He has a chapter that speaks to the topic of my recent essay on when to defy orthodoxy. His answer depends on whether you have skin in the game, meaning that there are personal adverse consequences if you are wrong.
If you have skin in the game, then Taleb would say that you are entitled to challenge orthodoxy, and indeed you should. People with skin in the game who defy orthodoxy are free. People with skin in the game who do not defy orthodoxy are slaves. So working for a large corporation makes you a slave.
Without skin in the game, you cannot be a good person no matter what you do. If you do not defy orthodoxy, you are a toady, trying to get ahead by going along. You are a journalist or academic who repeats what other journalists or academics are saying. If you defy orthodoxy you are dangerous, because without skin in the game you are risking other people’s lives and other people’s money but not your own. You are a banker taking in huge bonuses from bets that pay off in the short term, and when the bets turn sour you are long gone.
At least, that is how I read what he is saying.
This doesn’t seem quite right. There may be very good reasons for opting to go with orthodoxy when you have skin in the game and a different opinion. How many stock traders have expressed their defiant freedom against the Orthodox S&P 500? Were they wise?
As a side point, this strikes me as the key value of conservatism: it gives people lots of index funds into which to sensibly invest their time, effort, and money. A well-civilized society has many, a barbarous one few.
Taleb doesn’t say that you must challenge orthodoxy, only that these are the circumstances where it is permissible.
Skin in the game would appear to be useful to a point in assessing how much gut-level credence to give any particular challenge to orthodoxy. One does not want to throw the baby out with the bathwater though. The ubiquitous authors’ statement of financial interest on research studies should remind us that ideas deserve to stand on their merits and not sources of funding. As I was digesting this post, I turned to the Straits Times and came across an article about a new requirement for applied learning in elementary classrooms: http://www.straitstimes.com/politics/parliament-all-primary-schools-to-have-applied-hands-on-learning-programmes-by-2023 and was left wondering whether skin in the game explains the anti-applied learning orthodoxy in the United States and whether teachers in Singapore are somehow different from teachers in the United States. My gut tells me that it is simply easier to accomplish reforms that upset vested interests in a parliamentary democracy than it is in a presidential system.
I wonder if there even exists a SITG-compatible way to write about investing advice or analysis, especially to a public audience.
Publish your own portfolio.
Make actual bets on your buy/sell recommendations.
Essentially write “this is what I think and I’ve put my own money against my recommendations.”
There’s the problem of timing (did your recommendation move the market), but for all but the larger money manager that’s not going to be material.
Skin in the game is an audience, the basis of the debate, protecting our skins. If we we don’t protect our skins we get evolved away.
A couple of years back, an investment product was pitched to me that was essentially a limited liability partnership. The promoters had their money also in it and any gain was to be their payoff. The loss of their own money was their SITG.
Presumably the reason they were taking extra money is that they would be able to make moves with a larger capital base which they couldn’t do otherwise. This was supposed to be the reasonable payoff for the mental effort.
I couldn’t understand it much at that time and very soon the legal environment changed in my country where the threshold to invest in such products was greatly increased. So, I never got a chance to compare and contrast it with the other parts of my portfolio.
People with skin in the game making decisions get weeded out by selection if wrong. People with no skin in the game don’t get weeded out when wrong. Look around you at the different professions- which of those bear no consequences when wrong? What do those all pretty much have in common?
What?