Survival of the Skin-est

EconTalk Extra
by Amy Willis
Nassim Nicholas Taleb on Ratio... Arnold Kling on Economics for ...

risk survival.jpg What does it really mean to be rational? To make decisions in your best interest? According to this week's guest, the ever-popular Nassim Nicholas Taleb, it all comes down to having skin in the game.

Let's hear what you have to say in response to this week's episode.

1. In describing what he means by "skin in the game," Taleb states, "Survival is what matters first. What does he mean by this? How does this compare to the economist's notion of incentives?

2. In what sense is religion rational, according to Taleb? (And, as Roberts asks, what's the point in keeping kosher?)

3. Taleb argues, "We live in a world that is very easy to capture by doing but not easy to capture by thinking." What does he mean by that? How, according to Taleb, does this explain the appeal of Donald Trump?

4. How is the welfare state illustrative of society's tendency to move away from skin in the game? What sort of system do you think Taleb would suggest in its place, and why?

5. In their discussion of inequality, Roberts expresses his concern that there are "some the American system today that make it harder for people to be upwardly mobile that I think are bad." What are some of the things Roberts is concerned about, and how justified are his concerns? What might you add to his list, and why?

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COMMENTS (2 to date)
Luke J writes:

1) Here I understand Taleb making a point similar to The Black Swan chapter 4 and the section 'How to Learn from the Turkey.' The absorbing barrier for the turkey is day one thousand and one: the hand that feeds for one thousand days then wring's the turkey's neck on day one thousand and one. Skin in the game, for the turkey, is literally the turkey's flesh. Survival, then is making it passed those days of slaughter. The casino example discussed, playing with house money, was an illustration of a way to survive being wiped out (i.e. of having one's neck wrung). The risk incentive/disincentive is based upon whether the gambler is using his/her own skin (own money) or profits from earlier winnings. Risking the later protects the former and thus survival. In this context, there is some overlap in these concepts: opportunity cost, sunk cost, marginal utility, but this answer is already too long.

2) I was thinking of "Hayek's" point in The Fatal Conceit... that reason is a product of our moral traditions (I don't recall Hayek using the word "religion"), and therefore reason is not the birthplace of the extended order which has been so necessary for our survival and flourishing. I hear Taleb making a similar but different point: religions can be considered rational because they allow religious people to survive. I think some commenters were bogged down by specific examples of irrationality of some religious persons or tenants, whereas Taleb is looking more broadly: 7.6 billion people on the earth, and not just Christian and Islam and Hindu, but Sikhism and Shinto and some three hundred million primal-indiginous religions have allowed human beings to survive day one thousand and one.

Jeff M writes:

2) Religion is a package deal, and it does not provide one thing in return. Taleb would argue many of the critics of religion don't get that point. It can provide a social structure; it can give direction; it can keep someone from doing something dangerous; and it can provide something else that is necessary that you may be unaware of.

Understanding everything is not as important as it is to survive. Understanding why you will benefit, is not as important as doing the action and receiving the benefit. If you must know why, figure it out in your free time, but get the benefit first.

The major religion benefit is surviving a long time. Each will go there tempory shifts of emphasis, but what sticks over the long term is likely going to provide some sort of benefit while allowing you to survive.

To get back to keeping kosher, why should you do it? I'd say its best not to get stuck with the why. One could say it may have help avoid food poisoning back in ancient days. Also as Taleb points out, it could be for social reasons. It is best not to stuck figuring out the reasons, but to do it for whatever benefits gained by doing it. The best reason is as Russ points out, he likes what the benefits that he feels he gains form it.


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