Oct 04, 2017

Taleb loses me at the end (Nicomachean ethics? come on), but I love his "take risks, but don't take stupid risks" stance. A stance which I first encountered in How to Legally Own Another Person[1].

The key takeaway is twofold, in my opinion:

- People underestimate tail risk in their day-to-day: Bob smokes and drinks daily and eats red meat and doesn't exercise at all. These are "small" events independent of each other, but the aggregate will probably lead to ruin (probably a heart attack in his mid-50s).

- People overestimate tail risk (due to a lack of courage[2]): Jill says she's "risk averse" and that she won't start a business because it might ruin her -- although in the grand scheme of things, 6 months of your life and a $10,000 investment are not ruin-inducing.

[1] http://www.fooledbyrandomness.com/employee.pdf

[2] Maybe dragging ethics into this wasn't such a bad move after all.

Sep 22, 2017

But that's the thing, imo. There is a big difference between a contractor and an employee (whose contract is very different).

Does this really mean that the amount of profit the employer makes is an adjustment reflecting how little risk the employees take on because they didn't take a chance to start their own companies? With employees whose income they would then hypothetically make the same adjustments to?

It's not obvious that the employer is justified in protecting themselves from their own risks with money skimmed (relative to market value) from consenting employees. These workers allow it because they still prefer it to being unemployed or a contractor themselves. But in theory they are doing worse being a part of the company than if they did the exact same actions (magically disembodied from the company monad) would be compensated, if they took the risk for themselves. The employer's risk is if they don't find enough people who are willing to risk not taking enough risks!

If having more employees means having more sources of income, big employers would not have as pressing a demand to hedge against catastrophic events; so they would recalculate the risk adjustment fee built into wages. Rarely do you see large employers give their employees better wages to reflect the company getting past earlier stages of high risk.

Basically in the long-term the value to being a capitalist is getting others to pay you for working for you. The ability to suppress wages pays for this profit - and that ability comes from contracts being costly to arrange themselves. If we could reduce the cost of contractual work and more people did it, most if not everybody would be better off, except for the people profiting from mutually-satisfactory contracts being difficult to do often.

Taleb gives this a good treatment:

"If the company man is, sort of, gone, he has been replaced by the companies person, thanks to both an expansion of the gender and a generalization of the function. For the person is no longer owned by a company but by something worse: the idea that he needs to be employable


A free market is a place where forces act to determine specialization and information travels via price point; but within a firm these market forces are lifted because they cost more to run than the benefits they bring. So the firm will be at the optimal ratio of employees and outside contractors, where having a certain number of employees, even when directly inefficient, is better than having to spend much resources negotiating contracts.


an employee is a risk management strategy"


Jan 23, 2017

Here's the relevant draft from SITG: http://www.fooledbyrandomness.com/employee.pdf

He also has the same idea peppered throughout Antifragile.