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Talks at Google, Skin in the Game | Nassim Nicholas Taleb | Talks at Google (3)

Skin in the Game | Nassim Nicholas Taleb | Talks at Google (3)

And something quite obvious, as obvious as the cook

should eat his or her cooking.

It needs to apply everywhere.

And these rules did prevail until recently.

And we're going to see where they stopped prevailing.

But they prevailed for a long time,

until say, maybe a generation and a half ago,

two generations ago.

And it was quite sophisticated, how merchants should treat

other merchants, how you should have

stiffer ethical rules, more equity within a group, in group

then outgroup, but still have the same outgroup.

And actually, it's much more workable within communities,

outside communities.

Now one thing about "Skin in the Game," "Skin in the Game"

is interested in two aspects of social thought

that are not discussed.

The first one is dynamics, and things happen over time,

how systems--

what rules should be applied over time.

And we'll take a snapshot and we'll see how,

why, and the mistake.

And the second one is scaling, that things change in scale.

A small hamlet will not become--

you cannot turn the dynamics of a hamlet into a small village.

And a small village cannot turn into a very small town.

You have some kind of a scale transformation

that happen when groups become larger.

And that's mathematical and at many levels.

For example, I can predict how each and every one of you

behave, assuming I could do that.

But as a group, I can predict the behavior as a group,

because a group is a different animal.

Likewise, we know that if people have all these ethical traits

individually, when you put them together in groups of 250,

they will be very ethical in preserving the commons.

Like fishermen not overfishing, because

harming future generation.

But when the group becomes 200,000, it doesn't work.

So that's one aspect of scalability

that has a political implication and [INAUDIBLE]

It is very, very compatible to be a communist in your village,

and libertarian at the federal level,

and Democrats for the county, while being

a Republican for the state.

It's perfectly compatible.

You cannot have a political opinion without attaching

a scale to it.

So communism can work in Singapore--

because it's small-- much better than China.

Look at the success.

Or that form of socialism.

Or you can-- you cannot--

you should separate the political label from the scale.

And likewise in commerce, if you don't

have ingroups and outgroups of different layers,

things don't work.

Because you don't have individual and then

the rest of the world, you have layers.

You have the visual, the family or whatever,

the finances of her family, the tribe,

whatever he or she defines as tribe,

and then you go up the layers.

And that works a lot better.

Because the tribes deal with one another,

the dynamics of tribes dealing with one another

need to mirror the same symmetry.

And it looks like the ancients were conscious of it.

They understood scaling.

They understood that you can love your town when

it's a small town, but it's not the same love

when it's a large town.

The ancients knew that.

So this is the idea of scaling, particularly

with skin in the game changes.

Now, risk as virtue.

I don't know how many Roman emperors we've had,

close to 300.

How many died of natural death?

Assuming those really died of natural death.

I mean, we don't have modern autopsies.

How many?

1/2, 3/4, 100%?

AUDIENCE: [INAUDIBLE]

NASSIM TALEB: No more than a third, all right?

And we're not sure about that third.

And of course, had they lived longer,

had they not died of pneumonia or something,

they would have been killed by someone.

And then, this is a picture of Valerian, the Roman emperor who

was captured by the Persians and used as a footstool.

So these are the risks you get for being a Roman emperor.

It's risky to be a Roman emperor.

Julian, who's my hero in a book.

Julian the emperor was known as the apostate.

He died at the Persian border with a spear in the chest.

He didn't even have an armor.

Now this contrasts heavily with warmongers today,

war mongers who are sitting in an air conditioned

office in Washington.

Can we name names on Google thing?

They can sue me directly, OK?

In the book, I name names.

Like Thomas Friedman and all these neocons,

they can cause wars in Iraq, devastation's,

hundreds of thousands of people killed, maybe more,

financial trauma.

What price did they pay?

Zero.

So let's merge ethics and epistemology.

If they had to pay for their mistakes

like the driver who disappears, the system

don't learn because people learn.

Systems don't learn-- system learn via the survival

mechanism by eliminating those who don't have that trait.

Actually in biology, systems learn at a cellular level.

It's not like, your knowledge that changes.

So of course you're going to have a lot of warmongers today.

This is a danger for humanity.

Now that-- and they're going to use any excuse to become

warmongers and then even will get leftist ideas,

because our merchants know how to play the system and can--

or humanitarian war.

Humanitarian war, like in Libya, change of regime.

Oh yeah, but look, we have democracy.

You kill everyone and say, well look,

their cholesterol level improved.

So if you use those metrics.

So the point is, that this is very recent.

Hannibal, first in battle.

Napoleon had to be more exposed than other soldiers.

And the English feudal system, the lord, you're

a lord because you're a lord, because you

take risks for others.

You trade risk for social status.

Very few societies had people of rank make decisions

without being, themselves, exposed

to the harm from the decisions.

At all levels, economic, financial, everything,

physical.

Now comes the notion of risk as virtual.

We're not stupid.

We have some organic understanding of these things.

And the peacock, the [INAUDIBLE] peacock story

is that the peacock, why does the peacock has a big tail?

They're useless.

It's precisely because it's useless.

And the peacock can maintain such a tail,

it shows some kind of biological fitness,

to be able to carry such a tail.

Now the peacock, the [INAUDIBLE] peacock

is a nice framework, what we call a [INAUDIBLE] trait,

a superfluous trait, but that gives you definitely some kind

of fitness.

People who have scars, people who have scars command respect.

People who take risks command respect.

People don't realize it, but that's what's happening.

It's a very bad idea for political parties

to propose candidates who are lifetime bureaucrats.

You see?

And people detect it.

Like in Switzerland, they try to pass a law

to limit the income for chief executives.

But nobody thought of limiting the income of entrepreneurs.

Why?

An entrepreneur takes risks.

Chief executive is someone who works

for the system and making 75 times what an employee makes.

The law didn't pass, but that's the idea behind it.

And this explains Christology.

Think about it.

Why is it that we have the Trinity, which absolutely

makes no sense to anyone outside the Christian religion?

Why is it that we had to keep going back to the Trinity?

Fights, arguments, debates in Greek that nobody

can understand because translated into Latin

be the same word?

They kept going back that the Christ cannot be God.

Think about it.

If this person had a parachute, if an acrobat walked in

with a parachute, would you pay for that?

It'd be like a video game.

So the whole thing is, you signal by risk taking.

And the idea of Christology is, to really put

"Skin in the Game" in a deity.

So he's not God, because he had to suffer.

If he didn't suffer, it would be like a tomato

for an actor in a movie.

It's not tomato sauce, that doesn't work that way.

So that's the idea of signaling via risk

taking, that you are in fact exhibiting virtue via risk.

And again, now comes virtue.

Every time I get into a hotel room, I get into--

I don't know if you've seen me angry on Twitter,

I'm like that in person when I'm angry.

What sets me off is going in, save our planet, the Earth

[INAUDIBLE].

What is-- is this virtuous?

I think it would make much more sense if they told us, listen,

it's good for us if you save--

if you saved on towels, it's good for us, bottom line.

So it's like, don't invoke the planet as a--

you see.

So this is cheap-- cheap virtue signaling

for the self-serving way is what we're getting into.

True virtue is risk taking, Socrates.

That's what we try to impart to the Christ.

He really suffers, he can't be God, had to be human to suffer.

Socrates, standing up for your ideas.

Journalism, when you have an oppressive regime

like in Argentina or in Latin America,

during these dark periods, that is risk taking.

And effectively, the only way I can

claim that a public intellectual is not a BS vendor is he

or she takes risk with every statement.

So people ask me, why am I insulting people directly

in my books?

Risk taking.

I want them to sue me.

That's simple.

It's not like I have nothing.

I've never met Thomas Friedman.

Actually, I did once--

I had already insulted him--

in Davos, and it was an eye contact that was--

but never met many of the people I--

Rob Rubin, had never met him.

But I want to take risks.

This is the idea.

I'm signaling.

Why do I curse on Twitter?

Not in my books, because I don't like the aesthetics of a curse.

Because risk taking.

You see?

So that's simple.

Now let's continue.

People ask me, what should I be doing?

I'm 20 and I'll go somewhere.

Start a business, take risks now.

Because everybody wants to work for [INAUDIBLE]

and improve the world.

And you end up like the UN, offices,

manufacturing problems.

So you hire more staff, or fly business class

and have an apartment in Geneva, that kind of stuff.

Start a business.

Because we're tired of people who want to work for NGOs.

Start a business, create jobs for others,

and do not rent seek.

Do not be in rent seeking.

Have some skin in the game.

Just like your grandparents probably--

one of your grandfathers was at age 18 disembarking enormity.

They took a lot of risks, these kids, 18-year-old.

Take some risk, start a business.

Now finally, when it comes to inequality,

there's something about inequality that's measured.

And I said, we have to use dynamics not statics.

People tolerate inequality if the person at the top

got there via risk taking not rent seeking,

and more significantly, if he or she has a chance to collapse.

Bad news for Google--

I mean, Google is definitely [INAUDIBLE] good news

for humanity and bad news for Google.

When I was an MBA student--

I'm very, very old as you can see, I had hair then--

the company spent about 50, 60 years in the S&P; 500. So it was stable at the top.

How stable is it today?

AUDIENCE: Less than 30?

NASSIM TALEB: Less than?

AUDIENCE: 30 years.

NASSIM TALEB: Keep going.

Less than 30?

Keep going.

AUDIENCE: 10 years?

NASSIM TALEB: Sorry?

AUDIENCE: 10 years?

NASSIM TALEB: 10 years.

AUDIENCE: Is this all?

NASSIM TALEB: 10 to 12 years.

I think maybe even dropping.

AUDIENCE: It is dropping, but I do

think [INAUDIBLE] a little bit.

NASSIM TALEB: You can measure, but there's a standard error

in measurement.

We have a big statistical expert here,

my co-author who will tell you--

but we know that it's definitely much lower.

And you can't take fluctuation.

But that basically tells you that the way from dorms

to Google can only be short.

These guys were in dorms, no?

To Google can only be short if the road from Google to dorms

is equally so.


Skin in the Game | Nassim Nicholas Taleb | Talks at Google (3)

And something quite obvious, as obvious as the cook

should eat his or her cooking.

It needs to apply everywhere.

And these rules did prevail until recently.

And we're going to see where they stopped prevailing.

But they prevailed for a long time,

until say, maybe a generation and a half ago,

two generations ago.

And it was quite sophisticated, how merchants should treat

other merchants, how you should have

stiffer ethical rules, more equity within a group, in group

then outgroup, but still have the same outgroup.

And actually, it's much more workable within communities,

outside communities.

Now one thing about "Skin in the Game," "Skin in the Game"

is interested in two aspects of social thought

that are not discussed.

The first one is dynamics, and things happen over time,

how systems--

what rules should be applied over time.

And we'll take a snapshot and we'll see how,

why, and the mistake.

And the second one is scaling, that things change in scale.

A small hamlet will not become--

you cannot turn the dynamics of a hamlet into a small village.

And a small village cannot turn into a very small town.

You have some kind of a scale transformation

that happen when groups become larger.

And that's mathematical and at many levels.

For example, I can predict how each and every one of you

behave, assuming I could do that.

But as a group, I can predict the behavior as a group,

because a group is a different animal.

Likewise, we know that if people have all these ethical traits

individually, when you put them together in groups of 250,

they will be very ethical in preserving the commons.

Like fishermen not overfishing, because

harming future generation.

But when the group becomes 200,000, it doesn't work.

So that's one aspect of scalability

that has a political implication and [INAUDIBLE]

It is very, very compatible to be a communist in your village,

and libertarian at the federal level,

and Democrats for the county, while being

a Republican for the state.

It's perfectly compatible.

You cannot have a political opinion without attaching

a scale to it.

So communism can work in Singapore--

because it's small-- much better than China.

Look at the success.

Or that form of socialism.

Or you can-- you cannot--

you should separate the political label from the scale.

And likewise in commerce, if you don't

have ingroups and outgroups of different layers,

things don't work.

Because you don't have individual and then

the rest of the world, you have layers.

You have the visual, the family or whatever,

the finances of her family, the tribe,

whatever he or she defines as tribe,

and then you go up the layers.

And that works a lot better.

Because the tribes deal with one another,

the dynamics of tribes dealing with one another

need to mirror the same symmetry.

And it looks like the ancients were conscious of it.

They understood scaling.

They understood that you can love your town when

it's a small town, but it's not the same love

when it's a large town.

The ancients knew that.

So this is the idea of scaling, particularly

with skin in the game changes.

Now, risk as virtue.

I don't know how many Roman emperors we've had,

close to 300.

How many died of natural death?

Assuming those really died of natural death.

I mean, we don't have modern autopsies.

How many?

1/2, 3/4, 100%?

AUDIENCE: [INAUDIBLE]

NASSIM TALEB: No more than a third, all right?

And we're not sure about that third.

And of course, had they lived longer,

had they not died of pneumonia or something,

they would have been killed by someone.

And then, this is a picture of Valerian, the Roman emperor who

was captured by the Persians and used as a footstool.

So these are the risks you get for being a Roman emperor.

It's risky to be a Roman emperor.

Julian, who's my hero in a book.

Julian the emperor was known as the apostate.

He died at the Persian border with a spear in the chest.

He didn't even have an armor.

Now this contrasts heavily with warmongers today,

war mongers who are sitting in an air conditioned

office in Washington.

Can we name names on Google thing?

They can sue me directly, OK?

In the book, I name names.

Like Thomas Friedman and all these neocons,

they can cause wars in Iraq, devastation's,

hundreds of thousands of people killed, maybe more,

financial trauma.

What price did they pay?

Zero.

So let's merge ethics and epistemology.

If they had to pay for their mistakes

like the driver who disappears, the system

don't learn because people learn.

Systems don't learn-- system learn via the survival

mechanism by eliminating those who don't have that trait.

Actually in biology, systems learn at a cellular level.

It's not like, your knowledge that changes.

So of course you're going to have a lot of warmongers today.

This is a danger for humanity.

Now that-- and they're going to use any excuse to become

warmongers and then even will get leftist ideas,

because our merchants know how to play the system and can--

or humanitarian war.

Humanitarian war, like in Libya, change of regime.

Oh yeah, but look, we have democracy.

You kill everyone and say, well look,

their cholesterol level improved.

So if you use those metrics.

So the point is, that this is very recent.

Hannibal, first in battle.

Napoleon had to be more exposed than other soldiers.

And the English feudal system, the lord, you're

a lord because you're a lord, because you

take risks for others.

You trade risk for social status.

Very few societies had people of rank make decisions

without being, themselves, exposed

to the harm from the decisions.

At all levels, economic, financial, everything,

physical.

Now comes the notion of risk as virtual.

We're not stupid.

We have some organic understanding of these things.

And the peacock, the [INAUDIBLE] peacock story

is that the peacock, why does the peacock has a big tail?

They're useless.

It's precisely because it's useless.

And the peacock can maintain such a tail,

it shows some kind of biological fitness,

to be able to carry such a tail.

Now the peacock, the [INAUDIBLE] peacock

is a nice framework, what we call a [INAUDIBLE] trait,

a superfluous trait, but that gives you definitely some kind

of fitness.

People who have scars, people who have scars command respect.

People who take risks command respect.

People don't realize it, but that's what's happening.

It's a very bad idea for political parties

to propose candidates who are lifetime bureaucrats.

You see?

And people detect it.

Like in Switzerland, they try to pass a law

to limit the income for chief executives.

But nobody thought of limiting the income of entrepreneurs.

Why?

An entrepreneur takes risks.

Chief executive is someone who works

for the system and making 75 times what an employee makes.

The law didn't pass, but that's the idea behind it.

And this explains Christology.

Think about it.

Why is it that we have the Trinity, which absolutely

makes no sense to anyone outside the Christian religion?

Why is it that we had to keep going back to the Trinity?

Fights, arguments, debates in Greek that nobody

can understand because translated into Latin

be the same word?

They kept going back that the Christ cannot be God.

Think about it.

If this person had a parachute, if an acrobat walked in

with a parachute, would you pay for that?

It'd be like a video game.

So the whole thing is, you signal by risk taking.

And the idea of Christology is, to really put

"Skin in the Game" in a deity.

So he's not God, because he had to suffer.

If he didn't suffer, it would be like a tomato

for an actor in a movie.

It's not tomato sauce, that doesn't work that way.

So that's the idea of signaling via risk

taking, that you are in fact exhibiting virtue via risk.

And again, now comes virtue.

Every time I get into a hotel room, I get into--

I don't know if you've seen me angry on Twitter,

I'm like that in person when I'm angry.

What sets me off is going in, save our planet, the Earth

[INAUDIBLE].

What is-- is this virtuous?

I think it would make much more sense if they told us, listen,

it's good for us if you save--

if you saved on towels, it's good for us, bottom line.

So it's like, don't invoke the planet as a--

you see.

So this is cheap-- cheap virtue signaling

for the self-serving way is what we're getting into.

True virtue is risk taking, Socrates.

That's what we try to impart to the Christ.

He really suffers, he can't be God, had to be human to suffer.

Socrates, standing up for your ideas.

Journalism, when you have an oppressive regime

like in Argentina or in Latin America,

during these dark periods, that is risk taking.

And effectively, the only way I can

claim that a public intellectual is not a BS vendor is he

or she takes risk with every statement.

So people ask me, why am I insulting people directly

in my books?

Risk taking.

I want them to sue me.

That's simple.

It's not like I have nothing.

I've never met Thomas Friedman.

Actually, I did once--

I had already insulted him--

in Davos, and it was an eye contact that was--

but never met many of the people I--

Rob Rubin, had never met him.

But I want to take risks.

This is the idea.

I'm signaling.

Why do I curse on Twitter?

Not in my books, because I don't like the aesthetics of a curse.

Because risk taking.

You see?

So that's simple.

Now let's continue.

People ask me, what should I be doing?

I'm 20 and I'll go somewhere.

Start a business, take risks now.

Because everybody wants to work for [INAUDIBLE]

and improve the world.

And you end up like the UN, offices,

manufacturing problems.

So you hire more staff, or fly business class

and have an apartment in Geneva, that kind of stuff.

Start a business.

Because we're tired of people who want to work for NGOs.

Start a business, create jobs for others,

and do not rent seek.

Do not be in rent seeking.

Have some skin in the game.

Just like your grandparents probably--

one of your grandfathers was at age 18 disembarking enormity.

They took a lot of risks, these kids, 18-year-old.

Take some risk, start a business.

Now finally, when it comes to inequality,

there's something about inequality that's measured.

And I said, we have to use dynamics not statics.

People tolerate inequality if the person at the top

got there via risk taking not rent seeking,

and more significantly, if he or she has a chance to collapse.

Bad news for Google--

I mean, Google is definitely [INAUDIBLE] good news

for humanity and bad news for Google.

When I was an MBA student--

I'm very, very old as you can see, I had hair then--

the company spent about 50, 60 years in the S&P; 500. So it was stable at the top.

How stable is it today?

AUDIENCE: Less than 30?

NASSIM TALEB: Less than?

AUDIENCE: 30 years.

NASSIM TALEB: Keep going.

Less than 30?

Keep going.

AUDIENCE: 10 years?

NASSIM TALEB: Sorry?

AUDIENCE: 10 years?

NASSIM TALEB: 10 years.

AUDIENCE: Is this all?

NASSIM TALEB: 10 to 12 years.

I think maybe even dropping.

AUDIENCE: It is dropping, but I do

think [INAUDIBLE] a little bit.

NASSIM TALEB: You can measure, but there's a standard error

in measurement.

We have a big statistical expert here,

my co-author who will tell you--

but we know that it's definitely much lower.

And you can't take fluctuation.

But that basically tells you that the way from dorms

to Google can only be short.

These guys were in dorms, no?

To Google can only be short if the road from Google to dorms

is equally so.