Profile picture
Alex Hardy 🦊🦔 @CantHardyWait
, 46 tweets, 11 min read Read on Twitter
🚨 Knowledge 💣 alert 🚨

This fireside chat with @nntaleb & @naval is Incerto's greatest hits: the best wisdom from Fooled By Randomness, The Black Swan, Antifragile, and Skin in the Game. I'll share some favorite parts below.

In theory, there's no difference between theory and practice.

In practice, there is.

Academics lecturing traders on how to run their business is like nuns lecturing prostitutes on how to run theirs.

It's two different worlds.
The Expert Problem:

There are 2 kinds of professions. Those where the experts have no clue what they're talking about, & those where they do.

The "Expert Problem" doesn't exist in industries like weather forecasting. If you repeatedly fail predict the weather, you don't last.
Being judged by survival is a different game than being judged by your peers.

Industries where you're only judged by peers (academia, journalism, restaurants) will rot.

In business, you don't want to impress your peers. The only person you want to impress is your accountant.
In trading, you're only judged by a P&L. If you lose money, no matter how nice you are, you're out of a job. if you make money, not matter how nasty you are, you have a job.

👩‍🔧 Plumbing and 🦷 Dentistry are similar:
Plumber A's compensation isn't determined by the government calling up other plumbers and asking how big Plumber A's bonus should be.

And if you show up to the dentists's office with your teeth intact, but leave with half of them missing, it's easy to judge competence.
Here's why journalism is going to die.

Because journalists simply try to impress other journalists. They don't work for the reader.

So they become a monoculture that's very vulnerable.

They have no accountability to reality, only each other. And their business is doomed.
Economists never forecast anything correctly. Their predictions are worse than a random guess.

@paulkrugman should be replaced w/ Miss Bri, a psychic from the Lower East Side.

If Krugman had a P&L, he'd already be bust.

When you have a P&L, you can't BS your way through life
Many academics, economists, & bureaucrat compare themselves to pilots, but they're wrong.

Pilots have skin in the game. The bad pilots are all under water. Dead.

There’s a selection mechanism that doesn’t depend on the judgement of other pilots.
@naval: I made the mistake of getting an Economics degree. It's been completely worthless. Economics is another branch of politicas.
Skin in the Game (symmetry) via Hammurabi's code:

If the architect builds a house, and it collapses, the architect shall be put to death.

You cannot hide risk then walk way.
The Bob Rubin Trade: when no skin in the game hurts society.

Bob Rubin collected $120mm in salary while chairman of Citigroup.

There, he stuffed the bank for of industrial grade hidden risk. There was no edge to the trades, they just blew up infrequently.
Flash forward to 2008. Citibank is insolvent. Who bails it out? Not Bob Rubin. But the taxpayers. Our dentists and bus drivers.

Bob Rubin did not show up with his checkbook, to make things right. He simply resigned.
1982 banks lose more money in a SINGLE YEAR than they'd made in the entire history of banking.

And yet, bankers are still rich. They know how to hide and socialize their losses.
Skin in the Game: Thou shalt not have the upside without bearing the downside risk.
The Golden Rule (do unto others...) sucks.

I could force you to eat Lebanese food just because I liked it.

The Silver Rule is more robust. Don't do unto others what you don't want them to do unto you.
@naval applies the Silver Rule to social media censorship.

The intellectually honest way to do internet censorship, is to build the censorship mechanism, then hand it to your enemy.

If you're not willing to do that, then you're just saying that you want to be in charge.
Never in history (other than modern times) did we have leaders who took less physical risk than the common person.

Being a "Lord" meant you assumed an obligation to protect your people in exchange for high status.

Skin in the Game.
Today, we have civilian warmongers, leading from the rear.

But if you want to cause people to die, you should be exposed to it. It's the natural balance of society.
A lot of virtues are fake because anyone can signal them costlessly.

But risk taking is real. You cannot fake risk-taking. The essence of Skin in the Game.
If you went to the circus and the trapeze artist had a parachute, that's not risk.

There's no virtue without risk.

Any virtue that doesn't entail some kind of sacrifice or cost isn't a virtue at all.
Virtue signaling in action:

When a hotel asks you to "save the planet" by reducing water consumption...
Are you saving the planet? Or saving their bottom line?
The virtue of risk-taking:

A failed entrepreneur is more honorable than someone who's never been an entrepreneur.

"Come back with your shield, or on it."
The way we talk about "inequality" is wrong.

We're measuring it statically, not dynamically.

If you compare the Forbes list from 1982 to today, there's less than 10% overlap in names.

60% of Americans spend 1 year in the top 10%.

12% spend 1 year in the top 1%

More importantly, people will accept inequality if the rich person is willing to take risks.

People are upset by a rent seeking, bloodsucking CEO making 50x what a worker makes.

But they're never upset by Steve Jobs, who had skin in the game.
Many look at inequality by how easy it is to rise. But the best metric is how easy it is to fail.

The average lifespan in the S&P 500 is 11 years. That's down from 60 years.

And their Price / Earnings ratios are higher.

We live in Extremistan.
Surgeons who look like Butchers:

You're in the hospital for brain surgery. Do you choose a Dr. who looks like a Hollywood Actor, or who looks like a butcher?

From a random population sample? Pick Hollywood. In the hospital? Pick the butcher. He's overcome bias his whole career.
Good Asymmetry vs. Bad Asymmetry.

Good asymmetry is a call option.

If you'll make more in the upside than you lose in a downside, you'll do very well, provided you survive.
Bad asymmetry is the Bob Rubin Trade. When you keep the upside but transfer the downside risk to someone else, like the anonymous taxpayer.
Bottoms up tinkering (aka trial & error) is Good Asymmetry. It will always outperform top-down design. When you use trial & error, you have an IQ of 1,000. You can double down where you see success and cut bait where you fail.
infrequent, higher risk is Bad Asymmetry

Falling 100 meters off a ledge is more than 100x as harmful as falling 1 meter off a ledge 100 times.
The Lindy Effect.

The discovery that if a broadway play survives for 200 days, it will survive for 200 more.

Government issued currencies have never been Lindy. History tells us that.
Whenever the government could debase the currency, they would.

This is why there were money changers in the temple during the days of Christ.

Religions were no fools. They wanted the hardest, soundest money possible
The Intolerant Minority Rule:

Less than 0.3% of juice drinkers are kosher. But 100% of juice is kosher.


A non-kosher person will drink a kosher drink, but a kosher person will never drink a non-kosher drink.

The intolerant minority rules the world.
@naval: There's a belief in politics that the voter in the center decides elections.

If Bernie voters stay home when their candidate isn't elected, then the world is structured around the preferences of intransigent minorities.
Tocqueville wanted to protect the minority from the majority.

In modernity, we may have to do the opposite.
On Black Swans:

No matter how many white swans you see, you can never disprove the existence of black swans.

But there's asymmetry. if you see just one black swan, you prove its existence.

No evidence of cancer is not evidence of "No Cancer"
Science is not about proving, it's about disproving.

Science is a process, not a result.

Science is minority rule. Even if 300 Nobel Prize winners agree on something, one experiment can prove them wrong.
On ergodicity & path dependence:

Sequence matters. If you wash your pants, then dry them, then wear them you get different results than if dry your pants, then wash them, then wear them.

Don't get soaked.
Things viewed statically have completely different properties than things viewed dynamically.

You only understand this if you are math wiz (no one is) or if you have skin in the game.
If you walk into a casino, and you have a small probability of blowing up. No matter WHAT your edge is, you will blow up.

Because you can’t say “I’m going to blow up and then get rich.” you get rich, then blow up. Sequence matters.
The concept of path-dependence hasn't made it into decision psychology yet. If you go bust on day 28, there is no Day 29.
The difference between A) offering 6 people $1bn each to play 1 shot of Russian Roulette vs B) offering 1 person $6bn to play 6 times.

No matter how much you value your life, A is Rational. B is not.

Trading wisdom: Take all the risk you can, but make sure you’re in tomorrow.
The core messages of Antifragile and Skin in the Game:

1) Things change with scale. Singapore is not a small China. A big blowup is worse than many small blowups.

2) In the dynamic, changing (real) world, your "rational" strategies are completely different than in static one.
The core idea of Incerto:

We live in a world of uncertainty. And the more uncertainty there is in the the system, the more paranoid we have to be.
These ideas have hugely influenced my thinking. I highly recommend watching this video. Thank you @nntaleb @naval for putting this out into the world.

Missing some Tweet in this thread?
You can try to force a refresh.

Like this thread? Get email updates or save it to PDF!

Subscribe to Alex Hardy 🦊🦔
Profile picture

Get real-time email alerts when new unrolls are available from this author!

This content may be removed anytime!

Twitter may remove this content at anytime, convert it as a PDF, save and print for later use!

Try unrolling a thread yourself!

how to unroll video

1) Follow Thread Reader App on Twitter so you can easily mention us!

2) Go to a Twitter thread (series of Tweets by the same owner) and mention us with a keyword "unroll" @threadreaderapp unroll

You can practice here first or read more on our help page!

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just three indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member and get exclusive features!

Premium member ($30.00/year)

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!