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As long time readers know I’m a big fan of Nassim Nicholas Taleb. Taleb is best known for his book The Black Swan, and the eponymous theory it puts forth regarding the singular importance of rare, high impact events. His second best known work/concept is Antifragile. And while these concepts come up a lot in both my thinking and my writing. It’s an idea buried in his last book, Skin in the Game, that my mind keeps coming back to. As I mentioned when I reviewed it, the mainstream press mostly dismissed it as being unequal to his previous books. As one example, the review in the Economist said that:
IN 2001 Nassim Taleb published “Fooled by Randomness”, an entertaining and provocative book on the misunderstood role of chance. He followed it with “The Black Swan”, which brought that term into widespread use to describe extreme, unexpected events. This was the first public incarnation of Mr Taleb—idiosyncratic and spiky, but with plenty of original things to say. As he became well-known, a second Mr Taleb emerged, a figure who indulged in bad-tempered spats with other thinkers. Unfortunately, judging by his latest book, this second Mr Taleb now predominates.
A list of the feuds and hobbyhorses he pursues in “Skin in the Game” would fill the rest of this review. (His targets include Steven Pinker, subject of the lead review.) The reader’s experience is rather like being trapped in a cab with a cantankerous and over-opinionated driver. At one point, Mr Taleb posits that people who use foul language on Twitter are signalling that they are “free” and “competent”. Another interpretation is that they resort to bullying to conceal the poverty of their arguments.
This mainstream dismissal is unfortunate because I believe this book contains an idea of equal importance to black swans and antifragility, but which hasn’t received nearly as much attention. An idea the modern world needs to absorb if we’re going to prevent bad things from happening.
To understand why I say this, let’s take a step back. As I’ve repeatedly pointed out, technology has increased the number of bad things that can happen. To take the recent pandemic as an example, international travel allowed it to spread much faster than it otherwise would have, and made quarantine, that old standby method for stopping the spread of diseases, very difficult to implement. Also these days it’s entirely possible for technology to have created such a pandemic. Very few people are arguing that this is what happened, but the argument over whether technology added to the problem in the form of “gain of function” research, and a subsequent lab leak is still being hotly debated.
Given not only the increased risk of bad things brought on by modernity, but the risk of all possible bad things, people have sought to develop methods for managing this risk. For avoiding or minimizing the impact of these bad things. Unfortunately these methods have ended up largely being superficial attempts to measure the probability that something will happen. The best example of this is Superforecasting, where you make measurable predictions, assign confidence levels to those predictions and then you track how well you did. I’ve beaten up on Superforecasting a lot over the years, and it’s not my intent to beat up on it even more, or at least it’s not my primary intent. I bring it up now because it’s a great example of the superficiality of modern risk management. It’s focused on one small slice of preventing bad things from happening: improving our predictions on a very small slice of bad things. I think we need a much deeper understanding of how bad things happen.
Superforecasting is an example of a more shallow understanding of bad things. The process has several goals, but I think the two biggest are:
First, to increase the accuracy of the probabilities being assigned to the occurrence of various events and outcomes. There is a tendency among some to directly equate “risk” with this probability. Which leads to statements like, “The risk of nuclear war is 1% per year.” I would certainly argue that any study of risk goes well beyond probabilities, that what we’re really looking for is any and all methods for preventing bad things from happening. And while understanding the odds of those events is a good start, it’s only a start. And if not done carefully it can actually impair our preparedness.
The second big goal of superforecasting is to identify those people who are particularly talented at assigning such probabilities in order that you might take advantage of those talents going forward. This hopefully leads to a future with a better understanding of risk, and consequent reduction in the number of bad things that happen.
The key principle in all of this is our understanding of risk. When people end up equating risk with simply improving our assessment of the probability that an event will occur, they end up missing huge parts of that understanding. As I’ve pointed out in the past, their big oversight is the role of impact—some bad things are worse than others. But they are also missing a huge variety of other factors which contribute to our ability to avoid bad things, and this is where we get to the ideas from Skin in the Game.
To begin with, Taleb introduces two concepts: “ensemble probability” and “time probability”. To illustrate the difference between the two he uses the example of gambling in a casino. To understand ensemble probability you should imagine 100 people all gambling on the same day. Taleb asks, “How many of them go bust?” Assuming that they each have the same amount of initial money and make the same bets and taking into account standard casino probabilities, about 1% of people will end up completely out of money. So in a starting group of 100, one gambler will go completely bust. Let’s say this is gambler 28. Does the fact that gambler 28 went bust have any effect on the amount of money gambler 29 has left? No. The outcomes are completely independent. This is ensemble probability.
To understand time probability, imagine that instead of having 100 people gambling all on the same day, let’s have one person gamble 100 days in a row. If we use the same assumptions, then once again approximately 1% of the time the gambler will go bust, and be completely out of money. But on this occasion since it’s the same person once they go bust they’re done. If they go bust on day 28, then there is no day 29. This is time probability. And Taleb’s argument is that when experts (like superforecasters) talk about probability they generally treat things as ensembles, whereas reality mostly deals in time probability. They might also be labeled independent or dependent probabilities.
As Taleb is most interested in investing, the example he gives relates to individual investors, who are often given advice as if they have a completely diversified and independent portfolio where a dip in their emerging market holdings does not affect their silicon valley stocks. When in reality most individual investors exist in a situation where everything in their life is strongly linked and mostly not diversified. As an example, most of their net worth is probably in their home, a place with definite dependencies. So if 2007 comes along and their home tanks, not only might they be in danger of being on the street, it also might affect their job (say if they were in construction). Even if they do have stocks they may have to sell them off to pay the mortgage because having a place to live is far more important than maintaining their portfolio diversification. Or as Taleb describes it:
…no individual can get the same returns as the market unless he has infinite pockets…This is conflating ensemble probability and time probability. If the investor has to eventually reduce his exposure because of losses, or because of retirement, or because he got divorced to marry his neighbor’s wife, or because he suddenly developed a heroin addiction after his hospitalization for appendicitis, or because he changed his mind about life, his returns will be divorced from those of the market, period.
Most of the things Taleb lists there are black swans. For example one hopes that developing a heroin addiction would be a black swan for most people. In true ensemble probability black swans can largely be ignored. If you’re gambler 29, you don’t care if gambler 28 ends up addicted to gambling and permanently ruined. But in strict time probability any negative black swan which leads to ruin strictly dominates the entire sequence. If you’re knocked out of the game on day 28 then there is no day 29, or day 59 for that matter. It doesn’t matter how many other bad things you avoid, one bad thing, if bad enough destroys all your other efforts. Or as Taleb says, “in order to succeed, you must first survive.”
Of course most situations are on a continuum between time probability and ensemble probability. Even absent some kind of broader crisis, there’s probably a slightly higher chance of you going bust if your neighbor goes bust—perhaps you’ve lent them money, or in their desperation they sue you over some petty slight. If you’re in a situation where one company employs a significant percentage of the community, that chance goes up even more. The chance gets higher if your nation is in crisis and it gets even higher if there’s a global crisis. This finally takes us to Taleb’s truly big idea, or at least the idea I mentioned in the opening paragraph. The one my mind kept returning to since reading the book in 2018. He introduces the idea with an example:
Let us return to the notion of “tribe.” One of the defects modern education and thinking introduces is the illusion that each one of us is a single unit. In fact, I’ve sampled ninety people in seminars and asked them: “what’s the worst thing that can happen to you?” Eighty-eight people answered “my death.”
This can only be the worst-case situation for a psychopath. For after that, I asked those who deemed that their worst-case outcome was their own death: “Is your death plus that of your children, nephews, cousins, cat, dogs, parakeet, and hamster (if you have any of the above) worse than just your death?” Invariably, yes. “Is your death plus your children, nephews, cousins (…) plus all of humanity worse than just your death?” Yes, of course. Then how can your death be the worst possible outcome?
You can probably see where I’m going here, but before we get to that. In defense of the Economist review, the quote I just included has the following footnote:
Actually, I usually joke that my death plus someone I don’t like surviving, such as the journalistic professor Steven Pinker, is worse than just my death.
I have never argued that Taleb wasn’t cantankerous. And I think being cantankerous given the current state of the world is probably appropriate.
In any event, he follows up this discussion of asking people to name the worst thing that could happen to them with an illustration. The illustration is an inverted pyramid sliced into horizontal layers of increasing width as you rise from the tip of the pyramid to its “base”. The layers, from top to bottom are:
- Ecosystem
- Humanity
- Self-defined extended tribe
- Tribe
- Family, friends, and pets
- You
The higher up you are, the worse the risk. While no one likes to contemplate their own ruin, the ruin of all of their loved ones is even worse. And we should do everything in our power to ensure the survival of humanity and the ecosystem. Even if it means extreme risk to ourselves and our families (a point I’ll be returning to in a moment.) If we want to prevent really bad things from happening we need to focus less on risks to individuals and more on risks to everyone and everything.
By combining this inverted pyramid, with the concepts of time probability and ensemble probability we can start drawing some useful conclusions. To begin with not only are time probabilities more catastrophic at higher levels. They are more likely to be present at higher levels. A nation has a lot of interdependencies whereas an individual might have very few. To put it another way, if an individual dies, the consequences, while often tragic, are nevertheless well understood and straightforward to manage. There are entire industries devoted to smoothing out the way. While if a nation dies, it’s always calamitous with all manner of consequences which are poorly understood. And if all of humanity dies no mitigation is possible.
With that in mind, the next conclusion is that we should be trying to push risks down as low as possible—from the ecosystem to humanity, from humanity to nations, from nations to tribes, from tribes to families and from families to individuals. We are also forced to conclude that, where possible, we should make risks less interdependent. We should aim for ensemble probabilities rather than time probabilities.
All of this calls to mind the principle of subsidiarity or federalism and certainly there is a lot of overlap. But whereas subsidiarity is mostly about increasing efficiency, here I’m specifically focused on reducing harm. Of making negative black swans less catastrophic—of understanding and mitigating bad things.
Of course when you hear this idea that we should push risks from tribes to families or from nations to families you immediately recoil. And indeed the modern world has spent a lot of energy moving risk in exactly the opposite direction. Pushing risks up the scale, moving risk off of individuals and accumulating it in communities, states and nations. And sometimes placing the risk with all of humanity. It used to be that individuals threatened each other with guns, and that was a horrible situation with widespread violence, but now nations threaten each other with nukes. The only way that’s better is if the nukes never get used. So far we’ve been lucky, let’s really hope that luck continues.
Some, presumably including superforecasters, will argue that by moving risk up the scale it’s easy to quantify and manage, and thereby reduce. I have seen no evidence that these people understand risk at different scales, nor any evidence that they make any distinction between time probabilities and ensemble probabilities, but for the moment let’s grant that they’re correct that by moving risk up the scale we lessen it. That the risk that any individual will get shot, in say the Wild West, is 5% per year. But the risk that any nation will get nuked is only 1% per year. Yes, the risk has been reduced. One is less than five. But should that 1% chance come to pass (and given enough years it certainly will, i.e. it’s a time probability) then far more than 5% of people will die. We’ve prevented one variety of bad things by creating the possibility (albeit a smaller one) that a far worse event will happen.
The pandemic has provided an interesting test of these ideas, and I’ll be honest it also illustrates how hard it can be to apply these ideas to real situations. But there wouldn’t be much point to this discussion if we didn’t try.
First let’s consider the vaccine. I’ve long thought that vaccination is a straightforward example of antifragility. Of a system making gains from stress. Additionally it also seems pretty straightforward that this is an example of moving risk down the scale. Of moving risk from the community to the individual, and I know the modern world has taught us we should never have to do that, but as I’ve pointed out it’s a good thing. So vaccination is an example of moving risk down the inverted pyramid.
On the other hand the pandemic has given us examples of risk being moved up the scale. The starkest example is government spending, where we have spent enormous amounts of money to cushion individuals from the risk of unemployment and homelessness. Thereby moving the risk up to the level of the nation. We have certainly prevented a huge number of small bad things from happening, but have we increased the risk of a singular catastrophic event? I guess we’ll find out. Regardless it does seem to have moved things from an ensemble probability to a time probability. Perhaps this government intervention won’t blow up, but we can’t afford to have any of them blow up, because if intervention 28 blows up there is no intervention 29.
Of course the murky examples far outweigh the clear ones. Are mask mandates pushing things down to the level of the individual? Or is it better to not have a mandate? Thereby giving individuals the option of taking more risk because that’s the layer we want risk to operate at? And of course the current argument about vaccination is happening at the level of the state and community. Biden is pushing for a vaccination mandate on all companies that employ more than 100 people and the Texas governor just issued an executive order banning such a mandate. I agree it can be difficult to draw the line. But there is one final idea from Skin in the Game that might help.
Out of all of the foregoing Taleb comes up with a very specific definition of courage.
Courage is when you sacrifice your own well being for the sake of the survival of a layer higher than yours.
I do think the pandemic is a particularly complicated situation. But even here courage would have definitely helped. It would have allowed us to conduct human challenge trials, which would have shortened the vaccination approval process. It would have made the decision to reopen schools easier. And yes while it’s hard to imagine we wouldn’t have moved some risk up the scale, it would have kept us from moving all of it up the scale.
I understand this is a fraught topic, for most people the ideal is to have no bad things happen, ever. But that’s not possible. Bad things are going to happen, and the best way to keep them from being catastrophic things is more courage. Something I fear the modern world is only getting worse at.
I talk a lot about bad things. And you may be thinking why doesn’t he ever talk about good things? Well here’s something good, donating. I mean I guess it’s mostly just good for me, but what are you going to do?
“Courage is when you sacrifice your own well being for the sake of the survival of a layer higher than yours.”
This is interesting, but I take a different approach. My problem with it is that is somehow tries to abstract the idea of courage as if being human was somehow some kind of abstract thing and our emotions can be applied equally to different levels of abstraction. But we are not a blank slate. Our emotions and instincts (including courage) evolved as a trade-off in a very particular environment and in that environment I am very skeptical that our ancestors had any concept of humanity beyond the tribe.
Also, I think there are very different emotions that motivate us to put the interests of our family over that of our ourselves, or our tribe over that of our family. Maybe in some sense it is useful to define some abstract concept that applies generally from one level to the next, but I think it misrepresents what we are as human beings.
I think if you look at the totality of my writing you’ll see that we’re largely in agreement. That I’ve long argued our evolved response along with traditions, religion and culture have embedded and adapted behavior which is effective, but also difficult to quantify as an easy to use rule.
I think I’ve also been pretty clear on the problems that happen on numerous fronts as you try to scale up humanity from what we have adapted to (family and tribe) to a much more global environment. I would disagree with you that it breaks down once you get past tribes. I think there has been some adaptation at the level of the nation. Whether it’s had the chance to settle into a beneficial groove is debatable, but you can’t explain the enormous sacrifices Japan was willing to make in WWII without assuming that the concept of the nation and emperor had a profound and visceral hold on those people.
In the end this post was not an attempt to faithfully represent human beings. It was an attempt to quantify all the abstract things I mentioned above for the benefit of those people who are only open to quantified statements. As a brief example off the top of my head. If I’m trying to convince the Australian authorities that their crackdown is counter productive, I speculate that this post will be more effective than taking about the complicated circumstances under which our emotions and impulses evolved. Perhaps I’m wrong about this, but taking modern concepts in science, rationality and decision making and showing how they’re just reinventing the wheel of tradition and religion is kind of my whole schtick…
I think perhaps the weakness of the inverted pyramid of risk is that the application of it tends to produce incorrect trade offs.
For example, people having weapons and a freer hand to employ violence (i.e. old west) versus today where nations have nuclear weapons. That implies ‘pushing risk down’ could cut the nuclear risk to the broader population. Does it? Consider Pakistan, a state whose central government is relatively weak and tribal groups have much more sway. Local violence is also more easy to happen. Yet the nation has nukes, one of their top nuclear scientists was caught trying to help either Al Qaeda or the Taliban. If you asked people for plausible ways for a nuclear war to break out, Pakistan vs India is probably more likely than the US.v.China and def. more likely than US.v.Russia.
Likewise giving people aid so a shutdown doesn’t bankrupt the entire nation is IMO pushing risk down. You confuse the nation with the individual. The shutdown wasn’t the individual issue but one impacting almost all individuals. In this case the Federal budget lies not at the top of the inverted pyramid but in the middle.
I do agree with Taleb’s assertion about profanity on Twitter. His point was a bit more nuanced, though. It was that charlatans cling to conventions of politeness, rules of discourse etc. in order to deflect attention from their bad logic, faulty facts, and other problems. The man who has his shit together can give it straight with confidence and not worry about the impolitness of telling people to f-off.
This doesn’t mean, however, these rules are useless. If telling people to F-themselves is a mark of knowing what you are talking about, then everyone will soon drop F-bombs everywhere. This is one of those areas where impoliteness works the way salt works in food….a little goes a long way but a lot ruins the whole thing.
I confess that the Pakistan counterexample is a good one. Also I debated including the line about the guns vs. nukes, but the contrast was too appealing not to, though obviously the situation is pretty complicated.
That said, Pinker basically credits the leviathan for a substantial portion of the reduction in violence, and it takes a pretty big leviathan to make nukes in the first place. So I do think there is some connection, it’s just a very complicated one.
Most of the time, however, courage and the individualistic perspective are in alignment. For a young person who considers his own death to be the worse thing possible, does he want his parents around? Yes, because mom and dad can help him out when he gets in trouble. Does the older person care for his mom and dad? Well again the older person considers that he isn’t getting younger and if the system is toss the old people out the window, his or her kids will likely apply that to himself. When you get close to 50 you realize you likely have fewer decades left than you’ve already gone through.
You can do the same exercise with extended family, friends, tribe, nation etc.
Some extreme cases can throw these two things out of alignment. For example would you throw yourself in front of an oncoming bus to save your son? Or would you say something like “I can get a new son made in about 9 months”? But these cases are extreme and happen rarely and when they happen your decision will be made in a split moment.
I’m not really sure I understand the argument for or even against “superforecasters”. On a really simple level, the idea seems to be to take a bunch of pundit like people and have them make predictions. Rank them on how often their predictions are correct, from there find the ‘superforecasters’.
Of course you can add more sopsiticated mathematics, adjust for predictions given with a probability (i.e. when someone says there’s a 40% chance of something, do those types of predictions happen 40% of the time…if they happen 80% he isn’t a good forecaster!).
Well we already had two such people. Warren Buffett and Alan Greenspan. Warren has defied the efficient markets theory for decades producing superior returns. Greenspan had a long run during the ‘great moderation’ era where he seemed so good even his vague statements about ‘stability’ could move markets and ‘Fed watchers’ charged Wall Street firms hundreds of thousands a year to essentially deconstruct his most bland corporate speak.
The problems I think that come before you even consider Black Swans are:
1. Men are mortal. Even if you have a long Dune-like selection process to find these superforecasters, you get maybe 20-30 years of prime forecasting out of them. How do you replace them when they get old esp. if no one really understands how these superforecasters are doing it?
1.2 Running a prediction game gets kind of tricky because the reason we are supposedly cultivating these superforecasters is because we want to use their predictions. In other words, while Greenspan was in his prime, the market was looking for ‘superforecasters’ who could predict Greenspan. Who was cultivating the next Greenspan? I assume superforcasters are somewhat limited in their domain. Just because someone can superforecast Greenspan doesn’t mean he could be tapped to become Greenspan if Greenspan suddenly died.
2. The Foundation – Psychohistory limitation. If you are cultivating a superforecaster of earthquakes or volcano eruptions, that’s probably fine but it would make more sense to try to figure out the mathematical dynamics at play then you can just use computers and grad students to do the work. Anything based on human society is going to have the issue of how does the prediction alter society in reaction.
For example, I was on a Clubhouse discussion on religion and a person was pointing out the Bible had prophecies of Israel rising again. I also happened to have a call from a Jehovah’s Witness making the same argument. So here’s a thought experiment:
I will send you back to 1700. Your mission is to write a book claiming supernatural authority of some type. You have 320 years worth of historical knowledge and discoveries you can insert into this book anyway you please to pull off this ruse. What do you do? Your measure of succes will be how long your book is considered sacred.
A key problem here is your book will work provided:
1. It keeps producing true statements that are amazing.
2. It doesn’t start producing false statements.
Right off the bat, making a lot of historical claims about revolutions, leaders, wars would probably not be a good idea. The moment people start taking the book seriously, they will react to these events before they happen. If the King of France acts to head off the French Revolution, Napoleon won’t rise. When Napoleon doesn’t rise, your book will deviate from history and start spitting out what seems to be nonesense. It may then get discarded and chalked off as a few lucky calls that got attention before running off the rails.
On the other hand, if you use scientific discoveries you could sprinkle them around. Start with easier things that the people of 1700 could verify like the pressure of the atmosphere, then the atomic weights of some simple elements, maybe near the end crypitcally mention relativity, the speed of light, quantum dynamics. This, however, may backfire sooner than you think. I could imagine the discoveries you hint at in the book, rather than happening over 320 years will happen much faster. Maybe by 1800 people will start to think the discoveries were kind of obvious all along and note your book has run out of insights.
Of course this isn’t a superforecasting exercise but maybe it is? I mean wouldn’t a time traveller be the ultimate superforecaster and the essence of superforecasting seems to be a ‘black box’…some person or group of people who just have some ability to forecast very well.
Looking back at Taleb’s question: “What’s the worst thing that can happen to you?” This can be read in two ways. It could mean “What do you think is the worst thing that can happen?” or it could mean “Which thing that can happen to you would be worst?” If people are reading it the second way, then that would explain why their answers are initially self-centered. The destruction of your entire tribe would be worse than your death, but that is not something that happens to you specifically.
I wonder if Taleb knew that this would be the result of this phrasing (instead of simply “What’s the worst thing that can happen?”) and did it to be cantankerous.
Having spent five days with Taleb I think you may be on to something.