Adonis Diaries

Posts Tagged ‘antifragile

REMOVE SKIN In the GAME:  Like “What would you do?”

John Peter shared this link

 

REMOVE SKIN IN THE GAME.
Recall from Antifragile and earlier discussions here that a doctor’s answer would be different if you put (emotionally speaking) his skin in the game by asking him “what would you do?” instead of “what should I do?”

The opposite works equally well.

A trick I did use as a trader: under pressure, to remove the emotional burden and the loss of mental clarity, you imagine that you are someone else in the situation.

That someone else should be some precise person, in flesh and blood, say X.

What should X do now? buy more? liquidate, etc.

It applies to any decision, say “should X buy this house?”

You can use the strategy in a lot of dilemmas. Replace yourself with X, and ask: “should X resign because of ethics?”

FRAUD DETECTOR:  SKIN IN THE GAME

John Peter shared this link of Nassim Nicholas Taleb
July 22 , 2015

SKIN IN THE GAME and OUR FRAUD DETECTOR
+ Have you ever wondered why people are upset by CEO compensation, sometimes >200x that of the average employee, but not if an entrepreneur makes the same amount of money; nor are they upset with singers, authors, or performers?
+ The economist Thomas Sowell found this an aberration.

His argument is that a CEO is not harming you; he is not sponsored by the taxpayer (or let us grant him that for this argument). But Sowell and the others apologists of CEO pay are missing the fact that our naturalistic fraud detector may be picking up something quite severe.

A CEO has inverse skin in the game; his losses are transferred to the shareholder (as he keeps the upside with stock options and stick others with the downside).

As I said in Antifragile, he is no entrepreneur (or artist where thousands are sacrificing their lives, so entering the profession cannot be done rationally on economic grounds).


+ We also detect that a CEO is largely an actor. Just look at one on TV for a split second.
+ So our ecological instinct is effective there in smelling something unfair; it is more powerful than that of regular economists who need a more sophisticated understanding of contract theory/asymmetry to get the point.


+ Note that in some countries where wealth has a bad name, it is often because it is associated with rent seeking. In the US, perception is different because wealth is traditionally associated with risk taking. (From your own pocket?)
+ Correct me if I am wrong, but it seems that societies give respect to people who have skin in the game (but not exclusively), and have a moral repulsion towards those who have inverse skin in the game.

Antifragile: what can Gain from Disorder (Incerto)?  And Nassim Nicholas Taleb

Nassim Nicholas Taleb, the bestselling author of The Black Swan and one of the foremost thinkers of our time, reveals how to thrive in an uncertain world.

I have reviewed and developed on the Black Swan theory in several articles https://adonis49.wordpress.com/2011/06/01/part-1-black-swan-model-can-rare-catastrophic-events-of-man-made-systems-be-controlled/

Black Swan is a term coined after discovering a black swan a couple of years ago.  People firmly believed that all swans were white:  A few might have observed a black swan but refused to identify it as a swan; or black swans are common sight in particular regions and people had no idea that black swans are considered rarity all over the world and might be purchased for their weight in gold to be raised in zoos!

You know the adage: “If an event can occur, it will happen“, meaning, it does not matter how low the predicted probability of occurrence of the rare events, it will strike “unexpectedly”.

If there is a chance in a million for an asteroid to smash onto earth, an asteroid will fall on our head: Asteroid did fall and transform earth several times in the last four billion years.

Just as human bones get stronger when subjected to stress and tension, and rumors or riots intensify when someone tries to repress them, many phenomena in life benefit from stress, disorder, volatility, and turmoil.

What Taleb has identified and calls “antifragile” is that category of things that not only gain from chaos but need it in order to survive and flourish.

The Black Swan theory states: “In complex systems, especially man-made complex systems, it is not feasible to comprehend all the interactions among the hundred of variables affecting outcomes. In man-made systems, we have to allow natural fluctuations that are at work.

The rare predicted calamitous events  will strike unexpectedly, and we will fail to react accordingly and adequately if we consciously avoid to consistently take them into consideration in our analysis and reports.”

The unexpected events cannot be analyzed as odds in card games or casino games:  Human behavior with thousands of variability in moods, emotions, conventions, conviction, personal experiences… cannot be predicted as games are.

In The Black Swan, Taleb showed us that highly improbable and unpredictable events underlie almost everything about our world.

In Antifragile, Taleb stands uncertainty on its head, making it desirable, even necessary, and proposes that things be built in an antifragile manner.

The antifragile is beyond the resilient or robust. The resilient resists shocks and stays the same; the antifragile gets better and better.

The antifragile is immune to prediction errors and protected from adverse events.

Why is the city-state better than the nation-state,?

Why is debt bad for you, and why is what we call “efficient” not efficient at all?

Why do government responses and social policies protect the strong and hurt the weak?

Why should you write your resignation letter before even starting on the job?

How did the sinking of the Titanic save lives?

The book spans innovation by trial and error, life decisions, politics, urban planning, war, personal finance, economic systems, and medicine.

And throughout, in addition to the street wisdom of Fat Tony of Brooklyn, the voices and recipes of ancient wisdom, from Roman, Greek, Semitic, and medieval sources, are loud and clear.

Antifragile is a blueprint for living in a Black Swan world.

Nassim Nicholas Taleb said:

The most rewarding moment in an author’s career. Finally, I am no longer the author of several books. I am now the author of a single book in 4 volumes: INCERTO, plus technical companions.

Why does it matter? I don’t know, but it is a big, very big deal to see your work as a single large coherent and self contained unit, to which you keep adding pieces to, ultimately, leave very few stones unturned

   

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