Skin in the Game

by Nassim Nicholas Taleb

  As I am writing these lines, we are witnessing a nascent confrontation between several parties, which includes the current “heads” of state of members of the North Atlantic Treaty Organization (modern states don’t quite have heads, just people who talk big) and the Russian Vladimir Putin. Clearly, except for Putin, all the others need to be elected, can come under fire by their party, and have to calibrate every single statement with how it could be misinterpreted the least by the press. On the other hand, Putin has the equivalent of f***you money, projecting a visible “I don’t care,” which in turn brings him more followers and more support. In such a confrontation Putin looks and acts as a free citizen confronting slaves who need committees, approval, and who of course feel like they have to fit their decisions to an immediate rating.

  Putin’s attitude mesmerizes his followers, particularly the Christians in the Levant—especially those Orthodox Christians who remember when Catherine the Great’s fleet came to allow the tolling of the bells of the Saint George Cathedral in Beirut. Catherine the Great was “the last czar with balls,” and she is the one who took the Crimea from the Ottomans. Before that, the Sunni Ottomans had banned Christians in the coastal cities under their control from ringing church bells—only inaccessible mountain villages allowed themselves such freedom. These Christians lost the active protection of the Russian czar in 1917 and now are hoping that Byzantium is coming back about a hundred years later. It is much easier to do business with the owner of the business than some employee who is likely to lose his job next year; likewise it is easier to trust the word of an autocrat than a fragile elected official.

  Watching Putin made me realize that domesticated (and sterilized) animals don’t stand a chance against a wild predator. Not a single one. Fughedabout military capabilities: it is the trigger that counts.*6

  Historically, the autocrat was both freer and—as in the special case of traditional monarchs in small principalities—in some cases had skin in the game in improving the place, more so than an elected official whose objective function is to show paper gains. This is not the case in modern times, as dictators, aware that their time might be limited, indulge in pillaging the place and transferring assets to their Swiss bank accounts—as in the case of the Saudi Royal family.

  DO NOT ROCK BUREAUCRISTAN

  More generally:

  People whose survival depends on qualitative “job assessments” by someone of higher rank in an organization cannot be trusted for critical decisions.

  Although employees are reliable by design, it remains the case that they cannot be trusted in making decisions, hard decisions, anything that entails serious tradeoffs. Nor can they face emergencies unless they are in the emergency business, say, firefighters. The employee has a very simple objective function: fulfill the tasks that his or her supervisor deems necessary, or satisfy some gameable metric. If the employee when coming to work in the morning discovers the potential for huge opportunities, say selling anti-diabetes products to prediabetic Saudi Arabian visitors, he cannot stop and start exploiting it if he is officially in the light fixtures business, selling chandeliers to old-fashioned Park Avenue widows.

  So although an employee is here to prevent an emergency, should there be a change of plan, the employee is stuck. While this paralysis can arise because the distribution of responsibilities causes a serious dilution, there is another problem of scale.

  We saw the effect with the Vietnam War. Most people (sort of) believed that certain courses of action were absurd, but it was easier to continue than to stop—particularly since one can always spin a story explaining why continuing is better than stopping (the backfitting story of sour grapes now known as cognitive dissonance). We have been witnessing the same problem in the U.S. attitude toward Saudi Arabia. It is clear since the attack on the World Trade Center (in which most of the attackers were Saudi citizens) that someone in that nonpartying kingdom had a hand—somehow—in the matter. But no bureaucrat, fearful of oil disruptions, made the right decision—instead, the absurd invasion of Iraq was endorsed because it appeared to be simpler.

  Since 2001 the policy for fighting Islamic terrorists has been, to put it politely, missing the elephant in the room, sort of like treating symptoms and completely missing the disease. Policymakers and slow-thinking bureaucrats stupidly let terrorism grow by ignoring its roots—because that was not a course that was optimal for their jobs, even if optimal for the country. So we lost a generation: someone who went to grammar school in Saudi Arabia (our “ally”) after September 11 is now an adult, indoctrinated into believing and supporting Salafi violence, hence encouraged to finance it. Even worse, the Wahhabis have accelerated their brainwashing of East and West Asians with their madrassas, thanks to high oil revenues. Instead of invading Iraq or blowing up “Jihadi John” and other individual terrorists, thus causing a multiplication of these agents, it would have been better to focus on the source of the problems: Wahhabi/Salafi education and the promotion of intolerant beliefs according to which a Shiite or an Ezidi or a Christian are deviant people. But, to repeat, this is not a decision that can be made by a collection of bureaucrats with a job description.

  The same thing happened in 2009 with the banks. I said in Prologue 1 that the Obama administration was complicit with the Bob Rubin trade. We have plenty of evidence that they were afraid of rocking the boat and contradicting the cronies.

  Now compare these policies to ones in which decision makers have skin in the game as a substitute for their annual “job assessment,” and you will picture a different world.

  NEXT

  Next, let’s talk about the Achilles’ heel of the free who is not so free.

  *1 The academic tenure system is meant to give people the security to express their opinions freely. However, tenure is given (in the ideological disciplines, such as the “humanities” and social science) to the submissive ones who play the game and have shown proofs of such domestication. It’s not working.

  *2 In some countries, executives and mid-level managers are given perks such as a car (in the disguise of a tax subsidy), which are things on which the employee would not spend his money had he been given cash (odds are he may save the funds); they make the employee even more dependent.

  *3 La Fontaine: Il importe si bien, que de tous vos repas /Je ne veux en aucune sorte, /Et ne voudrais pas même à ce prix un trésor. / Cela dit, maître Loup s’enfuit, et court encor.

  *4 I can’t resist this story. I once received a letter from a person from the finance industry with the following request: “Dear Mr. Taleb, I am a close follower of your work, but I feel compelled to give you a piece of advice. An intellectual like you would greatly gain in influence if he avoided using foul language.” My answer was very short: “f*** off.”

  *5 My friend Rory Sutherland (the same Rory) explained that some more intelligent corporate representatives had the strategy of cursing while talking to journalists in a way to signal that they were conveying the truth, not reciting some company mantra.

  *6 Universal suffrage did not change the story by much: until recently, the pool of elected people in so-called democracies was limited to a club of upper class people who cared much, much less about the press. But with more social mobility, ironically, more people could access the pool of politicians—and lose their jobs. And progressively, as with corporations, you start gathering people with minimal courage—and selected because they don’t have courage, as with a regular corporation.

  How to be a whistleblower—James Bond isn’t a Jesuit priest, but he is a bachelor—So are both Professor Moriarty and Sherlock Holmes—Total intelligence in the P.R. firm Ketchum—Putting the skin on terrorists

  A MORTGAGE AND TWO CATS

  Imagine working for a corporation that produces a (so far) hidden harm to the community, in concealing a cancer-causing property that kills thousands by an effect that is not (yet) fully visib
le. You could alert the public, but you would automatically lose your job. There is a risk that the company’s evil scientists would disprove you, causing additional humiliation. You are aware of what Monsanto shills did to the French scientist Gilles-Éric Séralini, who, until he won his defamation suit, lived in total scientific disgrace, the reputational equivalent of leprosy. Or the news will come and go and you may end up being ignored. You are familiar with the history of whistleblowers, which shows that even if you end up vindicated, it may take time for the truth to emerge over the noise created by corporate shills. Meanwhile you will pay the price. A smear campaign against you will destroy any hope of getting another job.

  You have nine children, a sick parent, and as a result of taking a stand, your children’s future may be compromised. Their college hopes will evaporate—you may even have trouble feeding them properly. You are severely conflicted between your obligation to the collective and to your progeny. You feel you are part of the crime, and unless you do something, you are an agent: thousands are dying from the hidden poisoning by the corporation. Being ethical comes at a huge cost to others.

  In the James Bond movie Spectre, agent Bond found himself fighting—on his own, whistleblower style—a conspiracy of dark forces that took over the British service, including his supervisors. Q, who built the new fancy car and other gadgets for him, when asked to help against the conspiracy, said, “I have a mortgage and two cats”—in jest of course, because he ended up risking the lives of his two cats to fight the bad guys.

  Society likes saints and moral heroes to be celibate so they do not have family pressures that may force them into the dilemma of needing to compromise their sense of ethics to feed their children. The entire human race, something rather abstract, becomes their family. Some martyrs, such as Socrates, had young children (although he was in his seventies), and overcame the dilemma at their expense.*1 Many can’t.

  The vulnerability of heads of households has been remarkably exploited in history. The samurai had to leave their families in Edo as hostages, thus guaranteeing to the authorities that they would not take positions against the rulers. The Romans and Huns partook of the practice of exchanging permanent “visitors,” the children of rulers on both sides, who grew up at the courts of the foreign nation in a form of gilded captivity.

  The Ottomans relied on janissaries, who were extracted as babies from Christian families and never married. Having no family (or no contact with their family), they were entirely devoted to the sultan.

  It is no secret that large corporations prefer people with families; those with downside risk are easier to own, particularly when they are choking under a large mortgage.

  And of course most fictional heroes such as Sherlock Holmes or James Bond don’t have the encumbrance of a family that can become a target of, say, evil professor Moriarty.

  Let us go one step further.

  To make ethical choices you cannot have dilemmas between the particular (friends, family) and the general.

  Celibacy has been a way to force men to implement such heroism: for instance, the rebellious ancient sect the Essenes were celibate. So by definition they did not reproduce—unless one considers that their sect mutated to merge with what is known today as Christianity. A celibacy requirement might help with rebellious causes, but it isn’t the greatest way to multiply your sect through the ages.

  Financial independence is another way to solve ethical dilemmas, but such independence is hard to ascertain: many seemingly independent people aren’t particularly so. While, in Aristotle’s days, a person of independent means was free to follow his conscience, this is no longer as common in modern days.

  Intellectual and ethical freedom requires the absence of the skin of others in one’s game, which is why the free are so rare. I cannot possibly imagine the activist Ralph Nader, when he was the target of large motor companies, raising a family with 2.2 kids and a dog.

  But neither celibacy nor financial independence makes one unconditionally immune, as we see next.

  FINDING HIDDEN VULNERABILITIES

  So far we have seen that the requirement of celibacy is enough evidence that society has, traditionally, been implicitly penalizing some layer of a collective for the actions of a person. This is never done explicitly: nobody says, “I will punish your family because you are criticizing the big agrichemical firms,” when in effect this is what happens in practice when there is the threat of the reduction in the volume of the objects under the Christmas tree, or the degradation of the quality of food in the refrigerator.

  I have f*** you money, so I appear to be fully independent (though I am certain that my independence is unrelated to my finances). But there are people I care about who can be affected by my actions, and those who want to harm me may want to go after them. In the campaign against me waged by Big Ag, the public relation firms (hired to discredit those who were skeptical of the risk of transgenics) couldn’t threaten my livelihood. Nor could they tag me with the “antiscience” label (the central part of their arsenal) since I have a history of standing for probabilistic rigor in science expressed in technical language, and several million readers who understand my reasoning. It is a bit too late for that now. In fact, by creating analogies between some cherry-picked passages from my writings taken out of context and those of the new age guru Deepak Chopra, they have caused some people to suspect that Chopra was a logician, an application of Wittgenstein’s ruler*2: by measuring the table with a ruler am I measuring the ruler or measuring the table? Far-fetched comparisons are more likely to discredit the commentator than the commentated.

  So these P.R. firms resorted to harassing New York University’s staff by using web-mobs to flood them with emails—which includes overwhelming a defenseless assistant and people who had no idea I worked for the university since I am there only quarter-time. This method—of hitting you where they think it hurts—implies hitting people around you who are more vulnerable than you. General Motors, in the campaign against Ralph Nader (who uncovered flaws in their products), desperate to stop him, resorted to harassing Rose Nader, his mother, calling her at three in the morning—in the days when it was hard to trace a telephone call. Clearly it was meant to make Ralph Nader feel he was guilty of harming his own mother. It turned out that Rose Nader was herself an activist and felt flattered by the calls (at least she was not left out of the battle).

  I am privileged to have other enemies than Big Ag. A couple of years ago, a university in Lebanon offered me an honorary doctorate. I accepted out of respect, counter to my habit of refusing honors, (largely) because I get very bored during ceremonies. Plus, in my experience, people who collect honorary doctorates are typically hierarchy-conscious, and I abide by Cato’s injunction: he preferred to be asked why he didn’t have a statue rather than why he had one. The staff of the university became automatically the target of my detractors, of Salafi-sympathizers among the student body, and of people who were ticked off by my enthusiasm for and defense of Shiite Islam, and my desire to return Lebanon to the Eastern Mediterranean, the Greco-Roman world to which it tangibly belongs, away from the disastrous and fictional construction called Arabism. Visibly, deans and presidents of universities are far more vulnerable than independent persons, and animals know where weakness lies. By the minority rule, all it takes is a very small number of detractors using misplaced buzzwords of the type that makes people cringe (such as “racist”) to scare an entire institution. Institutions are employees—vulnerable, reputation-conscious employees. Being Salafi is not a race but a political movement–cum–criminal organization, yet people fear being labeled racists so much that they lose their logical faculties. But in the end the efforts of the detractors were to no avail: on one hand I cannot be harmed; on the other the university would have more to lose from the withdrawal of an honor than from harassment by Pan-Arabists and Salafis.

  These methods of going
after vulnerable people associated with you are eventually ineffective. For one thing, odious people (and Salafi sympathizers) tend to be dumb, along with people who act only in mobs. In addition, those who engage in smear campaigning as a profession are necessarily incompetent at everything else—hence at that business too—so the industry accumulates rejects who are prone to ethical stretches. Did any of your business-smart, streetwise, or academically gifted peers in high school declare that their dream was to become the world’s expert in smearing whistleblowers? Or even work as a lobbyist or public relations expert? These jobs are indicative of necessary failure in other things.

  Further:

  To be free of conflict you need to have no friends.

  Which is why Cleon was said to have renounced all of his friendships during his office.

  So far we have seen that the link between the individual and the collective is too fuzzy to interpret naively. So let us consider the classical situation of the terrorist who thinks he is immune to harm.

  HOW TO PUT SKIN IN THE GAME OF SUICIDE BOMBERS

  Can someone punish a family for the crimes of an individual? The scriptures are self-contradictory—you can get both answers from the Old Testament. Exodus and Numbers show God as “visiting the iniquity of the fathers on the children to the third or fourth generation.” Deuteronomy makes a separation: “Fathers shall not be put to death because of their children, nor shall children be put to death because of their fathers. Each one shall be put to death for his own sin.” Even today the question isn’t fully settled, nor is the answer clear-cut. You are not responsible for the debts of your parents, but German taxpayers are still responsible for war reparations for crimes committed by their grandparents and great-grandparents. And even in ancient times, when debt was a burden that crossed generations, the answer wasn’t clear-cut: there was a balancing mechanism of periodic (literal) cleaning of the slate, with jubilee debt forgiveness.