, as they have a personal stake in the outcome. Bureaucrats and academics often lack skin in the game, leading to poor decision-making and a lack of accountability.
Historical Examples of Bureaucratic Failures: Ancient Egypt’s decline occurred when scribes gained power and lost touch with reality. China’s intellectual growth stagnated when bureaucrats took control and stifled innovation. The Industrial Revolution in England was driven by illiterate adventurers, while subsequent committees hindered progress.
Intellectual Yet Idiots (IYIs): IYIs are individuals who excel at taking exams and grades but lack practical knowledge and real-world experience. The education system often rewards IYIs, creating a circular system that perpetuates their dominance. Fields like economics are particularly susceptible to IYIs, leading to poor policy decisions.
The Importance of Skin in the Game in Peace and Suppression: Skin in the game is essential in promoting peace and preventing suppression. Those with skin in the game are less likely to engage in aggressive or oppressive behavior, as they understand the consequences of their actions.
Intellectual and Book Reviewers: Book reviewers often lack skin in the game, as they can write reviews without reading the book and face no consequences. Nassim Nicholas Taleb imposed an embargo on his book in America, requiring reviewers to purchase it, which led to their disappearance. Despite the publisher’s skepticism, the book became a bestseller, highlighting the importance of skin in the game in knowledge dissemination.
00:22:08 Conceptualizing Peace: From Top-Down to Bottom-Up
Skin in the Game and Peace: Peace between states is an illusion; it is between people. State representatives may not represent the people’s interests, leading to agency problems.
Peace and Commerce: Commerce promotes bottom-up peace, while peace imposed from the top often fails. Historical examples show that peace through commerce is more sustainable than peace imposed by intellectuals or politicians.
Peace between Egypt and Israel: The peace between Egypt and Israel is not working because it was imposed from the top and lacks bottom-up support. The Egyptian population has become more anti-Semitic since the peace treaty.
UN and Other Institutions: Institutions like the UN create agendas and employ people who have an interest in perpetuating conflict. These institutions often facilitate top-down peace negotiations that are doomed to fail.
The Lindy Effect: The Lindy Effect states that the longer something has existed, the longer it is likely to continue existing. This rule applies to ideas, technologies, and institutions.
00:26:34 News, Censorship, and the Principle of Charity
The Lindy Effect: The Lindy effect suggests that things that have survived a long time tend to continue existing. Examples include plays, books, and certain restaurants.
News Circulation and Censorship: Historically, news was shared organically through conversations, barbershops, markets, and gatherings. Censorship has never been effective in controlling the spread of information.
The Destruction of the Media: The media’s attempt to control information has led to its destruction. Platforms like Twitter are bringing back organic news circulation.
The Problem of Taking Things Out of Context: News can be distorted by taking facts out of context or focusing on specific statements without considering the overall context.
The Principle of Charity: The principle of charity requires representing the views of others accurately and charitably, even if one disagrees with them. Breaking this principle destroys intellectual communication.
The Minority Rule: Taleb discusses the minority rule, which suggests that a small minority can have a significant impact on society.
00:33:13 Minorities Driving Ethical and Social Change
Asymmetry of Minorities and History: Minorities have a disproportionate influence on history compared to majorities. The author discovered this asymmetry while organizing a cocktail party and realizing that all the soft drinks were kosher, catering to a minority of kosher consumers.
Minority Influence in Ethics: Ethics are often shaped by minority preferences rather than majority decisions. For example, halal meat is prevalent because it simplifies logistics and avoids the hassle of separate merchandising and potential lawsuits. This minority rule can lead to positive outcomes, such as the widespread availability of kosher and halal food options.
Minorities Driving Ethical Standards: In social settings, the preferences of the minority often prevail. If one person at a table is organic or allergic to peanuts, the entire group will typically accommodate their preferences. This can lead to distortions, but generally, it promotes ethical behavior and inclusivity.
Personal Example: The author expresses his intolerance towards journalists, highlighting the subjective nature of ethical preferences and the potential for distortions in minority rule.
00:35:31 Intolerance as a Strategy for Advancing Libertarianism
The Intolerant Approach: The speaker believes in being intolerant of certain things, such as violations of ethics in the media. This intolerance has led to the speaker’s success in avoiding certain sources of information and holding them accountable for their actions. The speaker emphasizes the importance of being impartial and applying ethical standards consistently across the board.
The Pitfalls of a Unified Libertarian Party: The speaker cites the example of Emperor Julian’s failed attempt to unify paganism under a single clergy as an example of why a unified libertarian party may not be successful. According to the speaker, libertarians value freedom of thought and are resistant to being organized under a single banner. The speaker argues that libertarianism thrives when it is fragmented among other parties, as this allows for more diverse perspectives and greater individual liberty.
Common Ground Among Libertarians: Despite the lack of a unified party, the speaker believes that there are common principles that libertarians share. These shared beliefs can be strengthened through a more intolerant approach to certain behaviors or ideologies. The speaker concludes by emphasizing the value of intolerance as a strategy for libertarian success.
Abstract
Nassim Nicholas Taleb: A Scholar’s Journey from Trading to Academia and Beyond
Introduction: The Scholar and the Speaker
Nassim Nicholas Taleb, renowned for his works like “The Black Swan” and “Skin in the Game,” stands as an empiricist, trader, and professor of engineering at New York University. His journey is marked by a transition from being a trader to an academic, showcasing his unique approach to public speaking, where he prefers to sit, creating a relaxed environment. This reflects his distinct philosophical stance.
A Trader’s Transition to Academia and Intellectual Pursuits
After his career in trading, Taleb pursued various interests like chess and tennis before settling into academia. His distaste for monotony and his fascination with mathematics led him to write “Inserto,” a comprehensive five-volume work exploring systems and uncertainty. He examines how systems cope with disorder and uncertainty, with a specific focus in “Skin in the Game” on the themes of responsibility and accountability.
“Skin in the Game”: Merging Roman Pragmatism with Theoretical Insights
In “Skin in the Game,” the final installment of “Inserto,” Taleb delves into the concepts of personal responsibility and involvement. He contrasts the practicality of Roman philosophy with Greek theoretical approaches, highlighting the importance of adaptable systems that continuously improve. He underscores the relevance of scaling in political systems, illustrating how different systems’ properties can change based on their scale.
Scaling and Political Systems: A Comparative Study
Taleb’s exploration of “scaling” demonstrates how the characteristics of systems evolve with their size and context. He uses various political systems, such as those of Singapore and China or Norway and the United States, to show how they function differently at different scales.
Critiquing Interventionists: The “Bob Rubin Trade”
Taleb is a strong critic of interventionists, especially those who benefit from certain policies while transferring risks and consequences onto others. He uses the “Bob Rubin trade” as a prime example, where Rubin’s policies at Citibank resulted in insolvency and taxpayer bailouts, yet Rubin profited significantly. Taleb highlights the inability of regulation alone to solve the problem of transferring downside risks to others.
Risk and Responsibility: From Hammurabi to Modern Society
Drawing from Hammurabi’s Code, which underscored the principle of risk ownership, Taleb contrasts this ancient wisdom with modern society’s imbalances, where benefits are often enjoyed without corresponding risks. This principle, reflected in Hammurabi’s law that the architect of a collapsed house shall be put to death, set the foundation for civilization and was embraced by civilizations, including the Romans, until recent times.
Academia and Business: The Pitfalls of Peer Review and Scaling
Taleb critiques the peer review system in academia, likening it to decay seen in large-scale businesses. He notes that businesses with real food typically struggle to expand beyond a certain size due to quality maintenance challenges. In contrast, peer judgment in academia often leads to a lack of accountability and may result in the deterioration of research quality.
Trader Mindset vs. Peer Approval
Traders, who often hold libertarian views, thrive on independent thinking and disregard peer approval. Taleb emphasizes that in trading, success often hinges on going against the herd mentality, as conformity can lead to delayed decisions and missed opportunities.
Incentives, Learning, and the Expert Problem
Highlighting the gap between those who cause wars and those who fight them, Taleb stresses the importance of aligning incentives with learning. He critiques the “expert problem” in fields like economics, where professed expertise often lacks real-world impact.
Bureaucrats vs. Non-Interventionists
Taleb contrasts interventionist bureaucrats, detached from practical experiences, with non-interventionists, who often achieve better outcomes by avoiding complex entanglements. He argues for the balance of risk ownership to ensure that advocates of risky actions are also exposed to their consequences.
Historical Bureaucratic Failures
Taleb points to historical examples of bureaucratic failures, such as ancient Egypt’s decline with the rise of scribes, China’s stifled innovation due to bureaucracy, and England’s Industrial Revolution being hampered by committees. He notes that bureaucratic dominance often signals societal stagnation.
The “Intellectual Yet Idiot” Phenomenon
The education system’s focus on exam skills has resulted in the proliferation of “Intellectual Yet Idiots” (IYIs) – individuals who are skilled in academics but lack practical experience, yet occupy influential positions.
Taleb’s Critique of the Media and the Importance of Skin in the Game
Taleb, in his critique of the media, enforced an embargo on his book in America, requiring book reviewers to purchase it. This move was a stand against unaccountable criticism and reflected his belief in the importance of having “skin in the game” for responsible actions.
The Shallow Content of the New York Times
Taleb criticizes the New York Times for its superficial content, seeing it as a sign of a broader societal trend towards a lack of depth in understanding.
Commerce-Driven Peace vs. Top-Down Efforts
Taleb advocates for peace emerging from commerce-driven, bottom-up interactions, contrasting with the often unsuccessful top-down diplomatic efforts, such as the Oslo Accord.
The Lindy Effect: Understanding Longevity
Taleb urges the study of the Lindy Effect, which suggests that longevity is proportional to current age, though not necessarily at the namesake restaurant.
News Dissemination: From Organic to Media-Controlled
He observes that historically, news dissemination was organic, disrupted by post-war media. However, platforms like Twitter are now reversing this trend, diminishing traditional media’s control and resisting censorship.
Principle of Charity and Minority Rule
Taleb emphasizes the importance of the principle of charity in intellectual discourse, which involves accurately representing opposing views. He also discusses the disproportionate impact of minorities, exemplified by the widespread adoption of kosher and halal practices by major food companies.
Concluding Remarks: Intolerance as a Virtue in Upholding Ethical Standards
In conclusion, Taleb suggests that intolerance is crucial in maintaining ethical standards and effectiveness.
Expert Knowledge and the Importance of Skin in the Game
The expert problem arises when individuals claim expertise without facing real-world consequences. Taleb’s concept of skin in the game highlights the need for personal accountability and risk-taking in decision-making. He points out that bureaucrats and academics often lack this skin in the game, leading to ineffective decision-making and a lack of accountability.
Historical Examples of Bureaucratic Failures
Taleb provides historical examples of bureaucratic failures, such as the decline of Ancient Egypt due to the rise of scribes, the stagnation of China’s intellectual growth under bureaucratic control, and the hindrance of England’s Industrial Revolution by committees.
Intellectual Yet Idiots (IYIs)
IYIs are characterized as individuals who excel in academic settings but lack practical knowledge and experience. The education system, according to Taleb, rewards these IYIs, creating a self-perpetuating cycle of their dominance, especially in fields like economics, leading to ineffective policy decisions.
The Importance of Skin in the Game in Peace and Suppression
Skin in the game is essential for promoting peace and preventing suppression. Individuals with skin in the game are less likely to engage in aggressive or oppressive behavior, understanding the consequences of their actions.
Intellectual and Book Reviewers
Book reviewers often lack accountability, as they can critique books
without fully engaging with the content. Taleb’s embargo on his book in America, requiring reviewers to purchase it, demonstrates the importance of skin in the game in knowledge dissemination.
Peace, Ink, Blood, and Commerce
Taleb argues that real peace is between people, not states, and that state representatives may not always reflect the interests of the populace, leading to agency problems.
Peace and Commerce
He emphasizes that commerce promotes sustainable, bottom-up peace, contrasting with the often unsuccessful top-down peace initiatives driven by intellectuals or politicians.
Peace between Egypt and Israel
The peace treaty between Egypt and Israel, according to Taleb, is not effective as it was imposed from the top and lacks grassroots support, leading to increased anti-Semitism in Egypt.
UN and Other Institutions
Taleb criticizes institutions like the UN for creating agendas that perpetuate conflict, arguing that their top-down peace negotiations often fail.
The Lindy Effect
The Lindy effect suggests that the longevity of things like plays, books, and restaurants is proportional to their current age.
News Circulation and Censorship
Taleb notes that news has historically spread organically and that attempts at censorship have never been truly effective.
The Destruction of the Media
The media’s control over information has led to its decline, with platforms like Twitter reviving organic news circulation.
The Problem of Taking Things Out of Context
He highlights the issue of news distortion through selective context and focus on specific statements without considering the overall picture.
The Principle of Charity
The principle of charity is crucial for intellectual discourse, requiring accurate and charitable representation of others’ views.
The Minority Rule
Taleb discusses the minority rule, which suggests that a small minority can significantly impact society.
Minority Rules and Ethical Formation
Ethics are often shaped more by minority preferences than majority decisions, which can lead to ethical behavior and inclusivity but also potential distortions.
Intolerance as a Strategy for Libertarian Success
Taleb advocates for a certain level of intolerance, particularly against unethical practices in the media, and discusses the potential effectiveness of this approach for libertarian success.
Nassim Nicholas Taleb's work emphasizes the significance of personal accountability in decision-making, critiques modern Western society's trajectory, and explores the roles of religion, science, and tolerance in shaping societal dynamics....
In an unpredictable world, Nassim Taleb emphasizes risk management and intellectual rigor, while Scott Patterson explores the role of hedge funds in financial markets. Their insights provide guidance for navigating modern complexities and preparing for future uncertainties....
Taleb emphasizes the importance of practical experience over theoretical knowledge and advocates for aligning expertise with real-world accountability. He challenges conventional wisdom in fields like economics and emphasizes the value of risk-taking and skin in the game....
Real-world experience and risk-taking are essential for informed decision-making, while theoretical knowledge alone can be misleading. Minority groups can disproportionately influence societal norms and preferences....
Nassim Nicholas Taleb's philosophies emphasize embracing variability, anti-fragility, and ethical decision-making to build resilient individuals and societies capable of thriving in uncertain times. His ideas challenge conventional wisdom and promote decentralized structures, accountability, and open dialogue....
Nassim Taleb emphasizes personal accountability and authenticity through the concept of "skin in the game," while critiquing contemporary social and scientific paradigms, urging reevaluation of risk, decision-making, and societal interactions....
Nassim Taleb emphasizes the importance of redundancy and skepticism in forecasting and financial systems while advocating for learning from historical mistakes and embracing natural processes. Taleb's insights challenge conventional wisdom and promote resilience in the face of complexity and uncertainty....