Transcription
The idea of the inserto is that there's a lot of uncertainty out there. There's a lot of stuff we don't know. But the good news is that there's only one and one way to go about it.
Okay, it's quite interesting to see that the more uncertainty there is, take global warming, there's a lot of uncertainty because there's a high probability that the IPCC is full full of crap. Okay? And there's a probability that they're, you know, that that their opponents are full of crap. All right? But the more uncertainty there there is in a system, the less you want to pollute because you don't know what's going on. You don't know what's happening. Right?
So, so, so interestingly, the more uncertainty there exists in a system, okay? The more you got to follow, follow a certain paranoid route. Try to position yourself to have more upside than downside and effectively your decision become much easier. So, let's not waste time trying to argue about the nasties of the future, right? Because the more uncertainty there is, the more we know how to act. So that's sort of the idea of the incircle in general.
I'm going to explain one thing. If you wash your clothes first and then iron them, say you wash your pants and then iron, you get different results from if you iron your pants first then wash them. Okay. So the sequence matters. No. Okay. So it's trivial but you need to analyze things dynamically to get that point. So skin in the game really is organized around two concepts things seen statically that when you view them dynamically have completely different properties and you can only get that if you're either super smart mathematically which nobody is or have skin in the game because you you you realize that.
So if you go to a casino and you have a small probability blowing up, no matter what your edge is, you will blow up. That's it. So no matter what your because you cannot say, okay, I'm going to blow up and then get rich. You can't. You got to get rich then blow up. So the sequence matters. So that is the the the past dependence. We detect it. This is the reason why we're paranoid. And I noticed that there's a guy who got a Nobel sailor sudo nobel and economic shouldn't count should count as a negative. All right. So, and then all his work is based on showing how we're irrational statically. Okay. He for example in one of his the example where we show irrational if you go to a casino and play with a house money in a sense that you bet small and that you win big. If you win big then you risk big but if you lose you you don't take risks. So in other words your initial endowment you try to preserve it but you risk everything you make from a casino. Okay. He found it irrational. But if you look at it dynamically, that's what every trader does. You play with the house money. If you don't follow such a strategy, you're eventually going to go bust one day, right? Because you you can't say I I can look at the average return because if you're bust on day 28, there is no day 29. You see? Whereas if you take an average of people's returns, if number 28 goes bust, number 29, you know, can operate freely. You see, so that concept of past dependence was not incorporated into the psychology of decision-m and then therefore they they found that we're irrational in many places where in reality we're not because if you look at things in sequence, you see, so you got to always look at things in sequence, not look at things statically. Only traders and mathematicians who do information theory or computer science get the point. Like Kelly uh Shannon and Shannon entropy, they get the point that you got to look at things dynamically. But psychologist is so naive and they keep getting no bells. You know, they're naive by saying we're irrational to be paranoid. They don't understand that you you you know dynamically if we were not paranoid >> wouldn't be here. >> We wouldn't be here. Okay. So you cannot analyze one event. You got to see how that event is going to shorten your life expectancy. So there's some classes of risk you should never be taking. And effectively when you take Goldman Sachs been around 159 years. You may hate them. I hate them. But you got to admire how they stayed alive. Why? They never take a risk of ruin. And that's the same thing as a lesson I had as a trader by an old trader who came and told me, listen, take all the risk you can, but make sure you're hidden tomorrow. So make sure you survive. So it tells you that you got to gear your risk takingaking first towards survival and that entails you take more risk as you're making more money with the casino money and that's called mental accounting is deemed irrational and being paranoid is deemed irrational because they only look at a single event not series of events and something has been happening now with psychologists uh we're in the middle of replication crisis and their papers don't replicate and those that replicate don't really have the same effect. So which tells us that whatever they call science is vastly outperformed by your grandmother. So if you go ask your grandmother particularly if she's have Mediterranean um wisdom I'm biased. All right. So Mediterranean or uh some kind of Russian Russian particularly but the babushkas are the very or ask grandmothers. All right. So or grandparents or grandfathers as well. They will whatever they uh uh will tell you will be lindy will have survived the test of time. And if psychologists agree with your grandparents, okay, means they're right. If they bring something new that your grandparents didn't know, odds are it's going to be suspicious.
There are two things that are wrong when you ask me naively. Is a scale. A a large country is not like a small city that that you blow up. Singapore is not like a small China and and likewise a group of people act differently that's complexity and the second one is with time if you under repeated behavior you have to have complete different strategies from the static ones and that was detected by practically every grandparent and people have skin in the game. So that that's sort of the me local message from Skin in the game and the overall message is my message before you conclude is the idea of the inserto is that there's a lot of uncertainty out there. There's a lot of stuff we don't know but the good news is that there's only one and one way to go about it. Okay. And and it's quite interesting to see that the more uncertainty there is take global warming. There's a lot of uncertainty because there's a high probability that the IPCC is full full of crap. Okay? And there's a probability that they're, you know, that that their opponents are full of crap. All right? But the more uncertainty there there is in a system, the less you want to pollute because you don't know what's going on. >> You don't know what's happening, >> right? >> So, so, so interestingly, the more uncertainty there exists in a system, okay? The more you got to follow follow a certain paranoid route. try to position yourself to have more upside than downside and effectively your decision become much easier. So let's not waste time trying to argue about the nicities of the future, right? Because the more uncertainty there is, the more we know how to act. So that's sort of the idea of the insert in general.
>> This this is very interesting for me because like on Twitter for example, uh if you go on there, you'll always find somebody who's outraged about something, right? they're they're they're someone in the extreme left or the extreme right in politics or in cryptoland and they're just really really angry about something. And for a while I thought they're just being super ineffective. And that's what I was hoping. I was hoping that the most outraged, most angry people are actually very ineffective and they're just misguided and they're kind of on the corner. But the sad thing is the minority rule kind of shows that if these people are intrigent enough, they actually run and control society. They establish the laws for the rest of us. And we kind of intuitively know this like from revolutions. Like revolutionaries tend to be small bands, small groups that won't put up with the status quo that overthrow the entire system because most people in the center just kind of don't care. They just kind of want to get along and they want to go along. So this comes back to like if you're willing to tolerate intolerance then you're going to live with the consequences. Um if you look at for example elections there is a belief in politics and political science that it's the voter in the center the median voter who everybody competes for and decides how the election runs. But that's not true when you have third parties with intrians minorities. So for example if the Bernie voters absolutely will not vote for the mainstream Democrat the Clinton or if the extreme you know right voters won't vote for the Jeb Bush then they'll actually stay home or they'll vote for third party. uh then you actually have to appeal to them. You have to deal with care about the center >> as long as there's enough of them. It doesn't have to be a large number. It's just a few percentage points and they're enough to control the entire outcome. So we live in a world that is actually structured around the preferences of radicals who won't compromise. It's not it's not built around around the will of the majority. The will of the majority does apply in some cases, but in many more cases it's the minority rule. And there are all kinds of other implications.
>> Yeah. I mean, ethics for example, people had the illusion that society is getting more ethical because the the majority is becoming more ethical. No, no, no, no, no. It's minority rule. Another mistake made by Monsanto is that when introducing GMOs, all they thought that all it took was convincing 51% of consumers to have GMOs. Okay, they did not think it through properly because think about it. All you need is 3% of people who are absolutely against eating GMOs. All right. And then you're going to have a party here to celebrate the collapse of uh say Sarbaria. Say, okay, we have a party. All right. What do you do? You send a letter. Say GMO, non GMO. You make everything non GMO. You make everything organic. And the difference in price when the difference is price is small everybody switches to the one that the minority want to the choice of the minority. When the difference in price is large then you may have two varieties like for example for meat kosher meat and kosher stuff it's much more cumbersome to have everything kosher >> because it's more costly and it's complicated. >> Right. So there's the evidence that Jews don't run the world. >> Exactly. But but but but believe it or not 100% of the meat you get imported meat in imported the lamb in the United States about 100% is halal because New Zealand exports okay the main exporter what is it going to do what if put it in ship to Malaysia what if what if Malaysia doesn't want there's less demand we're going to dehalal it for uh you know send it to United States so they made everything halal so all their meat is all their exports are halal so at Christmas I saw of Christmas you know halal was because I can detect I read Arabic is halal right yeah so was probably you know they produce it and and then we don't have to worry about merchandising about uh perishability and stuff like that to make it make everything much simpler >> so the minority rule applies when the minority is not willing to compromise when it's relatively distributed amongst the whole population like if they're off by themselves in a corner then maybe you can service them just as a minority and leave >> exactly if you have a geographic diversity. Okay. Then you don't have minority rules. All right? If say the the people who eat halal live in the neighborhood, people eat kosher live in the neighborhood, have their own ecosystem, then then you'd have you won't have minority rules. As you open up the country, then the minority rule would prevail about anything. >> Yeah. >> And conditional on the majority, not being ticked off by it. >> That's right. >> Okay. That's in Europe for example now pretty much schools had to have halal meat and you have a reaction people didn't know I mean you should have done it in a more uh way >> surreptitious way yeah but because uh uh uh parents to say no I refuse you know that my child eats halal okay now you have counter reaction just like the Christians in a in a Roman world halal meat resembles all sacrificed meat in in in the near east actually you have to, you know, sacrifice the the cow or or the the lamb, the the the sheep in a certain way. And Christians would would never eat sacrificial meat. You know, in in the old times, pagans would have sacrificial meat. And then a lot of Christians would die of hunger in front of a table full of meat just to show that they would they were Christian and they would not eat sacrificial meat because for them it's polluted. So you may have a counter counter minority rule coming from somewhere you see. >> Yeah. I think for there are cases where the minorities themselves are and minority here obviously you know what it means. It means a small group of people who are intrigent themselves are very intolerant of maybe even the existence of the majority or the way the majority likes to function. So it does create a counterreaction. So it's not that all revolutionaries uh you know necessarily control the world. Very often they just get lynched or stamped out. >> Exactly. So we have a thin balance here between majority rule and minority rule. And tokville wanted to protect the minority from the majority. All right. >> Yeah. >> And now we may have to do an inverse tok as well to bring symmetry. Protect the majority from the minority. >> Yeah. But it applies in crypto. For example, if uh imagine that you know something like I don't know if I had to make up a number like call it like 10 or 20% of the good developers in Silicon Valley are now working on cryptoreated projects or at least dabbling on it. And if they all announce tomorrow that they're only going to work for companies that pay them in crypto, then pretty soon you would see every payroll system switch to also offering crypto. >> That's true. If you're if you're unconditional about getting or paying or receiving in crypto, you're you you install minority rule. >> So minority rule is a very powerful concept. It's one of the ones in skin of the game. I I highly encourage you to go through it. Um, let's talk a little bit about black swans, which is an old concept. You're very famous for it. Did you coin the term? >> No. Black swan term was the earliest use of it was by a Roman poet. >> Mhm. >> Who said that a a good person is as rare as a black swan. And it was used for something uh you know uh rare but not completely impossible. No matter how many how many white swans you've seen, you cannot rule out a black swan, >> right? But there's an asymmetry. If you've seen one black swan, then then you can say that they are black swan. Science is not about proving. Science is about disproving. >> Yeah. >> And having something that has not been producing a result that has not yet been disproved or uh superseded by something else. So it's a process, not a result. >> There are whole >> But science is a minority rule by the way. >> Yeah. >> Yeah. science when someone tells you a 300 Nobel Prize winner says this okay it doesn't count you because one counter example can destroy the whole argument >> right consensus matter consensus doesn't matter it works by minority but the system is there to protect that minority that is right against the majority except in economics of course