There are at least two kinds of randomness in the world: normal, as in a normal distribution or a bell curve, and extreme. As humans we're used to the normal distribution. That's the kind of thing we dealt with a lot over the thousands of years of our existence. It's only recently that the extreme distribution has come to predominate. Nassim Taleb has labeled the first mediocristan and the second extremistan. In this podcast we explore the difference between the two and how the tools of mediocristan are inadequate to the disasters of extremistan.
As I record this Congress is debating whether they should pass a $3.5 trillion bill or only a $1.5 trillion one. The former would equal $27,000 per household, while the latter would only be $12,000 per household. And yet when people are asked whether they would pay more to deal with problems like climate change only 34% are willing to pay more than $10 a month. People have no skin in the game on the former and they can at least imagine they have skin in the game on the latter, and in this episode I argue that this makes all the difference.
Risk comes in lots of different forms. In Skin in the Game, Taleb's last, underrated book. He breaks risk down into ensemble probabilities and time probabilities. On top of that he demonstrates that risk operates differently at different scales. And that if we want to avoid large scale ruin—ruin at the level of nations or all of humanity—that we should be trying to push risk down the scale.