Skin in the Game

• Definition: When the salient is mistaken for the statistical.
• Insight: The conspicuous and emotional effect of events make us think they are occuring more frequently than in reality.

• Insight: Humans cannot measure and analyse like computers, therefore, due to our biological limits and evolutionary pressures we make mental shortcuts and distortions.
• Insight: Mental shortcuts are the result of our knowledge of the world being fundamentally incompete.
• Reference: Herbert Simon: formulated the concept of bounded rationality

To be, or to seem?

"Look it. Would you rather be the world’s greatest lover, but have everyone think you’re the world’s worst lover? Or would you rather be the world’s worst lover but have everyone think you’re the world’s greatest lover?"

- Charlie Munger

Reference: Cicero, Sallust, Machiavelli each were proponents of "show rather than be."

• Insight: It can often be easier to continue down an irrational path than stop, as it is easy to create rationalising stories.
• Reference: Aesop: Fox and sour grapes.
• Reference: Leon Festinger: 1959 experiment - asking participants to complete a task in which they are paid $0, $1, or $20. The study showed that those paid $1 rated the experience as more enjoyable and felt a sense of importance, even than those paid $20. They created a story that justified to themselves why they were happy to do the tasks, even when they knew it was for a relatively small amount.
• Reference: La Fontaine: Le Renard et les Raisins - repacked the fox and sour grapes.

• Definition: The tendency of people to put funds in different accounts, and focus on the source, and forgetting that the source does not matter.
• Example: People vary their stratetgy at a casino depending on whether they are playing with 'winnings' vs the original amount.
• Example: Investors increase risks as they are 'winning', and reduce when they are 'losing'.

• Example: Farmers and fishermen - as a collective both prefer to avoid overgrazing or overfishing, but individually each farmer or fisherman would personally gain from their own over-farming or overfishing, if others don't.
• Insight: The downfall of socialism is the individual interests do not work well under a collective (or commons) system; but a system of purely private property does also not work well.
• Reference: Elinor Ostrom - there exists a particular community size below which people protect the commons, but these groups cannot be too large otherwise there less incentive for the groups to protect the commons.