Nassim Taleb — How Traders Make Billions in The New Age of Crisis (feat. Scott Patterson)

Tim Ferriss 0:00 [upbeat music] Well, I'm thrilled to have both of you here. Scott, [mouse clicking] thanks for making the journey. I can't believe we have the shared [swishing] history of Hoagie Haven. We might [laughs] provide that context to people later, an iconic landmark of a spot in Princeton, New Jersey. Nassim, nice to see you.

Nassim Nicholas Taleb 0:29 Nice finally to, uh, to be on that side of the microphone.

Tim Ferriss 0:34 Yeah, definitely, man. And

Tim Ferriss 0:36 I thought we would start with just providing a bit of context for listeners as to how the two of you connected. So Scott, how did the two of you end up meeting?

Speaker 0:46 Yeah, so this was the mid-2000s. I was a reporter at The Wall Street Journal. I still am a reporter at The Wall Street Journal. At the time, I was covering hedge funds.

Tim Ferriss 0:58 Mm-hmm.

Speaker 0:59 And there was, among the hedge fund community, there was this book that a lot of hedge fund managers liked to talk about, sort of like this secret book that they would passed around that they said was really great, and it was called Fooled by Randomness.

Tim Ferriss 1:13 Mm-hmm.

Speaker 1:15 So I read that book. I thought it was amazing. But a rumor among these hedge funds managers was that the, the hedge fund that the author of that book, Nassim Taleb, had run a hedge fund, but it had shut down.

Tim Ferriss 1:32 Mm-hmm.

Speaker 1:33 But nobody really knew the truth of whether it shut down or not. So as a reporter, that intrigued me. I think it was actually Neil Chriss, a very well-known quant hedge fund manager, who put us in touch. I talked to Nassim. I got him on the phone, and he said, "Yeah, we shut down a couple years ago, but there's a new hedge fund that's starting up by my, you know, former colleague, Mark Spitznagel. Maybe you wanna write about that."

Tim Ferriss 1:59 Mm-hmm.

Speaker 2:00 So I had a story that came out in the summer of 2007 that broke the news that Empirica had shut down, at least for the broader public. Also broke the news that a new hedge fund-

Nassim Nicholas Taleb 2:12 Yeah [laughs]

Speaker 2:13 ... was, was launching, called Universa.

Nassim Nicholas Taleb 2:15 Yeah, it's like the, yeah, restart, re- [laughs] different, yeah.

Speaker 2:17 Yeah, similar strategy. And also that the author of Fooled by Randomness had a new book coming out-

Nassim Nicholas Taleb 2:24 The Black Swan

Speaker 2:24 ... called The Black Swan.

Nassim Nicholas Taleb 2:25 Which explained, you know, the transition from the author was trying to transit. I kept begging him. I tell him, "No, I don't wanna be known as a hedge fund manager."

Speaker 2:34 [laughs] Yeah.

Nassim Nicholas Taleb 2:35 "I don't wanna be known as a financier. I'm done."

Speaker 2:35 It's been a refrain for years with Nassim.

Nassim Nicholas Taleb 2:37 "I reframe it, so I don't wanna talk to you except if you talk about my ideas." He said, "Okay, we're gonna talk about your ideas." This is why, I mean, I was, I was trying. I said, "Okay, on my, on my, uh, grave, I don't wanna be known as a trader, but as a scholar."

Tim Ferriss 2:52 Mm-hmm.

Nassim Nicholas Taleb 2:53 And I remember he was, so he's bringing back a portion of life, but it was at the right time because he contacted us-

Tim Ferriss 3:00 Mm-hmm

Nassim Nicholas Taleb 3:01 ... right before the explosion of 2007.

Tim Ferriss 3:04 Yes. [laughs] Mm-hmm.

Nassim Nicholas Taleb 3:05 And there's [laughs] a weird connection right there that I'll mention later to you, right?

Tim Ferriss 3:10 [laughs] There is a very weird connection to me.

Tim Ferriss 3:14 And let me ask you, Nassim-

Nassim Nicholas Taleb 3:17 Yes

Tim Ferriss 3:17 ... what prompted you to make the transition? Maybe it was a long time in coming, but to decide ultimately to step out of trading or being active as sort of a player on the field.

Nassim Nicholas Taleb 3:30 I knew I would never stop, and I still in my late 30s, early 40s, I had time to really do something else.

Tim Ferriss 3:40 Mm-hmm.

Nassim Nicholas Taleb 3:40 And I realized the following, is that when I had a position and, and it was... I mean, I, I could be involved in trading, but I didn't wanna be the, the one flying the plane.

Tim Ferriss 3:50 Mm-hmm.

Nassim Nicholas Taleb 3:50 See, as a passenger or as a co-pilot maybe. At the time, I said, "Okay, Mark is much more capable of, of running this because he loves doing it," okay? And I liked the concepts and the ideas, but didn't like to follow positions.

Tim Ferriss 4:05 Mm-hmm.

Nassim Nicholas Taleb 4:06 And because it was the minute I would be involved in a trade, it would inhabit me. So I felt like it was, there's something in my, in my brain that was slowed down by the fact that I had to worry about something else out of respon- sense of responsibility. So Mark didn't have that.

Tim Ferriss 4:26 Mm-hmm.

Nassim Nicholas Taleb 4:26 So Mark had-

Tim Ferriss 4:27 He could compartmentalize.

Nassim Nicholas Taleb 4:28 It's not he could compa- he did nothing else. He, and he was an interesting-

Tim Ferriss 4:31 I see, right.

Nassim Nicholas Taleb 4:31 I mean, he did other things, of course, on the side of the destruction, so he was a benefit. So I, I wanted to transit out, so I said, "Okay, I'll take some time off to finish The Black Swan," which I couldn't finish when I was trading. Which actually I started before Fooled by Randomness.

Tim Ferriss 4:45 Mm-hmm.

Nassim Nicholas Taleb 4:46 Okay?

Tim Ferriss 4:47 Okay.

Nassim Nicholas Taleb 4:47 I started The Black Swan, and then I said, "Okay, I'm gonna talk about randomness," so I got diverted into Fooled by Randomness.

Tim Ferriss 4:53 Mm-hmm. Hmm.

Nassim Nicholas Taleb 4:54 And then I finished The Black Swan. It was almost a 20-year thing. And I realized that I'd like to be a scholar who eats well, who trades once in a while, with a sense of... It was like a military person who, you know, has an honorary discharge-

Tim Ferriss 5:09 Mm-hmm

Nassim Nicholas Taleb 5:09 ... to do other things. And, and of course, leaves the battleship to those who live for the battles.

Tim Ferriss 5:17 Right.

Nassim Nicholas Taleb 5:17 Okay? So that was what happened. And then, of course, the rest is history, as, as you know.

Nassim Nicholas Taleb 5:23 But, but let me mention one thing that, that probably your listeners and, and viewers don't know, is that of all the people [laughs] that have been on his podcast, I bet you I'm the first one you've met.

Tim Ferriss 5:36 It's quite possible.

Nassim Nicholas Taleb 5:37 Okay.

Tim Ferriss 5:38 Yeah.

Nassim Nicholas Taleb 5:38 So you're the first one. I met you before I met him-

Tim Ferriss 5:42 Mm-hmm

Nassim Nicholas Taleb 5:42 ... in probably 2001, 2002.

Tim Ferriss 5:45 Around that. Around that time.

Nassim Nicholas Taleb 5:47 Yeah. And the first time we met, w- we corresponded and said, "Oh, this guy has very interesting ideas about hacking things."

Tim Ferriss 5:53 Mm-hmm.

Nassim Nicholas Taleb 5:53 And then we went to a restaurant, I think on Madison Avenue, and we ate every single egg they had in the store. No?

Tim Ferriss 6:02 Yeah, I was, I was a good deal larger at the time, and I was in growth mode

Nassim Nicholas Taleb 6:05 Yeah, so we ate all the eggs. And for some reason, I mean, they were worried about us. Why? How could people, two human beings, eat so many eggs?

Tim Ferriss 6:11 [laughs]

Nassim Nicholas Taleb 6:12 So that was my first physical encounter with him

Tim Ferriss 6:15 These were good eggs

Nassim Nicholas Taleb 6:16 ... corresponding before and became friends. And there's a, an interesting scene that he had that, that, that I have in my mind. When Lehman Brothers went bust-

Tim Ferriss 6:25 Mm

Nassim Nicholas Taleb 6:25 ... basically after our... You know, we, we connected-

Tim Ferriss 6:29 Yeah, about a year afterwards

Nassim Nicholas Taleb 6:30 ... and then he followed our trade, and he wrote about it, actually, about the quality of the trade and the promise of the trade that we're, you know, betting on tail events before the Lehman crisis. Okay? And on that day that, when the day Lehman went bust, I was on a plane incommunicado. I land, and the first thing I got was an SMS from him because I was meeting you for dinner.

Tim Ferriss 6:56 [laughs]

Nassim Nicholas Taleb 6:56 And the second thing I got is news that L- Lehman went bust.

Tim Ferriss 6:59 Mm-hmm.

Nassim Nicholas Taleb 7:00 So from, uh, news from Mark that Lehman went bust. It was the, the two messages. And that night, I think they ran out of pink champagne in, in the house.

Tim Ferriss 7:09 [laughs]

Nassim Nicholas Taleb 7:10 We were with Seth Roberts, the late Seth Roberts, a very interesting person who also was studying hacks.

Tim Ferriss 7:15 Mm-hmm. Fascinating guy. Yeah, really genuine, lovely human being, and we did consume vast quantities of alcohol.

Nassim Nicholas Taleb 7:21 And then last time, I mean, the time before Romania, we met, it was at his funeral.

Tim Ferriss 7:26 Yeah.

Nassim Nicholas Taleb 7:26 When, when he came in and paid for the bill surreptitiously, and I [laughs] want to retaliate tonight.

Tim Ferriss 7:33 [laughs] So you'll have the comeback opportunity with the, with the bill this evening. And you're right. I mean, there are very few, maybe no other guests who've been on the podcast who predate us meeting in 2001, which is wild. And I was probably 30 to 40 pounds heavier in terms of muscle mass. [laughs] I was-

Speaker 7:54 All that Hoegaarden. [laughs]

Tim Ferriss 7:55 I was all that Hoegaarden. I was a lot bigger at

Tim Ferriss 7:57 that time. I've many questions about Black Swan and also about the trading career, but actually a, a letter, which I'll come back to. I think you'll, you'll get the reference. But first, I wanna ask just for a backdrop for people who may have no familiarity with quants, with betting on tail events, and you have this book which covers a lot of these topics in depth. So you have multiple books. But in the case of betting on tail events, what is a tail event, broadly speaking? And then what are the different ways one can bet on tail events? And you guys can of course pass the mic back and forth, but, but what are the different styles or approaches to betting on tail events?

Nassim Nicholas Taleb 8:44 The thing I would say before he launches, that the point is not to bet on tail events. The whole idea of the Black Swan, everything, I've, I've been telling everyone, every person I meet-

Tim Ferriss 8:53 Is to bet on disruption, on-

Nassim Nicholas Taleb 8:54 No

Tim Ferriss 8:55 ... unforeseen-

Nassim Nicholas Taleb 8:56 To not be harmed by silent risk.

Tim Ferriss 8:59 Mm-hmm.

Nassim Nicholas Taleb 8:59 Okay? That's the idea.

Tim Ferriss 9:00 Right.

Nassim Nicholas Taleb 9:00 The first thing is don't be harmed by it.

Tim Ferriss 9:02 Mm-hmm.

Nassim Nicholas Taleb 9:03 But of course, you know, given that when we study tail events, we say these people are ignoring these risks-

Tim Ferriss 9:08 Mm-hmm

Nassim Nicholas Taleb 9:08 ... so therefore they're risk in the system that people generate and don't see.

Tim Ferriss 9:13 Mm-hmm.

Nassim Nicholas Taleb 9:14 Hence, you can, you can trade on it and go ahead.

Tim Ferriss 9:17 Mm-hmm.

Nassim Nicholas Taleb 9:17 I mean, this is, this is your, your, your, your, your department.

Speaker 9:19 Yeah, I mean, there's all sorts of different approaches.

Tim Ferriss 9:22 Mm-hmm.

Speaker 9:22 And I think it's when you talk about betting on a tail event, I would say that, you know, what Universa does, and Empirica before that, is I wouldn't call that a bet.

Tim Ferriss 9:37 Mm-hmm.

Speaker 9:38 I would call that a risk management strategy.

Tim Ferriss 9:42 Mm-hmm.

Speaker 9:42 And that, in a way, d- is what differentiates them from other hedge funds and traders who, who do what I would call, you know, a b- betting, you know, or taking positions based on a, a belief that something's gonna happen. What Universa does is they are constantly taking on positions that will pay off massively in a tail event-

Tim Ferriss 10:08 Mm

Speaker 10:08 ... so that their clients are constantly protected and they don't, they don't need to make predictions. They never make predictions. It's something that Mark Spitznagel constantly says, is that he is shit at forecasting. [laughs]

Tim Ferriss 10:23 [laughs] Mm-hmm.

Speaker 10:24 He's been forecasting, you know, gigantic bear market for decades. He's been right a couple times, you know, but he, he, you know, he will admit, "Okay, I, you know, I can't predict the timing of it. It's gonna happen one of these days." And that's what they provide for their clients, is that constant protection, and they do it by buying far out-of-the-money put options. It's, it's pretty simple. Not easy to implement, I think. [laughs]

Tim Ferriss 10:50 Mm-hmm.

Speaker 10:50 Which is why you don't see a lot of hedge funds doing this because-

Nassim Nicholas Taleb 10:54 They do. Actually, they do it, and then they go bust.

Speaker 10:57 Yeah, they do it or they... You know, what happened to Nassim, it's very stressful.

Tim Ferriss 11:02 Yeah.

Speaker 11:02 Because you can go years without making money in that strategy because it's waiting for an extreme event, a very extreme event.

Tim Ferriss 11:11 Yeah.

Speaker 11:11 Their, their strategy is betting on a 20% decline in the S&P 500 in one month-

Tim Ferriss 11:17 Mm-hmm

Speaker 11:17 ... which I think may have happened once or twice. [laughs] It happened on Black Monday in 1987-

Nassim Nicholas Taleb 11:25 1987

Speaker 11:26 ... in one day. But they don't actually need to have that happen to monetize the strategy. They just need to have a very big decline-

Tim Ferriss 11:33 Mm

Speaker 11:33 ... very rapidly. So that happened in 2008, happened a couple times in the 2010s.

Tim Ferriss 11:40 Mm-hmm.

Speaker 11:42 In 2020, it happened big time.

Tim Ferriss 11:45 So I imagine, I mean, it's, for somebody who's running a fund like this, for, for you or Mark, [laughs] that it's, it's, there's the watching the numbers and maybe that form of bleeding chip stress over time, but there's also [laughs] you have investors who probably, in theory, are very comfortable with the strategy but who also panic or have other issues.

Nassim Nicholas Taleb 12:05 The genius of, of Universa is that- They managed to package a product as insurance that allows the investors to increase their exposure to the market.

Tim Ferriss 12:19 Mm-hmm. I see.

Nassim Nicholas Taleb 12:21 So the strategy in and by itself, it's positive, a huge return. What's more interesting is that it was hedging something-

Tim Ferriss 12:28 Mm-hmm

Nassim Nicholas Taleb 12:29 ... that went up. H- how, what does s- what's the stock market do since, since then? I mean, it went up, like-

Tim Ferriss 12:33 30% or

Nassim Nicholas Taleb 12:34 ... twofold. No, no, no. In total since, say, uh, 2007.

Tim Ferriss 12:39 Oh, since 2007, yeah. Tripled.

Nassim Nicholas Taleb 12:41 Yeah. Went up, say, twofold, maybe.

Tim Ferriss 12:44 Mm-hmm.

Nassim Nicholas Taleb 12:45 So y- y- it allowed people to have a larger position, larger exposure to the market-

Tim Ferriss 12:48 Mm-hmm

Nassim Nicholas Taleb 12:49 ... than they would otherwise.

Tim Ferriss 12:50 Right.

Nassim Nicholas Taleb 12:50 And, and also, there's a l- a cocktail of other strategies that definitely didn't fare well-

Tim Ferriss 12:58 Mm-hmm

Nassim Nicholas Taleb 12:58 ... because th- they entail diversification away from stocks. So this one allows you to have stocks. So it's very weird because Mark is always bearish on the market, but he l- he provides people a product [laughs] that couples very well with a very long stock position.

Tim Ferriss 13:14 Mm-hmm.

Nassim Nicholas Taleb 13:15 So that was the secret. So given that it's packaged that way, investors tolerated some drawdown-

Tim Ferriss 13:23 I understand

Nassim Nicholas Taleb 13:23 ... not too much, on the insurance. You see? While looking at it, you gotta look at, you know-

Tim Ferriss 13:28 It's an insurance

Nassim Nicholas Taleb 13:29 ... the insurance versus the insured.

Tim Ferriss 13:29 It's an insurance premium. Yeah.

Nassim Nicholas Taleb 13:30 Exactly, versus the insured, ver- versus... I mean, hey, hey, this is my differential P&L. And it's the same thing when, when I started trading option, you have an option hedged by stock. And, and, and sometimes people only look at the stock performance, and some people only at the option performance. And I tell them, "No, it's inseparable."

Tim Ferriss 13:47 Mm-hmm.

Nassim Nicholas Taleb 13:47 You see? You got this, it's called a delta, right? So that was how they managed. But the other trick is that you, you have to understand that we are a one-trick... or me intellectually, I'm a one-trick pony. I think of nothing else but the tail risk. Everything's packaged around tail risk-

Tim Ferriss 14:04 Mm

Nassim Nicholas Taleb 14:04 ... that I do intellectually. But Universal is a one-trick pony. Only does one trade.

Tim Ferriss 14:11 Mm-hmm.

Nassim Nicholas Taleb 14:11 So if you do only one trade, and for a couple of decades, believe me, you know the tricks.

Tim Ferriss 14:17 Mm-hmm. [laughs]

Nassim Nicholas Taleb 14:18 Right? You know how much to put on. Not too much, not too mu- y- you see the idea. If you do just one trade, and then people come to Universal and say, "No, w- that's what we do. We don't do s... We d- won't you do this for us?" No. It's like you're making Maseratis, right? And someone comes to you and say, "Hey, won't you make trucks?" We don't do trucks. "Why not make bicycle?" We don't do bicycle. Uh, all we make is one single item. That's it.

Tim Ferriss 14:39 Mm.

Nassim Nicholas Taleb 14:40 One single size.

Tim Ferriss 14:41 Mm-hmm.

Nassim Nicholas Taleb 14:42 One single... So, and that is the main criticism by others. Hey, th- the one-trick ponies, and that's pr- p- p- what we're proud about.

Tim Ferriss 14:52 That's the selling point.

Nassim Nicholas Taleb 14:53 Is that we are one-trick ponies. And whether in my work intellectually was, was worried about tail risk, or whether the imple- implementation of Universal, of their ideas, you know, of Mark's ideas, one thing, just one single thing. So when you do one thing-

Tim Ferriss 15:10 Mm-hmm

Nassim Nicholas Taleb 15:10 ... professionally, it develops an edge.

Tim Ferriss 15:14 Yeah. Well, it makes me think of, I'm gonna butcher it, but there's a Bruce Lee quote which says, "Fear not the man who has practiced 10,000 kicks, but the man who has practiced one kick 10,000 times."

Nassim Nicholas Taleb 15:22 Oh, there you go.

Tim Ferriss 15:23 It's similar.

Nassim Nicholas Taleb 15:23 That's, that's, that's how it go.

Tim Ferriss 15:25 And but let me come back to something that you said, Nassim, which was that a lot of these other shops who maybe attempted something they thought was similar went bust. What were some of the fatal flaws or mistakes that other fund managers made?

Nassim Nicholas Taleb 15:39 The first flaw, and this I noticed in, in our days, that a lot of clients that had initially when we started Empirica, were diverted into other funds who were actually mitigating the strategy by instead of, say, you can't buy puts on the S&P 500, you buy puts that are cheaper in some other commodity.

Tim Ferriss 16:01 Mm-hmm.

Nassim Nicholas Taleb 16:01 You see? And, and hope that they would correlate. So it was, there was a dependence on correlation. So I know someone who actually went bust.

Tim Ferriss 16:10 Mm-hmm.

Nassim Nicholas Taleb 16:11 He said, called overriding the strategy by buying puts on the S&P 500 and selling puts on the German index to collect more cash out of trade. So that way you say, "Oh, we have more staying power." And his investors were proud till guess what happened? The German market went down, [laughs] not the US market. The thing exploded-

Tim Ferriss 16:31 Mm

Nassim Nicholas Taleb 16:31 ... and they were out of business on an insurance.

Tim Ferriss 16:34 Mm-hmm.

Nassim Nicholas Taleb 16:34 So a lot of our competitors tried to mitigate the strategy. We were absolutely first. That's the other thing is that you notice with the players in Universal, if you see, if you met Mark, you'd understand it.

Tim Ferriss 16:46 Mm-hmm.

Nassim Nicholas Taleb 16:47 There's no question. That's what we're gonna do. We're not gonna mitigate, no correlation, nothing. Just all we do is artichokes. That's it, that's it.

Tim Ferriss 16:55 [laughs]

Nassim Nicholas Taleb 16:55 We don't do nothing else. That's it. We don't cook anything else. We don't... No, we, we want mayonnaise? We don't add mayonnaise to artichoke. We will not add mayonnaise to the artichoke. So that was, that was how, how, how... [laughs] And in a way, told you the long road, not the hack. We don't hack the trade. The long road is the best.

Tim Ferriss 17:12 Yeah.

Nassim Nicholas Taleb 17:13 So in a way, I started liking your idea of hacking.

Tim Ferriss 17:16 Mm-hmm.

Nassim Nicholas Taleb 17:16 And, and until I discovered over time that basically all the things I've enjoyed doing were the things I reverse hacked. So in other words, take the long road. Like right now, s- last week, I did 17 hours of cycling.

Tim Ferriss 17:29 Mm-hmm.

Nassim Nicholas Taleb 17:29 So that's the long road. [laughs]

Tim Ferriss 17:31 Yeah.

Nassim Nicholas Taleb 17:31 That's not a short road. Whereas when we met, I was looking for shortcuts.

Tim Ferriss 17:35 Mm-hmm.

Nassim Nicholas Taleb 17:36 The University have no shortcuts.

Tim Ferriss 17:37 Yeah.

Nassim Nicholas Taleb 17:39 And he takes no shortcuts.

Tim Ferriss 17:41 Mm-hmm.

Nassim Nicholas Taleb 17:41 So, I mean, I've known you now for 15 years. I know I met you-

Tim Ferriss 17:45 16

Nassim Nicholas Taleb 17:45 ... 15, 16 years. And I think that shortcuts. And it was very good that he wrote that book for one reason, to put some story and narrative around the idea of precaution and tail risk for society in general.

Tim Ferriss 17:57 Mm-hmm.

Nassim Nicholas Taleb 17:58 And also because of fact-checking. [laughs] That document, because a lot of these stories are legends of this has happened, this has not happened. It was a perfect fa- fact because he's fact-checking, reflecting, audited results and stuff like that. It was fact-checked, so sort of fact-checking-

Tim Ferriss 18:14 Mm-hmm

Nassim Nicholas Taleb 18:14 ... the importance of tail hedging-

Speaker 18:17 For society. So, and, and that to me is great- greater than, than that detail. So, you know, it's just like-

Tim Ferriss 18:23 Mm-hmm

Speaker 18:23 ... having, having finally a document of someone who bothered to look at the details and, and went through a rigorous-

Tim Ferriss 18:32 Many hours of interviews and-

Speaker 18:34 Yeah, it sounded like that

Tim Ferriss 18:34 ... interviews and-

Speaker 18:35 Reviewing documents and...

Tim Ferriss 18:37 Double-checking the-

Speaker 18:38 Yeah

Tim Ferriss 18:38 ... facts versus

Tim Ferriss 18:39 anecdote. So what-

Speaker 18:40 Yeah

Tim Ferriss 18:40 ... what compelled you to write this book? Of all the things that you could write on, why did you choose to write this one?

Speaker 18:49 The birth of the idea of the book was in early 2020, and we all remember what was happening in early 2020. [laughs]

Tim Ferriss 18:59 Mm-hmm.

Speaker 19:00 The world seemed to be unraveling. You know, we had COVID, we had, you know, protests in the streets. We had extreme political uncertainty in this country. Lots of things going on. So f- the first thing that happened was in, you know, March, April of 2020, it came out that Universa had posted a three-month return of more than 4,000%-

Tim Ferriss 19:36 [laughs]

Speaker 19:38 ... on their positions, which was quite eye-catching [laughs] and got a lot of news. I, you know, reached out to Mark and was like, "Holy crap, what, you know [laughs] how did you guys do that?" So that happened, and then I came across a paper that Nassim had co-written in January of 2020 about COVID, and he... It was a, a, you know, glaring warning to the world that this, that this virus was very deadly, and people needed to take extreme precautions against what was coming, you know, by social distancing, other things, advice to politicians, that they needed to be very aggressive about this. And it, it kinda occurred to me, you know... I'd known Nassim and Mark for a long time, and I thought, "These two guys, we're in a period of extreme duress where lots of people are just kinda looking really bad. They're collapsing, they're losing money, they're making really bad decisions about COVID. Everybody is confused. These two guys seem to be [laughs] coming out of this period of really, you know, insane, insane period looking very smart." So I, I thought, "What is it about their worldview that allows them to go into a period that makes a lot of people look dumb, look very smart?" [laughs] You know, there's gotta be s- there's something about that, you know, that can map from what Universa does to what Nassim does, and it's, it's this view of the world of, you know, black swans, of extreme events, of being prepared for them, and- And know what class of events you should be prepared against. In other words, know where they could be coming from.

Tim Ferriss 21:24 Which he'd been thinking about for years.

Speaker 21:26 And pandemics, for me, was something I was working on since 2007.

Tim Ferriss 21:31 Mm-hmm.

Speaker 21:31 I even discussed it in The Black Swan.

Tim Ferriss 21:33 Mm-hmm.

Speaker 21:34 That pande- what you have to worry about is a pandemic before a financial meltdown because of connectivity. We're no longer, uh, like in the 1800s where, you know, you could have a crisis here and not there. Everything's so connected, and physically-

Tim Ferriss 21:48 Yeah, it's exponential

Speaker 21:49 ... in, in the, in the financial world, and the same thing in the physical world. You see, the, the, the, the plague, the Great Plague took, uh, something like 300 and some years to go from Constantinople to northern England. 300-some years. Today, it's just a weekend.

Tim Ferriss 22:06 Weekend.

Speaker 22:06 For, for the whole thing. For, for, to, to, to, to, to spread entirely, uh, through the entire planet.

Tim Ferriss 22:10 Flying on Lufthansa or-

Speaker 22:11 And Justinian's plague could not come to the Americas. There were no Air France or no ships at the time. And, and now, [laughs] visibly, they, it, it can. So what I'm saying is that we are in a different environment. Just like culturally things can spread, you have the global effect, the same thing should apply to pandemics.

Tim Ferriss 22:30 Mm-hmm.

Speaker 22:31 So this is why we were working on, Yanier and I, and, and other people, on, on pandemics.

Tim Ferriss 22:36 You know Yanier Rahman.

Speaker 22:37 And particularly a fellow who is probably one of the smartest people I've ever met, who was the head of civil service in Singapore at the time, and then retired later. And he... We were all obsessed with a great pandemic that would come, and we thought it was gonna be Ebola. So I mean, you had to worry about pandemics. And later on, I wrote a financial pa- uh, I wrote a paper, not a financial. I wrote a, a, a scientific paper, a scholarly paper on pandemics that I didn't really finish, and when the pandemic struck, we put it in Nature Physics to... And it went counter... Nature Physics is a very prestigious [laughs] as you can guess, scholarly publication, and it silenced a lot of the epidemiologists who were, like, nitpicking, like similar to economists, like, nitpicking when, when you have the, these, what I call extreme properties.

Tim Ferriss 23:29 Mm-hmm.

Speaker 23:30 And at the time in early 2020, you had a lot of epidemiologists, even the WHO, saying, "We don't understand the nature of this pathogen. We need to wait and figure it out." You know, the advice was, let's... Kinda like the, what's the, the movie about climate change? Don't Look Up?

Tim Ferriss 23:49 Don't Look Up.

Speaker 23:50 Where the, [laughs] the president is saying, "Let's sit tight and assess."

Tim Ferriss 23:54 Mm-hmm.

Speaker 23:54 That's what the message was that we were getting from our health authorities in early 2020, was sit tight and assess, and that's a recipe for disaster. Nassim and his group were saying, "Take action now. If you wait around to sit tight [laughs] and assess, you're screwed-" Exactly.

Tim Ferriss 24:11 "... 'cause it's too late."

Speaker 24:12 If you must panic, panic early.

Tim Ferriss 24:13 Panic early, Nassim.

Speaker 24:14 If you must panic, panic now.

Tim Ferriss 24:16 Mm-hmm. Yeah.

Speaker 24:16 Say, like in finance and anything, you go, get out now. When it was easy, for example, to limit the flights out of Wuhan or

Nassim Nicholas Taleb 24:25 It was, you didn't have to do lockdowns. You could do lockouts.

Tim Ferriss 24:29 Mm-hmm.

Nassim Nicholas Taleb 24:29 I mean, there were methods used by the Ottomans. You know, just-

Tim Ferriss 24:31 By the Ottomans?

Nassim Nicholas Taleb 24:32 Yeah, to install. The Ottoman and the Austrians had, you know, uh, the, the world was separate, but they had a lot of traffic, and it went through what they call quarantine spots.

Tim Ferriss 24:43 Mm-hmm.

Nassim Nicholas Taleb 24:44 So you would go into a sort of hospital that has quarantine, and it's seven days one way and nine days the other day. [laughs]

Tim Ferriss 24:50 Mm-hmm.

Nassim Nicholas Taleb 24:50 And they would implement that the minute they smelled-

Tim Ferriss 24:53 Anything of-

Nassim Nicholas Taleb 24:54 Anything, right?

Tim Ferriss 24:55 Illness.

Nassim Nicholas Taleb 24:55 And, and they had rules. If you come from India, it's more days. They had, they had these rules. The Ottoman had these rules, and, and it, it's not, didn't come from the Ottoman. It's long experience dealing with-

Tim Ferriss 25:05 Mm-hmm

Nassim Nicholas Taleb 25:05 ... pandemics and how you stem them by stopping them at the border. Uh, the, the, these things were called lazarettos.

Tim Ferriss 25:11 Mm.

Nassim Nicholas Taleb 25:12 And towns that did not have lazarettos... Venice, of course, they were a maritime power, they had lazarettos. They did very well. But Marseille, France, was decimated because they didn't have lazarettos.

Tim Ferriss 25:25 The lessons we need to learn repeatedly.

Nassim Nicholas Taleb 25:27 We have to learn from history how people handled that. They cut it in the egg, that's it.

Tim Ferriss 25:31 Yeah.

Nassim Nicholas Taleb 25:32 And it's easier to check people at the border. And you don't need to have quarantine.

Tim Ferriss 25:36 Mm-hmm.

Nassim Nicholas Taleb 25:36 You can just test at the border. We didn't test in the United States at the border until a year and one month into the pandemic. I don't understand. You have lockdowns, but you don't have lockouts. I mean, just test at the border. Just test people at the border. That would probably reduce... The fellow from Singapore was testing at the border.

Tim Ferriss 25:55 Mm-hmm.

Nassim Nicholas Taleb 25:55 He said the only way to control it is by knowing, especially testing people without they're being aware of it.

Tim Ferriss 26:02 Mm-hmm.

Nassim Nicholas Taleb 26:03 And they started the first thing where they detect temperature-

Tim Ferriss 26:05 Temperature gauge

Nassim Nicholas Taleb 26:05 ... before I'm telling you about these temperature things-

Tim Ferriss 26:07 Yeah

Nassim Nicholas Taleb 26:07 ... secretly at Singapore. So it was, it was really-

Tim Ferriss 26:09 I guess they had a warm-up with SARS, so they had the thermic-

Nassim Nicholas Taleb 26:12 Exactly. They had the-

Tim Ferriss 26:13 ... thermal cameras

Nassim Nicholas Taleb 26:13 ... but they, he, he's the one who started it.

Tim Ferriss 26:15 Mm.

Nassim Nicholas Taleb 26:15 And they were doing it secretly before it became public.

Tim Ferriss 26:18 Yeah.

Nassim Nicholas Taleb 26:18 So people wouldn't take antipyretic drugs-

Tim Ferriss 26:22 Mm-hmm

Nassim Nicholas Taleb 26:22 ... before landing. The whole idea is that you have to find fixes, and they're not complicated.

Tim Ferriss 26:26 Mm-hmm.

Nassim Nicholas Taleb 26:27 And, and one analogy I'm gonna give is the banking system, is that the banking system, banks, monstrously profitable enterprises. They make money off of your, the float, the money you have l- left there, the check you didn't cash, right, or stuff like that. They make tons of money. And guess what? They blow up on the risks that bring them a tiny amount of money.

Tim Ferriss 26:51 Hmm.

Nassim Nicholas Taleb 26:52 You see, selling that option that explodes every 10 years by saying, "Oh, no, we're in a different environment. It'll never happen." So sitting on dynamite. So that tiny, tiny, tiny tail option is what costs the banking system. They lost more money than ever made in the history of banking in 1982, money center banks, that is, and did the same 2007, okay? And the business is hugely profitable except for that tail event. So I'm saying that if you just remove that-

Tim Ferriss 27:18 Mm-hmm

Nassim Nicholas Taleb 27:19 ... banks would do well. It's the same thing in society. If you figure out how to remove that tail risk-

Tim Ferriss 27:24 Mm-hmm

Nassim Nicholas Taleb 27:24 ... sometimes it's not complicated.

Tim Ferriss 27:27 Well, let me ask. I'll stand in for the audience and also for myself, and not to throw my audience under the bus,

Tim Ferriss 27:31 but why don't the banks... What are the incentives or the circumstances that prevent them from taking, taking a certain percentage of their assets and allocating it to something like a universa so that they are less at risk in that way?

Nassim Nicholas Taleb 27:50 They just don't have to do that. They could just avoid some trades. But let me explain to you the dynamics of-

Tim Ferriss 27:56 Mm-hmm

Nassim Nicholas Taleb 27:56 ... the bonus system, and this is, this led to my book, Skin in the Game-

Tim Ferriss 28:01 Mm

Nassim Nicholas Taleb 28:01 ... later on. If you have skin in the game, you're gonna worry about blow-up because it's your money. If you don't have skin in the game, you're CEO of a company or you're a fund manager, and any, any kind of financial venture, what is your incentive? It's to print good numbers because you don't pay for the downside. So you print good numbers, you take, you, you, you, you collect money on, on the profits.

Tim Ferriss 28:26 Annual bonus.

Nassim Nicholas Taleb 28:27 Annual bonus. So this I call-

Tim Ferriss 28:29 Incentives

Nassim Nicholas Taleb 28:29 ... a generalized Bob Rubin trade. Generalized Robert Rubin trade. He made $100 million at Citibank or Citicorp, Citi, something. Over 10 years, about 10 years, he collected $100 million in compensation. The bank was insolvent in 2008, near insolvent. It w- if it weren't for, for the taxpayer.

Tim Ferriss 28:50 Mm.

Nassim Nicholas Taleb 28:50 And it was the last minute. All he had to do is, you know, write an apology letter. "We didn't see these events."

Tim Ferriss 28:59 [laughs]

Nassim Nicholas Taleb 28:59 "This was a black swan named after a book by a very, very stubborn man," okay?

Tim Ferriss 29:03 [laughs]

Nassim Nicholas Taleb 29:04 So something like that. So th- that's all they have to do, is say, "I'm sorry," right? You keep your bonus.

Tim Ferriss 29:08 Man, I'm in the wrong business. [laughs]

Nassim Nicholas Taleb 29:09 You don't show up to work. So this you can generalize. It's the same thing with supply chain.

Tim Ferriss 29:13 Mm-hmm.

Nassim Nicholas Taleb 29:13 With the supply chain, a lot of firms concentrated everything on one supplier-

Tim Ferriss 29:18 Mm-hmm

Nassim Nicholas Taleb 29:18 ... instead of being diversified. What did that lead to, right?

Tim Ferriss 29:22 Mm.

Nassim Nicholas Taleb 29:23 Okay, better bottom line, but what I call pseudo-efficiency because they're short that option, and it so happened that if their supplier is in Wuhan, guess what? You got a problem, all right?

Tim Ferriss 29:34 You got problems.

Nassim Nicholas Taleb 29:35 But that problem was not, doesn't show in the numbers. It shows after it happens.

Tim Ferriss 29:39 Mm-hmm. It's the dark side of optimization.

Nassim Nicholas Taleb 29:41 Exactly, what I call pseudo-optimization. Like, if you drive a Ferrari 500 kilometers per hour, you're not gonna get there faster than if you ride a bicycle, 'cause odds are you're never gonna get there.

Tim Ferriss 29:53 [laughs]

Tim Ferriss 29:54 Nassim, I have a question for you about a letter, and then I have a question for you about personalities, Scott. Temperament may be another way to put it. So the, is it true that you wrote a resignation letter your first day at a trading job and put it in your desk drawer? I read this on the internet. I don't know if it's true. You can't believe everything you read.

Nassim Nicholas Taleb 30:14 I-

Tim Ferriss 30:14 But it was from The Guardian, so I thought it might be credible.

Nassim Nicholas Taleb 30:17 No, I-

Tim Ferriss 30:17 [laughs]

Nassim Nicholas Taleb 30:17 So this is, one thing is actually, as I said, I recommend people do that.

Tim Ferriss 30:21 Ah.

Nassim Nicholas Taleb 30:23 I did that, but it was, I wrote that but not on the day I started.

Tim Ferriss 30:27 Mm-hmm.

Nassim Nicholas Taleb 30:27 But I recommended that people Write the re- re- because you, you feel relief when you do it.

Tim Ferriss 30:33 Mm-hmm.

Nassim Nicholas Taleb 30:34 Because then you can continue on your job without feeling like someone's controlling you.

Tim Ferriss 30:43 You've got the gun loaded. [laughs]

Nassim Nicholas Taleb 30:44 The whole idea of a plan B, you solve that, that problem.

Tim Ferriss 30:47 Mm.

Nassim Nicholas Taleb 30:47 So you write the resignation letter, and you don't date it, right? [laughs]

Tim Ferriss 30:53 Mm-hmm. Yeah.

Tim Ferriss 30:55 [laughs] I'm very fascinated by your ways of thinking, the way that you've embraced different philosophies, and you emailed me an aphorism in 2010, and you can correct me if I get any of the wording wrong, but it stuck with me. Uh, so this is in 2010. Here's the aphorism or the quote. "Robustness is when you care more about the few who like your work than the multitude who hates it," and then in parentheses, artists. "Fragility is when you care more about the few who hate your work than the multitude who loves it," and then in quotation marks, politicians. Have you always had that type of robustness or resilience against criticism? Is that something that is inborn?

Nassim Nicholas Taleb 31:42 Maybe because I was never really someone who took, you know, established ideas at face value.

Tim Ferriss 31:51 Mm-hmm.

Nassim Nicholas Taleb 31:51 So you necessarily have... You, you know, violate some norms.

Tim Ferriss 31:56 Mm.

Nassim Nicholas Taleb 31:56 Some thinking norms. And often people protect those norms by, you know, attacking your reputation. And I realized that while writing Fooled by Randomness, they say, "Hey, you, you're saying that what I'm doing is random or using the wrong models. These don't work." So they attack your reputation. So I realized quickly that it was time, that my reputation was gonna be under some kind of fire, and, and I decided that no, uh, my reputation is how a few important people or people who know something about the subject view me.

Tim Ferriss 32:33 Mm.

Nassim Nicholas Taleb 32:34 And it's not like I don't care about my reputation. I only care about my reputation in some circles, and it was people I can talk to, to try to explain what it's about, and it has worked out.

Tim Ferriss 32:45 Mm.

Nassim Nicholas Taleb 32:46 So but if you're, uh, like if you have to go defend your reputation and you're doing the right thing, it's too much energy wasted, and it's not gonna help. Haters are gonna hate.

Tim Ferriss 32:58 Mm.

Nassim Nicholas Taleb 32:59 I ha- I think there's, this resembles another aphorism inspired by Charlie Munger's. Charlie Munger's, is that do you wanna be the most ethical person when people think that you're corrupt, or do you wanna be the most corrupt person when people think that you're ethical?

Tim Ferriss 33:15 Mm.

Nassim Nicholas Taleb 33:16 Make your choice and use it as a guideline. It's the same thing. So except that the, you know, there's something in between is that there's some people I care about, and I want them, you know, to not lose respect for me.

Tim Ferriss 33:29 Mm.

Nassim Nicholas Taleb 33:30 And of course, you start with your mother, you have your children or whatever, your family members, but there are also, there's a l- lot of people on the planet, and I care about my reputation, but in these circles, not with the general public.

Tim Ferriss 33:44 Mm.

Nassim Nicholas Taleb 33:44 So it allows you to take much, much more aggressive positions, which I've done over a long life. And Mark, for example, has a lot of enemies.

Tim Ferriss 33:53 Mm-hmm.

Nassim Nicholas Taleb 33:54 And they're gonna pick on something, and you don't care. So you're doing the right things. And, and how do you know you're doing the right thing? If people you respect approve of your action, not if the general public does.

Tim Ferriss 34:09 So that segues to my question for you, Scott, which is in the, in the process of doing all of these interviews and interacting with these various players on the field and these sort of practitioners, these investors, and so on, have you s- have you identified any patterns that you think, whether nature or nurture, that seem to recur in people who are good at what you describe in the book?

Speaker 34:36 I would say, I mean, across all three books that I've written, which are generally focused on Wall Street trading hedge fund managers. I've met a lot of hedge fund [laughs] managers-

Tim Ferriss 34:49 Mm

Speaker 34:49 ... over the years. None like this guy, I have to say. [laughs]

Tim Ferriss 34:53 [laughs] We'll probably come back to that.

Speaker 34:54 But- [laughs]

Nassim Nicholas Taleb 34:55 I tell you, I don't want to be identified as a hedge fund manager.

Speaker 34:58 Y- yeah, that's true. [laughs]

Nassim Nicholas Taleb 34:58 It's an identity thing.

Speaker 35:00 I would say that's probably why you're not like them.

Tim Ferriss 35:03 [laughs]

Speaker 35:05 Many are very focused on making a lot of money.

Tim Ferriss 35:08 Mm-hmm.

Speaker 35:08 That's a very common trait. I mean, Mark, you know, he, he talked to me about how, you know, he grew up in the '80s. He identified with the, you know, Reagan era. It was a time of, you know, Wall Street, greed is good. He told me, he's like, "Did I have a little greed in me? Yeah, I did. It was the '80s." He grew up in a family that was kinda, you know... His father was a minister in a church. He was sort of a hippie, didn't believe in pursuit of wealth. Mark took the exact [laughs] opposite view of that, and that was constantly something driving him, was the desire to, to make money.

Tim Ferriss 35:52 Mm-hmm.

Speaker 35:53 A lot of other hedge fund managers I've met over the years just, they have that drive, and it's something that many people look at these guys and think, you know, "You're worth $1 billion. You're worth $2 billion, and yet you're a maniac." [laughs] You s- you go into work every day and just go, you know, crazy. You drive all your employees crazy 'cause you wanna be richer than the next guy.

Tim Ferriss 36:20 Mm-hmm.

Speaker 36:21 I don't think Mark has that, you know, quite that sort of insane level of greed as some do. I've, I've met Ken Griffin-

Tim Ferriss 36:29 Mm

Speaker 36:29 ... the founder of Citadel, a disciple of Ed Thorp, who we talked about-

Tim Ferriss 36:34 Mm

Speaker 36:34 ... we might talk about later. Cliff Asness, who is a, a- Stark enemy of, of-

Nassim Nicholas Taleb 36:40 No, friend fr- initially

Speaker 36:41 [laughs]

Nassim Nicholas Taleb 36:42 Initially a friend.

Speaker 36:43 Yeah, and I, I have to say Cliff is a, is a nice guy when you, when you meet him. He's-

Nassim Nicholas Taleb 36:47 Not a nice guy, but he's a fr- I have friends who are not nice guys

Speaker 36:50 He's also got a dark side. Also somebody extremely focused on being wealthy. Very smart. They're all extremely smart, and I think that's one of... In personalities, that's, I think, one of the things that helps, has helped drive my books, is these are interesting people.

Nassim Nicholas Taleb 37:06 Yeah.

Speaker 37:07 You know, a lot of them are mathematicians, scientists. They come out of university with a, a different expertise in making money, but then they apply that on Wall Street to making money. So it's a combination of, you know, a lot of them, they have to be leaders. They are extremely driven. It's... It, it baffles me, 'cause I'm not like that, you know? I have [laughs] a degree in English, and I think that's actually why I sympathize with Nassim's writing so much, is I came out of a tradition that, you know, I, you know, love the works of Dostoevsky and existentialism and, you know, one of my favorite books is The Irrational Man.

Nassim Nicholas Taleb 37:53 Mm-hmm.

Speaker 37:54 And I came into Wall Street and started reading about how there's this belief that people are rational, and the markets are rational, and they are predictable because of this, and I thought, "That is just crazy." [laughs] You know, to me, I look at financial markets, and I see black swans. I, I see fear and greed.

Nassim Nicholas Taleb 38:15 Mm.

Speaker 38:15 That, to me, is what drives markets, not rational behavior, rational expectations.

Nassim Nicholas Taleb 38:20 Mm-hmm.

Nassim Nicholas Taleb 38:22 So what are some of the things that make Nassim different or unique in, in those you've interacted with? I have, I have some of my own questions and, and thoughts on this, but I want... I would love to hear yours.

Speaker 38:36 Yeah. Well, I mean, he, he mentioned his contrarian nature.

Nassim Nicholas Taleb 38:39 It's not a contrarian nature. It's independent. So you're gonna be-

Speaker 38:42 I'll let him answer his [laughs]

Nassim Nicholas Taleb 38:42 ... in line with that. I mean, people think I'm contrarian. I'm, I'm with the conspiracy theorists on many of the things. I'm against them on many other things.

Speaker 38:50 Mm-hmm.

Nassim Nicholas Taleb 38:51 Some are just contrarian because they have a father problem.

Speaker 38:53 [laughs]

Nassim Nicholas Taleb 38:55 So to me, contrarian is an expletive, expletive rather than an attribute. So but the other thing is I... It's not gonna be about me. It should be about the idea, the precaution.

Speaker 39:04 Mm-hmm.

Nassim Nicholas Taleb 39:04 The other risk-

Speaker 39:05 Well, he's a lot more interested in literature and-

Nassim Nicholas Taleb 39:09 Mm-hmm

Speaker 39:09 ... philosophy and, and not financial market. That's just his thing that just drives him. He doesn't look at the stock market page, you know, every day like some people do. He's-

Nassim Nicholas Taleb 39:21 No, but you, you have to figure out what people envy yourself.

Speaker 39:23 Mm-hmm.

Nassim Nicholas Taleb 39:24 So, you know, if you're in, in a hedge fund business and, and you have $500 million in the bank and someone else has $600 million, you're gonna be envious of that person.

Speaker 39:36 Mm-hmm.

Nassim Nicholas Taleb 39:36 I was always envious of people who had more erudition than me.

Speaker 39:40 Mm-hmm.

Nassim Nicholas Taleb 39:41 Okay? So more erudite.

Speaker 39:42 Mm-hmm.

Nassim Nicholas Taleb 39:43 And, and you're, you realize that that's what makes me tick, is I don't wanna... So you f- feel it's not... This is, you know, being envious is not good.

Speaker 39:50 Mm-hmm.

Nassim Nicholas Taleb 39:51 But at the same time, if you figure out who you tend to envy [laughs]

Speaker 39:56 Mm-hmm

Nassim Nicholas Taleb 39:58 ... it's not... I don't believe in this, they say, oh, people having enough. There's someone... You're from East Hampton.

Speaker 40:03 Mm-hmm.

Nassim Nicholas Taleb 40:03 The fellow who wrote Catch 22.

Speaker 40:05 There's a lot of interesting folks out there. Yeah.

Nassim Nicholas Taleb 40:07 Yeah. He met a, a financier at the time for hedge funds.

Speaker 40:11 Mm-hmm.

Nassim Nicholas Taleb 40:11 And the, the financier said, "What is it that... about you," because he was an author-

Speaker 40:17 Mm

Nassim Nicholas Taleb 40:17 ... a very successful one. "What is it that distinguishes you from me?"

Speaker 40:23 Mm-hmm.

Nassim Nicholas Taleb 40:23 You know? Look, he told him, "I know the meaning of enough."

Speaker 40:27 Mm-hmm.

Nassim Nicholas Taleb 40:27 [laughs] Right? So in other words, he knows your upper bound.

Speaker 40:30 Mm-hmm.

Nassim Nicholas Taleb 40:30 And effectively, I don't play that game. I say, "You know, there isn't meaning." I am literally, and I say, envious of people who are erudite.

Speaker 40:39 Mm-hmm.

Nassim Nicholas Taleb 40:40 Like, if someone knows Latin very well, I'm, I'm envious.

Speaker 40:44 Mm-hmm.

Nassim Nicholas Taleb 40:44 Someone knows Sanskrit, I'm envious.

Speaker 40:47 Right.

Nassim Nicholas Taleb 40:47 So that's, that's... And I discovered that early on. So I made money on Wall Street because I wanted to make money on Wall Street, but I didn't think it was worth the effort.

Speaker 40:56 Mm-hmm.

Nassim Nicholas Taleb 40:56 And luckily [laughs] it was a combination with universal, so I had so much leverage with marketing and all that stuff, so, so the spillover on me was more than satisfactory. So I have, knock on wood, a lot more than I wished.

Speaker 41:08 So part of the reason I'm asking, we're, we're talking about the ideas, but the, the person who's acting as the vessel or communicator of these ideas, the developer of these ideas is integrally related to, I think, the sort of totality that I want to explore. So a part of what interests me about your story and your thinking is how various inputs have impacted your thinking around not just markets, but other things. And so, uh, for instance, like the Stoics and the Seneca the Younger and so on, or other philosophical inputs, did those come early and then aid you, you think, in your career when you were active in the markets, or did those come later and you sort of had a, always had a deep interest but were able to explore them at a later point?

Nassim Nicholas Taleb 41:58 No, it's actually, I started liking the Stoics and all those people I've talked about. I liked them much earlier on in my life.

Speaker 42:04 Mm-hmm.

Nassim Nicholas Taleb 42:05 But I went overboard giving a... For every idea I've had, I did the exact opposite of what one should do is, like, if you had an idea, say, "Oh, I have this idea," right? Is go look because I, I don't consider myself so different from others.

Speaker 42:21 Mm-hmm.

Nassim Nicholas Taleb 42:21 And then particularly when you look at history of, you know, so many tens and thousands survive, of scholars surviving works. So I went back and figured out of the scholars, of these scholars, uh, who had similar ideas or who preceded the ideas.

Speaker 42:40 Mm-hmm.

Nassim Nicholas Taleb 42:41 So and who started things like that. So I went into the empirics, the empirics, the- This, the Eastern Mediterranean Greco, Levantine, Greco-Roman, mostly using Greek language thinkers. And, and then of course and to others about this fundamental skepticism because I notice a lot of people are skeptical, particularly conspiracy theorists, they're skeptical of small things, but not about big ones.

Tim Ferriss 43:08 [laughs]

Nassim Nicholas Taleb 43:09 All right? And, and, and so they get, they get taken for a ride. It's find me a conspiracy theorist or find me someone who's naturally skeptic of all things, and I'll show you a turkey.

Tim Ferriss 43:18 [laughs]

Nassim Nicholas Taleb 43:19 You see? So I wanted to find people who are fundamentally skeptic, being skeptic, and being skeptic about important things, not-

Tim Ferriss 43:25 Mm

Nassim Nicholas Taleb 43:25 ... about small things because that's-

Tim Ferriss 43:26 What would be an example of a big thing that they would be skeptical of?

Nassim Nicholas Taleb 43:31 I wrote a paper, it never ended up in a book, on the stock market and religion, right? It's called The Bishop and The Economist.

Tim Ferriss 43:39 [laughs]

Nassim Nicholas Taleb 43:40 And, and I said that those who are skeptical about the existence of God and non-existence of God, skeptical about religious matters, typically tend to be complete suckers when it comes to stocks. They believe in the stock market or believe in some kind of pseudoscientific theory on whatever it is. Okay? So they believe in, but they don't believe in religion.

Tim Ferriss 44:03 Mm-hmm.

Nassim Nicholas Taleb 44:04 And the reverse, all right? And people who are religious typ- typically, they're harder... And there's some research on that. There's a guy called Barlahmi, Harlahmi, Barhalahmi, I think, who did some studies about skepticism. People go to religion about affairs, skepticism where it matters.

Tim Ferriss 44:21 Mm-hmm.

Nassim Nicholas Taleb 44:22 And, and I wrote about it, I think, in The Black Swan, skepticism where it matters.

Tim Ferriss 44:25 Mm.

Nassim Nicholas Taleb 44:26 And I noticed that a lot of these big skeptics were not skeptical of God and, and, and things, anything you can't do anything about. They were skeptical of the charlatan.

Tim Ferriss 44:36 [laughs]

Nassim Nicholas Taleb 44:37 They're skeptical of things, of someone trying to take advantage of you.

Tim Ferriss 44:41 Mm-hmm.

Nassim Nicholas Taleb 44:41 That's where you exercise your skepticism. Among the great skeptics, there is a bishop, UE. He was probably one, one of the second most erudite person of his time.

Tim Ferriss 44:50 Second most?

Nassim Nicholas Taleb 44:51 Second most. There's a guy called Scaliger. He, he, the guy is phenomenal. He could translate into Arabic. He was a Roman, you know, authors.

Tim Ferriss 45:02 Mm.

Nassim Nicholas Taleb 45:03 Latin authors, and vice versa.

Tim Ferriss 45:04 Oh, wow.

Nassim Nicholas Taleb 45:05 Okay. Scaliger. Scaligeri. There are a lot of... There's Pierre Bayle. Pierre Bayle has, you know, a lot of works. He's one of those skeptics. Hume was one of the skeptics, but these people preceded Hume.

Tim Ferriss 45:17 Mm.

Nassim Nicholas Taleb 45:18 Hume is known because he wrote in a language of a country that had a lot of ships and a lot of trade, you know, across the world. But a lot of these ideas came from, uh, uh, groups of people in France or among Protestants in France, and what's called the, an fideists. And of course originates, of course, in the Levant. And of course, you have the great Al Ghazal.

Tim Ferriss 45:41 Mm-hmm.

Nassim Nicholas Taleb 45:41 The s- the Islamic theologian of Iranian origin, who definitely was, was showing you how, how all these arguments are weak, you know? He could dismantle arguments, okay?

Tim Ferriss 45:55 Mm-hmm.

Nassim Nicholas Taleb 45:55 And by, by showing you to be skeptical about, about, about human arguments about God.

Tim Ferriss 46:00 Mm-hmm.

Nassim Nicholas Taleb 46:00 Okay. A lot more than-

Tim Ferriss 46:01 I think Spinoza is coming out of that same tradition.

Nassim Nicholas Taleb 46:05 Spinoza came-

Tim Ferriss 46:05 Very skeptical.

Nassim Nicholas Taleb 46:06 He was skeptical about the existence of, about the text. But that was, these people say, "Okay, transcend these texts." Okay? "And be skeptical about things that really matter." And there was actually a skeptical school of medicine, practicing medicine.

Tim Ferriss 46:20 Hmm.

Nassim Nicholas Taleb 46:20 In a form. So what, I went back through history. Every time I've had an idea, I would go back and see in history who preceded me. And sure enough, I haven't done enough because every year or so I get a letter from someone, "Hey, how come you missed so and so?" [laughs] Right?

Tim Ferriss 46:38 [laughs]

Nassim Nicholas Taleb 46:39 Okay. And, and sure, sure enough, I go back to the Incerto, and I add that person.

Tim Ferriss 46:43 Hmm.

Nassim Nicholas Taleb 46:44 And this is why it, it has survived, the five books, the Incerto.

Tim Ferriss 46:48 Mm-hmm.

Nassim Nicholas Taleb 46:49 But we're not here to talk about these five books, but this book.

Nassim Nicholas Taleb 46:52 [laughs]

Tim Ferriss 46:52 [laughs] Yes. Well, we're here to talk about whatever comes up, but I do wanna hop over to you, Scott, and maybe discuss something that you had shared with me as a possible bullet in the prep stages for this conversation, which is related to polycrisis and, uh, the, you know, the new age of crisis. What does this refer to?

Speaker 47:18 It's the subtitle of my book. Most people have focused on the first part of the subtitle is How Wall Street Traders Make Billions.

Tim Ferriss 47:27 Mm-hmm.

Speaker 47:27 Second part is In The New Age of Crisis, and I feel like that hasn't gotten that much attention, but part of, you know, what, what I'm trying to argue is that we are seeing a magnification of extreme events-

Tim Ferriss 47:44 Mm-hmm

Speaker 47:45 ... accelerating and overlapping. There's a economist, Adam Tooze, who's coined a phrase called the polycrisis, in which he says these, these crises that are happening on a global scale are interacting in ways that the, the whole becomes greater and worse than the sum of the parts.

Tim Ferriss 48:07 Mm-hmm.

Speaker 48:07 So you've got pandemics, you've got economic instability, financial crises, climate change, which is a big focus of mine in my daily job at the Journal, which I think is, is sort of the, the big one in terms of the ever magnification of, of crises that we're seeing. We're seeing it in the news every day. And what I wanted to do in the, in the book is look at several of these crises and think about how we should be approaching them in a, sort of a, a risk mitigation standpoint, using ideas from people like Nassim I think the, the central idea was, you know, as I was talking about the germ or the idea of the book was can you take ideas that were created on Wall Street for risk mitigation and borrow those and apply those to other forms of, uh, risk management?

Tim Ferriss 49:15 Mm-hmm.

Speaker 49:16 And what Nassim and Mark do is they think about the extreme events and how to protect against them. Nassim co-wrote a paper about this exact issue called The Precautionary Principle.

Tim Ferriss 49:30 This was my next question for Nassim. [laughs]

Speaker 49:32 Yeah, it d- it delineates specific categories of risk that you should take the precautionary principle and apply it to. He has some specific ideas, and he can talk about it way better than I can, but, you know, these are things that can be global, that represent systemic risk to humanity, things that could be exponential-

Nassim Nicholas Taleb 49:53 Must be fat tail or economy-

Speaker 49:54 Yeah, exponential things that have these properties that you need to take extreme precaution and, and not take that risk. Basically, don't, don't play Russian roulette with these, these risks.

Tim Ferriss 50:06 Mm-hmm.

Speaker 50:08 And that's kind of how the book was structured, was first looking at the, the growth of the strategy with Mark and Nassim, and then moving on to these other things that the world is facing and seeing if we could think about ways to protect against these risks. Something like climate change, you don't really wanna mess with that [laughs] you know? It's a, it's a bit too late. We still have... But there's still lots of things that we can do. That's, I think, the book in a nutshell.

Tim Ferriss 50:40 Mm-hmm.

Speaker 50:41 I was gonna mention earlier when you asked me about the birth of the i- idea of the book, when I first suggested it to Nassim and Mark, Nassim said, "No way. I'm not [laughs] ... I have no interest in, in doing that with you." It took a while.

Tim Ferriss 50:58 And then you were like, "I have these black and white photos you might wanna take a look at." [laughs]

Speaker 51:01 [laughs]

Tim Ferriss 51:01 So how'd you convince him to do it? [laughs]

Speaker 51:04 It was, we were down. I, I think it was more Mark-

Tim Ferriss 51:08 Impressed

Speaker 51:09 ... put the screws on.

Nassim Nicholas Taleb 51:10 No, no, no. Let me tell you what happened.

Speaker 51:11 [laughs] I actually don't know. I know that eventually he said he would do it.

Nassim Nicholas Taleb 51:14 I extracted the promise from him-

Tim Ferriss 51:16 Uh-huh

Nassim Nicholas Taleb 51:16 ... to not be portrayed, to mention that I don't self-identify-

Tim Ferriss 51:21 Mm

Nassim Nicholas Taleb 51:21 ... as a finance person.

Tim Ferriss 51:24 Mm-hmm.

Nassim Nicholas Taleb 51:24 Okay? And once he made that promise-

Tim Ferriss 51:28 Mm

Nassim Nicholas Taleb 51:28 ... okay, I said, "Okay, now we can talk because finance represents a significant part of my life."

Speaker 51:34 Yeah.

Tim Ferriss 51:35 Mm-hmm.

Nassim Nicholas Taleb 51:36 But I don't want-

Speaker 51:36 This has been a theme with Nassim ever since I've known him.

Tim Ferriss 51:39 The identity piece?

Speaker 51:39 The, yeah, that he's-

Nassim Nicholas Taleb 51:40 It's an identity thing

Speaker 51:41 ... he's not a trader.

Tim Ferriss 51:42 Yeah.

Speaker 51:42 And I, and I thought I agreed because it's true. [laughs] It's... You know, he, he's not been a trader for a long, long time.

Tim Ferriss 51:50 Yeah.

Speaker 51:50 And it's obvious what, you know, where his interests are and...

Tim Ferriss 51:53 I have to ask, so what would it mean or feel like for you to be broadly identified as a finance person, but to think of yourself more as a scholar?

Nassim Nicholas Taleb 52:03 I wrote about it in, in Fooled by Randomness.

Tim Ferriss 52:05 Okay.

Nassim Nicholas Taleb 52:06 George Soros... And I met George Soros.

Tim Ferriss 52:08 Mm.

Nassim Nicholas Taleb 52:09 One of the persons on the planet who impressed me the most.

Tim Ferriss 52:11 Mm-hmm.

Nassim Nicholas Taleb 52:12 One of those. And I realized that George Soros missed his career.

Tim Ferriss 52:19 Mm.

Nassim Nicholas Taleb 52:19 He wanted to be a philosopher and a thinker.

Tim Ferriss 52:22 Mm-hmm.

Nassim Nicholas Taleb 52:23 Okay? He ended up making money and spending too much time in it, and wrote junk articles and, and books. Or I think one book.

Tim Ferriss 52:30 The Alchemy of Finance.

Nassim Nicholas Taleb 52:31 So yeah, it was not what he wanted out of life. Okay? He's a middle European intellectual who would've liked to be remembered as someone for, who had ideas.

Tim Ferriss 52:42 Mm-hmm.

Nassim Nicholas Taleb 52:43 And he envied, of course, Karl Popper, who he claims was his professor, but it was beyond. So I wrote about it in Fooled by Randomness.

Tim Ferriss 52:50 Mm.

Nassim Nicholas Taleb 52:50 I said, "Here's this fellow who is..." Say, okay, but he also does, to distinguish himself from other financiers, he's also or would, has intellectual aims. I said, "I don't wanna be that."

Tim Ferriss 53:04 Mm-hmm.

Nassim Nicholas Taleb 53:04 I wanna be someone who produces intellectual work and who happens to have had contact with reality-

Tim Ferriss 53:13 [laughs]

Nassim Nicholas Taleb 53:13 ... thanks to trading.

Tim Ferriss 53:15 Mm-hmm.

Nassim Nicholas Taleb 53:15 And thanks to Mark and the guys, I still have some contact with reality.

Tim Ferriss 53:19 Mm-hmm.

Nassim Nicholas Taleb 53:20 But, but, but I'm, I was not, I'm not cut for that, and I don't wanna be in it. So when I was writing Fooled by Randomness, it was 2019, that I realized I was not, I don't wanna be like Soros.

Tim Ferriss 53:33 Mm.

Nassim Nicholas Taleb 53:33 Because unlike Buffett and the other people, Soros had an identity crisis. He wants to be known as a philosopher. Okay? He said life took control of him.

Tim Ferriss 53:42 Mm-hmm.

Nassim Nicholas Taleb 53:43 He didn't control life.

Speaker 53:43 Buffett told me he wanted to write a book. I used to cover him, and I was leaving the Journal at the time to write my second book, and he was like, "Oh, I really always wanted to write a book and, yeah, never got around to it." And so there you go with, you know, the Oracle of Omaha.

Tim Ferriss 54:01 Yeah.

Speaker 54:01 He wants to be thought of as an intellectual too, [laughs] but he's just-

Nassim Nicholas Taleb 54:04 Well, I mean, it's, it's not the same. But, but the, the, the-

Speaker 54:07 Not the same as Soros

Nassim Nicholas Taleb 54:07 ... the Sage of Omaha has something that I didn't put in The Precautionary Principle, but that's probably very inspiring, because he understood the asymmetry.

Tim Ferriss 54:16 Could you-

Nassim Nicholas Taleb 54:16 If you say no 1,000 times-

Tim Ferriss 54:18 Mm

Nassim Nicholas Taleb 54:19 ... he says no if you doubt. And that's the precautionary

Nassim Nicholas Taleb 54:22 principle.

Tim Ferriss 54:23 So could you give people the precautionary principle 101, just to back up? Yeah.

Nassim Nicholas Taleb 54:27 Okay, let me ask you. You're Tim Ferriss flying to go to Mexico.

Tim Ferriss 54:33 Okay.

Nassim Nicholas Taleb 54:34 You go to JFK.

Tim Ferriss 54:35 Mm-hmm.

Nassim Nicholas Taleb 54:36 And they tell you they have uncertainty about the skills of the pilot.

Tim Ferriss 54:42 Mm-hmm. [laughs]

Nassim Nicholas Taleb 54:42 But we think he's good, but there's uncertainty. What do you do?

Tim Ferriss 54:45 I do not fly.

Nassim Nicholas Taleb 54:47 You're not gonna get on that plane.

Tim Ferriss 54:48 I'm not gonna get on that plane.

Nassim Nicholas Taleb 54:48 You say, "Okay, life is too important for me."

Tim Ferriss 54:51 Mm-hmm.

Nassim Nicholas Taleb 54:51 You can take a train, you take a, you walk maybe, you ride a bicycle, you know, take a few months. But you're not gonna get on that plane.

Tim Ferriss 54:59 Mm-hmm.

Nassim Nicholas Taleb 55:00 Right? Okay, you change your plans and say, "Okay, there are other planes or other countries to... And other planes." So-

Tim Ferriss 55:05 Mm-hmm.

Nassim Nicholas Taleb 55:07 That's Warren Buffett and his investments.

Tim Ferriss 55:09 Mm-hmm.

Nassim Nicholas Taleb 55:09 And that's my precautionary principle, the idea that there's an asymmetry.

Tim Ferriss 55:12 Mm-hmm.

Nassim Nicholas Taleb 55:13 Is that, and there's, w- an uncertainty about certain things is not good.

Tim Ferriss 55:17 Mm-hmm.

Nassim Nicholas Taleb 55:18 So the climate, for example, if you have uncertainty about the climate, stop these models, all right? Just don't pollute. You g- gotta, or, or, or try [laughs] to use something else. Try to mitigate.

Tim Ferriss 55:28 Mm-hmm.

Nassim Nicholas Taleb 55:28 So that's the first part of it, and people get it right away when I give them the story of a plane.

Tim Ferriss 55:32 Mm-hmm.

Nassim Nicholas Taleb 55:33 Or I take water. I say, this is glass of water on the table. There's no evidence that it's poisonous.

Tim Ferriss 55:38 Mm-hmm.

Nassim Nicholas Taleb 55:39 Would you drink it?

Tim Ferriss 55:40 [laughs] I mean, the wording would-

Nassim Nicholas Taleb 55:42 There's no evidence... Yeah

Tim Ferriss 55:43 ... would spook me. [laughs]

Nassim Nicholas Taleb 55:43 There's no evidence that, so, but when you tell them, "Hey, you know, you should worry about GMOs." They says there's no evidence they're harmful. Yeah, but there's no evidence that they're not harmful. [laughs]

Tim Ferriss 55:52 Yeah.

Nassim Nicholas Taleb 55:53 Okay? So the asymmetry, where you put the burden-

Tim Ferriss 55:55 Mm-hmm

Nassim Nicholas Taleb 55:55 ... of the, of the asymmetry on, that's the precautionary

Nassim Nicholas Taleb 55:59 principle.

Tim Ferriss 55:59 Mm-hmm.

Nassim Nicholas Taleb 55:59 But then what we did is we noticed a lot of people, in fact, it was a counter precautionary principle because a lot of people were invoking it for nothing.

Tim Ferriss 56:06 Mm-hmm.

Nassim Nicholas Taleb 56:07 To say we're gonna have a non-naive precautionary principle by delineating the areas where you should exercise this precaution-

Tim Ferriss 56:17 Mm-hmm

Nassim Nicholas Taleb 56:17 ... systematically as a planet or as a communal group. And what I would say, number one, you need fat tails. Now, what does fat tail mean? Let me explain to you. Let's say you go to planet Mars, okay? Elon would help you get there.

Tim Ferriss 56:36 [laughs]

Nassim Nicholas Taleb 56:37 You have connection.

Tim Ferriss 56:38 Yeah.

Nassim Nicholas Taleb 56:40 And you have no news from Earth.

Tim Ferriss 56:42 Mm-hmm.

Nassim Nicholas Taleb 56:44 And then on the way back, you hear that a billion people died. Okay? Which one is more likely to be the cause, Ebola or car accidents?

Tim Ferriss 57:01 Ebola.

Nassim Nicholas Taleb 57:02 Ebola. Now, but on a given day, you hear Joe Smith died today.

Tim Ferriss 57:06 Mm-hmm.

Nassim Nicholas Taleb 57:07 What's more likely, Ebola or a car accident?

Tim Ferriss 57:09 Car accident.

Nassim Nicholas Taleb 57:10 Car accident. There we go. That's fat tails. Fat tails, [laughs] you have to identify, do things backwards. If you hear of a big thing, where'd it come from?

Tim Ferriss 57:19 Mm-hmm.

Nassim Nicholas Taleb 57:19 So you identify, and you hedge against these, okay?

Tim Ferriss 57:21 Mm-hmm.

Nassim Nicholas Taleb 57:22 So they have different dynamics because of sc- they scale differently. So in The Black Swan, I show the difference with the following metaphor: There are environments where you may have a large deviation, but it's not gonna be consequential because it can't be very big. So if I take 1,000 people and put them on a scale and add to that sample the largest human being you can find on the planet, how much of the total will he or she represent? Say it's 30 basis point, nothing, okay?

Tim Ferriss 57:55 Yeah.

Nassim Nicholas Taleb 57:55 And then if you go from 1,000 to 10,000-

Tim Ferriss 57:58 Mm-hmm

Nassim Nicholas Taleb 57:58 ... that loses completely. So you can have a tail event that's not gonna be consequential.

Tim Ferriss 58:03 Mm-hmm.

Nassim Nicholas Taleb 58:04 Extremistan is different. Extremistan, if you gather 1,000 people and add to that sample the wealthiest person on the planet, how much of the total will he or she represent?

Tim Ferriss 58:17 Yeah. All of it.

Nassim Nicholas Taleb 58:17 They'd be a rounding error.

Tim Ferriss 58:18 Basically all of it.

Nassim Nicholas Taleb 58:18 They'd be a rounding error. I mean, they'd, they'd be on average on, uh, planet Earth, all right?

Tim Ferriss 58:22 Mm-hmm.

Nassim Nicholas Taleb 58:22 They'd be, in total, maybe they have 2 or 3 million in total, and then you have 100 and some billion right next to it. So, so this is where you have to focus on environment that produces fat tails.

Tim Ferriss 58:32 Mm-hmm.

Nassim Nicholas Taleb 58:33 And this is what Mark did with Inversa. Inversa is named after the universal mechanism that generates fat tails.

Tim Ferriss 58:40 Mm.

Nassim Nicholas Taleb 58:40 Okay? That was, that was the name of, of, of the co- So everything, we're in it basically intellectually, everything, all the details. So we have to identify what produces fat tails in the financial markets and why it's getting thicker. Fat tails means that you have the greatest contribution comes from smallest number of events-

Tim Ferriss 59:00 Mm-hmm

Nassim Nicholas Taleb 59:00 ... or p- so concentration. Like for example, you have a lot of people, all the wealth comes from one person.

Tim Ferriss 59:05 Mm-hmm.

Nassim Nicholas Taleb 59:06 Well, it so happened that under fat tails, the models that we use for risk management on Wall Street are BS. This is why I have a lot of enemies. This is why I have to protect myself against-

Tim Ferriss 59:19 Mm

Nassim Nicholas Taleb 59:19 ... reputational damage, all right? So because all the economists hate me, all their models are based on, on that.

Tim Ferriss 59:26 Mm.

Nassim Nicholas Taleb 59:26 So what is fat tail? Practically everything socioeconomic life is fat tail.

Tim Ferriss 59:32 Mm.

Nassim Nicholas Taleb 59:32 What is not fat tail? Number of calories we're gonna eat tonight.

Tim Ferriss 59:35 [laughs]

Nassim Nicholas Taleb 59:36 How many calories can we have in one day, tonight?

Tim Ferriss 59:39 I mean, we can only go for the gold, I'd say. I, I'd say we could each down a few thousand calories a piece.

Nassim Nicholas Taleb 59:44 2,000. 2,000.

Tim Ferriss 59:45 Yeah.

Nassim Nicholas Taleb 59:45 Say I go for 3,000 for me, all right?

Tim Ferriss 59:48 Yeah.

Nassim Nicholas Taleb 59:48 Be- I can play with fat and stuff, 3,000. That's nothing. How many calories do I consume a year?

Tim Ferriss 59:53 Yeah, it's nothing.

Nassim Nicholas Taleb 59:53 Not a single day is gonna make a difference.

Tim Ferriss 59:55 Mm-hmm.

Nassim Nicholas Taleb 59:55 Can you lose all your money in a single day?

Tim Ferriss 59:57 Yes.

Nassim Nicholas Taleb 59:58 There we go. So you have two environment, and they're separable.

Tim Ferriss 1:00:01 Mm-hmm.

Nassim Nicholas Taleb 1:00:01 So this is why [laughs] the universal approach, it makes things separable, right? The fact that you can identify what is fat tail.

Tim Ferriss 1:00:09 Mm-hmm.

Nassim Nicholas Taleb 1:00:09 You identify where models don't work. You can identify where you have to understand, and we have to use more refined tools to figure out stuff. And then also, in fatness of tails, number one, pandemics.

Tim Ferriss 1:00:23 Mm-hmm.

Nassim Nicholas Taleb 1:00:24 Number two, wars.

Tim Ferriss 1:00:24 Pandemics.

Nassim Nicholas Taleb 1:00:25 A, a close, close second.

Tim Ferriss 1:00:26 Mm.

Nassim Nicholas Taleb 1:00:28 Wars and pandemics, okay?

Tim Ferriss 1:00:29 And so you can use that to prioritize application of the precautionary principle, or?

Nassim Nicholas Taleb 1:00:34 Bingo. A- and let me tell you how. For example, if cancer is thin tails.

Tim Ferriss 1:00:41 Mm-hmm.

Nassim Nicholas Taleb 1:00:41 Nuclear, thin tail. You can di- if you can diversify it, it's thin tails.

Tim Ferriss 1:00:45 Mm.

Nassim Nicholas Taleb 1:00:46 If you can have 1,000 nuclear reactors, all right, if you can insure it, uh, rather than one, it is thin tail. If you can insure it, thin tail. If you can't insure it, non-insurable, fat tails.

Tim Ferriss 1:00:59 Mm-hmm.

Nassim Nicholas Taleb 1:00:59 So there are a lot of things that are- Believed to be very risky, but they're not-

Tim Ferriss 1:01:05 Mm-hmm

Nassim Nicholas Taleb 1:01:05 ... like nuclear for me. I mean, not for my, one of my co-authors, but w- I'll settle it with a, with a beer or some... What's in English?

Tim Ferriss 1:01:14 Rupert Read is a co-author of the, and a- and also a major character in the book.

Nassim Nicholas Taleb 1:01:19 Yeah.

Tim Ferriss 1:01:19 He's a very environmentally focused person. He's a leader in-

Nassim Nicholas Taleb 1:01:24 Yeah

Tim Ferriss 1:01:24 ... climate these days. And, yeah, he, he told me that's one thing that he disputed the, the precautionary principle paper with Nassim was-

Nassim Nicholas Taleb 1:01:33 Which was written with him first, drinking, uh-

Tim Ferriss 1:01:36 Single malt scotch and, uh [laughs]

Nassim Nicholas Taleb 1:01:38 In English. Single malt scotch in, in an English-

Tim Ferriss 1:01:38 In a pub in-

Nassim Nicholas Taleb 1:01:38 In an English pub in somewhere in Northern England-

Tim Ferriss 1:01:41 In East Anglia

Nassim Nicholas Taleb 1:01:42 ... where the portions are, like, smaller than the-

Tim Ferriss 1:01:45 [laughs]

Nassim Nicholas Taleb 1:01:45 ... what they give you for espresso in Italy. You know the espresso?

Tim Ferriss 1:01:48 [laughs]

Nassim Nicholas Taleb 1:01:48 Like, you sip 'em. So the, the... So we had to have, like, again-

Tim Ferriss 1:01:52 20 of them

Nassim Nicholas Taleb 1:01:52 ... it's like with you and the eggs, right?

Tim Ferriss 1:01:54 [laughs]

Nassim Nicholas Taleb 1:01:55 So to go back to the insurable, so we don't have to worry about it. And a very simple example I give is that when Ebola started, or, uh, later on when, when COVID started, people were using the arguments, "Yeah, you know, 3,000 Americans die every year drowning in a swimming pool." That was something by the guy called Dr. Phil. Should we shut down pools? At the time, less than a thou- 1,000 Americans had died of COVID. And then I followed this, presented the following argument. I said, "If I die drowning in a swimming pool, the odds of my neighbor drowning in her or his swimming pool has not changed."

Tim Ferriss 1:02:33 Mm-hmm.

Nassim Nicholas Taleb 1:02:34 "If I die of COVID, the odds of my neighbor dying of COVID has increased."

Tim Ferriss 1:02:39 Mm-hmm.

Nassim Nicholas Taleb 1:02:39 So you have that transmission that makes it fat tail.

Tim Ferriss 1:02:42 Mm-hmm.

Nassim Nicholas Taleb 1:02:43 You see? That, that, that mechanism of transmission.

Tim Ferriss 1:02:45 Sure.

Nassim Nicholas Taleb 1:02:46 So, so this is why you cannot compare, as basically the press in the beginning, the so-called, so-called established press-

Tim Ferriss 1:02:52 Mm-hmm

Nassim Nicholas Taleb 1:02:53 ... was against our ideas.

Tim Ferriss 1:02:55 Mm-hmm.

Nassim Nicholas Taleb 1:02:55 Because it was racist against China. They could not distinguish between risks of car accidents and heart attacks, and risks of things spreading.

Tim Ferriss 1:03:06 Of transmission.

Nassim Nicholas Taleb 1:03:06 This is why, for example, I am in favor of vaccines, the risk of thin tail.

Tim Ferriss 1:03:11 Mm-hmm.

Nassim Nicholas Taleb 1:03:11 And I'm against GMOs because they spread in the environment.

Tim Ferriss 1:03:15 Let me ask you a question so I better understand. So, so with the precautionary principle, with the example that you gave of the water, there's no evidence to suggest this water [laughs] is-

Nassim Nicholas Taleb 1:03:24 Poisonous

Tim Ferriss 1:03:24 ... poisonous. In my mind, I was wondering if somebody could use a similar argument against a new vaccine.

Nassim Nicholas Taleb 1:03:33 Let me tell you what, the problem is we're not, uh, y- y- with a vaccine, there are two things. Number one, if someone ha- takes a vaccine, and then you have part of the population that doesn't have the vaccine is not affected. But there's something more central here. You're comparing two risks.

Tim Ferriss 1:03:46 Mm-hmm.

Nassim Nicholas Taleb 1:03:47 We have COVID versus a vaccine.

Tim Ferriss 1:03:48 Right.

Nassim Nicholas Taleb 1:03:49 So you have to compare, and we know a lot more about genetic stuff in an individual than we know about how genes spread in a population.

Tim Ferriss 1:03:58 Mm-hmm.

Nassim Nicholas Taleb 1:04:00 And that vaccine story, basically in the beginning, say, "Why don't you exercise the precautionary principle?" I say, "I have to worry about a pandemic a lot more."

Tim Ferriss 1:04:08 Yeah, in comparison to what? Right.

Nassim Nicholas Taleb 1:04:09 In comparison to that. Plus, very quickly, after about a billion people had jabs, I was initially skeptical about a vaccine in the sense that let's wait and see what the story is. Are there other ways?

Tim Ferriss 1:04:24 Mm-hmm.

Nassim Nicholas Taleb 1:04:24 Because I was really, I'm really worried about COVID, and people don't understand that the argument, they use ex post. COVID is much more dangerous than you think, and the vaccine is what made it tolerable.

Tim Ferriss 1:04:36 Mm-hmm.

Nassim Nicholas Taleb 1:04:37 So when they had a billion jabs, I showed the following thing, that everything that's genetic, the number of mutations to take place to cause a problem, okay?

Tim Ferriss 1:04:51 Mm-hmm.

Nassim Nicholas Taleb 1:04:52 They have a variance, and if they have a variance, it's as follows. You would see already in a thou- in a billion people, because it's so much under scrutiny, you would see that tail risk.

Tim Ferriss 1:05:03 Mm-hmm.

Nassim Nicholas Taleb 1:05:04 To give you an example, Hiroshima, okay? They say on average took 10 years to, or eight years, whatever, to get cancer. No, we saw it in three months, four months.

Tim Ferriss 1:05:15 Mm-hmm. Mm.

Nassim Nicholas Taleb 1:05:16 You see, this, if you focus on the tail, same as kuru. Kuru takes about 10 years on average, the median, to get kuru from exposure.

Tim Ferriss 1:05:24 Mm-hmm.

Nassim Nicholas Taleb 1:05:25 But you have-

Tim Ferriss 1:05:26 What is kuru? I don't know what that is.

Nassim Nicholas Taleb 1:05:27 Kuru is mad cow disease.

Tim Ferriss 1:05:29 Mm.

Nassim Nicholas Taleb 1:05:29 Things for which we have data of exposure and then only onset of disease. So I looked at the vaccines with all these conspiracy theorists and everything, and said, "This, the focus is enormous, and we can see anything."

Tim Ferriss 1:05:40 Mm-hmm.

Nassim Nicholas Taleb 1:05:41 But it followed that class of risks where you have, you know, you have to have mistakes going, taking place in a genetic or DNA. This is where, after a billion jabs, I said, "Okay, I'm gonna go for it," okay? And visibly, it's, the risk is much smaller. The risk may exist, but it's much smaller than the risk of COVID. And plus, there are a lot of numbers about COVID people weren't aware of. Number one, something that people don't think about immediately is that COVID raised the risk of death, the, the, your multiple of deaths across, you know, beyond the age of 30, because we don't have much of an effect for younger people, w- or we don't think so. The force of mortality of the pr-

Tim Ferriss 1:06:29 Like all-cause mortality?

Nassim Nicholas Taleb 1:06:31 No, the, it went up from COVID across the board in the same way.

Tim Ferriss 1:06:36 Mm-hmm.

Nassim Nicholas Taleb 1:06:36 So in other words, whether 80 per... Say, for example, you're exposed to COVID, you have 10% chance of mortality. In, in 1.1%.

Tim Ferriss 1:06:44 Mm-hmm.

Nassim Nicholas Taleb 1:06:44 10% increase in all-cause mortality.

Tim Ferriss 1:06:46 Mm-hmm.

Nassim Nicholas Taleb 1:06:47 It's the same for young people.

Tim Ferriss 1:06:49 Mm.

Nassim Nicholas Taleb 1:06:50 So past the age of 30, it's about the same number. So it could be 20% more depending on your exposure.

Tim Ferriss 1:06:57 Mm-hmm.

Nassim Nicholas Taleb 1:06:58 So saying it's an old people problem, they were dying as a multiple of their mortality rate.

Tim Ferriss 1:07:05 Mm.

Nassim Nicholas Taleb 1:07:05 So I took the Social Security numbers just to, you know, say, "Okay, it's not my numbers." Social Security number- Look at it. If you're a female, 30-year-old, you have one in 700 chance of dying. Male, one in 400 chance of dying. That goes up by 10%.

Tim Ferriss 1:07:21 Mm-hmm.

Nassim Nicholas Taleb 1:07:21 Okay? With COVID. If you're 80 years old, you have one in whatever, it goes up by 10%, or something.

Tim Ferriss 1:07:26 I see.

Nassim Nicholas Taleb 1:07:26 For s- I mean, depen- the 10% depends on the exposure period, but it was almost flat across the population.

Tim Ferriss 1:07:32 Hm.

Nassim Nicholas Taleb 1:07:33 So I said, "Okay, do you wanna increase your children's chance, or young people's chance of death by X percent?"

Tim Ferriss 1:07:41 Hm.

Nassim Nicholas Taleb 1:07:42 Plus the effect it has on years lost and, and life expectancy, much more dramatic for a 40-year-old than it is for a 90-year-old.

Tim Ferriss 1:07:51 Mm-hmm.

Nassim Nicholas Taleb 1:07:53 So this is how I looked at it, and of course by then we had eight billion traps [laughs] .

Tim Ferriss 1:07:57 Yeah.

Nassim Nicholas Taleb 1:07:57 So we had the answer.

Tim Ferriss 1:07:58 How do you think about, say, GMOs? This is something I actually don't know much about, but in terms of the precautionary principle and risk assessment, how do you think of-

Nassim Nicholas Taleb 1:08:07 I mean, a vaccine is to counter a disease. GMO is just like manipulation, that people said, "Oh, we've always manipulated animals," all right? But that's not true. It's sort of like there's a difference between flying and walking.

Tim Ferriss 1:08:23 Mm-hmm.

Nassim Nicholas Taleb 1:08:23 Okay? And the risk you can encounter, you see? The GMO, the way it would s- the gene would spread through the environment.

Tim Ferriss 1:08:30 It's like an uncontrolled spread.

Nassim Nicholas Taleb 1:08:32 Uncontrolled spread is fat tailed, whereas selective breeding is very slow.

Tim Ferriss 1:08:39 Yeah.

Nassim Nicholas Taleb 1:08:39 As Rupert Read said, he cited, I don't know who said, that if your horse is blind, make sure you ride it slowly.

Tim Ferriss 1:08:47 [laughs]

Nassim Nicholas Taleb 1:08:48 And so there are two classes, like Mediocristan, Extremistan.

Tim Ferriss 1:08:51 Mm-hmm.

Nassim Nicholas Taleb 1:08:51 Mediocristan like calories, or Extremistan, stock market.

Tim Ferriss 1:08:55 Mm-hmm.

Nassim Nicholas Taleb 1:08:56 Selective breeding-

Tim Ferriss 1:08:57 Mm-hmm

Nassim Nicholas Taleb 1:08:57 ... versus the GMOs.

Tim Ferriss 1:08:59 Mm-hmm.

Nassim Nicholas Taleb 1:08:59 I mean, you're jumping so many steps with GMOs, so it's a different class of risk.

Tim Ferriss 1:09:05 Right, because of the, I mean, the risk of a- of uncontrolled spread.

Nassim Nicholas Taleb 1:09:09 Exactly, and then, and then you have a blight that spreads, you know, like COVID did.

Tim Ferriss 1:09:14 Mm-hmm.

Nassim Nicholas Taleb 1:09:14 The whole planet. And we're mu- much more connected than before.

Tim Ferriss 1:09:17 Mm-hmm.

Nassim Nicholas Taleb 1:09:17 So I said you can do ... And plus, they have never done-

Tim Ferriss 1:09:21 Mm-hmm

Nassim Nicholas Taleb 1:09:21 ... a proper risk study on GMOs on the environment. Not, not one.

Tim Ferriss 1:09:26 Mm-hmm.

Nassim Nicholas Taleb 1:09:26 They're saying, "There's no evidence they're harmful. Look, people are eating it." First of all, you can't. You have no... I mean, I'm a scientist. I like to see randomized control studies. I like to see things. Like to see something a little more formal than, than claims.

Tim Ferriss 1:09:37 Mm.

Nassim Nicholas Taleb 1:09:37 And, and then yous don't realize what happened. No matter what you say about Monsanto, I think would be a, an underestimation of their evil-

Tim Ferriss 1:09:46 Hm

Nassim Nicholas Taleb 1:09:46 ... attribute. Because they redirect science.

Tim Ferriss 1:09:49 Mm-hmm.

Nassim Nicholas Taleb 1:09:49 Because they had groups of people who would go and intimidate scientists, and people on a salary. Scientists are so afraid of losing their job, losing a postdoc position. They would contact your boss. They would contact practically everyone. They did that to me, but visibly [laughs] it was like water on a duck's back.

Tim Ferriss 1:10:10 Mm-hmm. Why'd they do it to you?

Nassim Nicholas Taleb 1:10:11 Hundreds of letters to the university.

Tim Ferriss 1:10:13 Because of your commentary on GMOs?

Speaker 1:10:15 Because of the precautionary principle paper.

Nassim Nicholas Taleb 1:10:17 Because of that paper. That paper.

Tim Ferriss 1:10:18 Hm.

Nassim Nicholas Taleb 1:10:18 And then somehow I used the R word in the past. In French it, it says, like, you're a slow thinking person.

Tim Ferriss 1:10:26 [laughs] Okay.

Nassim Nicholas Taleb 1:10:27 The R word.

Tim Ferriss 1:10:28 I got it. I got it.

Nassim Nicholas Taleb 1:10:29 And then they would, they would have-

Tim Ferriss 1:10:30 Took me a second

Nassim Nicholas Taleb 1:10:30 ... 15 letters from mothers of children with special needs-

Tim Ferriss 1:10:34 Yeah

Nassim Nicholas Taleb 1:10:34 ... who don't like that a professor at NYU would use such language that's insulting to my s- but the point is, when they showed me the letters, they had different names, but it was, like, written almost on the same-

Tim Ferriss 1:10:47 Letterhead?

Nassim Nicholas Taleb 1:10:48 Exactly, and the language was the same.

Tim Ferriss 1:10:49 The language was the same.

Nassim Nicholas Taleb 1:10:49 So, so I realized that was a smear campaign. Plus there were a lot of other things they did.

Tim Ferriss 1:10:54 Hm.

Nassim Nicholas Taleb 1:10:54 Petitions, all kind of thing. And online har- harassment. But with me, it didn't work. With others, but the people they select for these things-

Tim Ferriss 1:11:03 Mm-hmm

Nassim Nicholas Taleb 1:11:03 ... are usually dumb. Think about it. Who would engage in a smear campaigning? The brightest person you know?

Tim Ferriss 1:11:09 Probably not.

Nassim Nicholas Taleb 1:11:10 Okay, so you can play with them. So what Monsanto did is to cover up for whatever they're doing, via intimidation. They disrupted science.

Tim Ferriss 1:11:21 Hm.

Nassim Nicholas Taleb 1:11:21 And they made people believe that, "Hey, no evidence. I'm doing science. This person is confabulator or whatever is called. They're Luddite."

Tim Ferriss 1:11:29 Mm-hmm.

Nassim Nicholas Taleb 1:11:29 Yeah, you're living against the fire. [laughs] No, that's not the same thing.

Tim Ferriss 1:11:32 Anti-science was a counter-

Nassim Nicholas Taleb 1:11:34 Anti-science was a... Because science, anti-science. And usually they're never used by scientists.

Tim Ferriss 1:11:38 Mm-hmm.

Nassim Nicholas Taleb 1:11:39 And they had a few scientists who knew nothing about risk and probability. So that was... But anyway, we had fun fighting. It was a long fight.

Tim Ferriss 1:11:46 [laughs]

Nassim Nicholas Taleb 1:11:47 But then what happened, they were bought by Bayer, and the Bayer is a little more civilized than Monsanto, and then all that disappeared.

Tim Ferriss 1:11:55 So [laughs] if we, if we zoom out and look at the precautionary principle, how could that be applied on a policy or regulatory level? Like, if someone's listening to this and they agree with the premise, and they say, "This makes a lot of sense," how could we implement this on a larger scale level such that we are less vulnerable to, say, the risks that-

Nassim Nicholas Taleb 1:12:22 Yes

Tim Ferriss 1:12:23 ... possible risks?

Speaker 1:12:24 Well, actually in Europe, the precautionary principle is widely adapted among international agencies and regulatory agencies. I think that the advance that Nassim and his co-writers made on the principle is, is that it, it can be kind of fuzzy. So it can be sub- seem to be subjective about how you are applying the principle. I think what they did was create a category grouping which can be used to designate things. And, you know, you could have panels that would look at it using these categories. But I, I think if it were adapted more widely among regulatory agencies in the United States just as a principle, as a way to think about certain kinds of risks-

Tim Ferriss 1:13:12 Mm-hmm

Speaker 1:13:12 ... then it could be a- More generally applied and, and useful.

Nassim Nicholas Taleb 1:13:20 Mm-hmm.

Speaker 1:13:20 Like I said, in Europe they do use it. GMOs are not widely adapted in Europe, and primarily because of the precautionary principle.

Nassim Nicholas Taleb 1:13:29 Mm-hmm. And they have lobbyists in Europe.

Speaker 1:13:32 They do have lobbyists.

Nassim Nicholas Taleb 1:13:33 Yeah, I know, because they all attack me. I mean, for... So I see them online all the time.

Speaker 1:13:36 Okay.

Nassim Nicholas Taleb 1:13:37 Coming from Europe, Italy, for example. Italy of all places, you know [laughs] last place. You damage it big times, uh, reputationally if you had GMOs in Italian food in Italy.

Speaker 1:13:46 Mm-hmm.

Nassim Nicholas Taleb 1:13:47 There's no tourism, but they still have people there trying to sell.

Speaker 1:13:50 Mm-hmm.

Nassim Nicholas Taleb 1:13:51 Particularly that when you sell GMOs, you also can use more Roundup.

Speaker 1:13:56 [laughs]

Nassim Nicholas Taleb 1:13:58 Which is their secondary effect on, on the soil. And, and it's the same people who are producing both, right?

Speaker 1:14:03 Yeah. Nice.

Nassim Nicholas Taleb 1:14:04 So one could be an excuse to sell the other,

Nassim Nicholas Taleb 1:14:06 but-

Speaker 1:14:06 And another, to me, one of, one of the really interesting aspects of, of the precautionary principle is the notion of uncertainty. You know, when you look at climate change, the uncertainty of models has been used as a cudgel by the deniers-

Nassim Nicholas Taleb 1:14:24 Mm-hmm

Speaker 1:14:24 ... and by the fossil fuel industry for decades, that there's a level of uncertainty in these predictions. We don't really know how bad it's gonna get. We need to sit tight and assess-

Nassim Nicholas Taleb 1:14:35 Mm-hmm

Speaker 1:14:35 ... the risks that we're facing. And what they showed is that uncertainty is a reason for taking precaution. [laughs] Because if, if you are uncertain about the potential future destruction of, or massive degradation of the biosphere because of polluting it with carbon dioxide and methane and, and other greenhouse gases, maybe you should stop doing that, [laughs] or realize that you're actually taking a risk. You don't know what the risk is.

Nassim Nicholas Taleb 1:15:04 Mm-hmm.

Speaker 1:15:04 So uncertainty is actually a reason for precaution, rather than just throwing caution to the wind and just saying, "Well, we don't know, so, you know, what the hell? Let's just keep going."

Nassim Nicholas Taleb 1:15:12 But let me tell you ironically what happened to me the first time I formulated the argument.

Speaker 1:15:16 Mm-hmm.

Nassim Nicholas Taleb 1:15:16 It's actually in 'The Black Swan,' second edition, and I was with David Cameron on stage.

Speaker 1:15:21 Mm-hmm.

Nassim Nicholas Taleb 1:15:21 And I said, "We have uncertainty about these models, so avoid these models and just don't pollute."

Speaker 1:15:28 Mm-hmm.

Nassim Nicholas Taleb 1:15:28 In a paper I re- later rewrote with my friend Yanir and, and others by saying, the more uncertainty there is in a model, the more you have to be... It's just like the more uncertainty you have about the skills of the pilot, the more-

Speaker 1:15:38 Cautious you should be. [laughs]

Nassim Nicholas Taleb 1:15:39 Exactly. You should take another plane. So what happened the next day, 20 newspaper articles in the UK calling 'Black Swan' author is a climate denier.

Speaker 1:15:51 [laughs]

Nassim Nicholas Taleb 1:15:51 Okay? Trying to convince Cameron. So probably had a cottage industry of modelers who would be out of business if you follow these principles. So it's not like we got heat, a lot more heat from the left-

Speaker 1:16:03 Mm

Nassim Nicholas Taleb 1:16:04 ... than from the right.

Speaker 1:16:05 But why were they calling you a denier if you said-

Nassim Nicholas Taleb 1:16:08 They used me tech- verbatim without following the whole argument.

Speaker 1:16:12 Mm-hmm.

Nassim Nicholas Taleb 1:16:12 And they say, "Well, he said that." And I basically named them by names, and I went after every one of the 20 journalists. I wrote to every journal explaining to them what I said, and I say they cited me out of context. And I wrote a chapter in, in 'The Skin in the Game' about how, what's a debate. An honorable debate is, was where you represent the person's opinion.

Speaker 1:16:34 Mm-hmm.

Nassim Nicholas Taleb 1:16:34 Like what Karl Popper would always very faithfully represent the person's position and then attack it, whereas they were taking selective-

Speaker 1:16:43 Yeah. Cherry-picking

Nassim Nicholas Taleb 1:16:43 ... cherry-picking from it

Speaker 1:16:44 ... and then creating a straw man argument.

Nassim Nicholas Taleb 1:16:46 And, exactly. And as Fourier would say, "Give me a letter written by an honest man and I'll get him hung."

Speaker 1:16:50 [laughs]

Nassim Nicholas Taleb 1:16:52 Okay. So, so the problem that you have with the climate is that a lot of people have an interest in complicating the story.

Speaker 1:17:03 Mm.

Nassim Nicholas Taleb 1:17:03 In fact, you just say, "Okay, let's forget about fossil fuel. Let's pollute with other things."

Speaker 1:17:08 Mm-hmm.

Nassim Nicholas Taleb 1:17:08 Just like I say, if a drug is dangerous,

Nassim Nicholas Taleb 1:17:11 I use half of that drug-

Speaker 1:17:12 So the danger is in the dose

Nassim Nicholas Taleb 1:17:13 ... and I take another... Sorry?

Speaker 1:17:14 The danger is in the dose.

Nassim Nicholas Taleb 1:17:14 The danger is in the dose. It's nonlinearity. We put that in a precautionary principle, the nonlinearity, the convexity. That's a theme of antifragile, the convexity.

Speaker 1:17:22 Mm-hmm. So you're constantly dosing the atmosphere-

Nassim Nicholas Taleb 1:17:24 Exactly

Speaker 1:17:24 ... with carbon dioxide. You're gonna end up with a very bad outcome [laughs] eventually.

Nassim Nicholas Taleb 1:17:30 Exactly. Let me give you an example. To go back to before when we were talking about when I used GMO versus selective breeding, tell you why speed and fragility. And the example I use in the, in Antifragile, if I bang a car against a wall at one mile per hour 100 times, okay, it's not gonna be the risk of you banging it once at 100 miles per hour.

Speaker 1:17:58 Right. [laughs]

Nassim Nicholas Taleb 1:17:58 Okay. So this is where if you have acceleration of harm, like if I jump 10 feet, I'm harmed more than twice as than if I jump five feet. So we showed where in the presence of acceleration what to do, and that part of the paper was never understood-

Speaker 1:18:14 Mm

Nassim Nicholas Taleb 1:18:14 ... because people don't understand convexity. Although Antifragile is currently my most successful book.

Speaker 1:18:20 Mm.

Nassim Nicholas Taleb 1:18:20 It's read more in 2023 than it was in 2013, the second year of publication. So same with 'Black Swan' actually. I know 'Black Swan' is read more now than it was the year after publication. But in spite of all of these arguments being presented, okay, people couldn't grasp our paper, and I discovered why. Something I, I, I figured out only recently. When I ya- talk to young people 23 to 24, they know exactly what I'm talking about. Their parents are the problem.

Speaker 1:18:58 So what is convexity, just to refresh?

Nassim Nicholas Taleb 1:19:01 Okay. So, and again, we're gonna talk about universal or other things embedded in a universal story, but the, the convexity is if you make more... If the market goes down 10%, you make a million dollars. If it goes down 20%, you make $10 million, you have convexity.

Speaker 1:19:17 Mm-hmm.

Nassim Nicholas Taleb 1:19:18 And this is what everything's based on. What the general idea-

Tim Ferriss 1:19:21 Incurved, that's like... Yeah

Nassim Nicholas Taleb 1:19:22 Yeah. Then we'll call it convex.

Tim Ferriss 1:19:24 Mm-hmm.

Nassim Nicholas Taleb 1:19:25 And concave. Probably the best illustration is how we fared in 2007, and I explained it in The Black Swan right before it happened.

Tim Ferriss 1:19:35 Mm-hmm.

Nassim Nicholas Taleb 1:19:35 I looked at the risk of Fannie Mae-

Tim Ferriss 1:19:37 Mm-hmm

Nassim Nicholas Taleb 1:19:37 ... by a deserter who, you know, left Fannie Mae and distributed the risk reports. Okay?

Tim Ferriss 1:19:43 Mm-hmm.

Nassim Nicholas Taleb 1:19:44 We looked at the risk of Fannie Mae and noticed that if the market, say an interest rate or risk or mortgage premium or something like that is increased by 100 basis points, they lost X. 200 basis points, 20 times X.

Tim Ferriss 1:20:00 Mm-hmm.

Nassim Nicholas Taleb 1:20:00 300 basis points, [laughs] I said they're sitting on a barrel of dynamite in The Black Swan.

Tim Ferriss 1:20:06 Mm-hmm.

Nassim Nicholas Taleb 1:20:07 2007, five months later-

Tim Ferriss 1:20:09 [laughs]

Nassim Nicholas Taleb 1:20:11 ... okay, they started going under, and eventually they lost... They booked $600 billion of losses, okay? While they said, "Oh..." They reacted to me by saying, "Oh, we monitor our risk. We have 15 PhDs," okay? If you've got 15 PhDs or 15 trillion PhDs, it's not gonna help you-

Tim Ferriss 1:20:27 [laughs]

Nassim Nicholas Taleb 1:20:28 ... with this. So this is convexity on, on the-

Tim Ferriss 1:20:31 Yeah

Nassim Nicholas Taleb 1:20:31 ... losses, and we're doing the reverse w- on the profit side.

Tim Ferriss 1:20:35 Mm-hmm.

Nassim Nicholas Taleb 1:20:35 And there've been some... A lot of people got upset the way Mark presents the numbers that he writes to his investors. You know, you file with the SEC, you have all of the numbers are available. So you tell them, "Listen, we made 4,000% on your maximum loss."

Tim Ferriss 1:20:50 Mm-hmm.

Nassim Nicholas Taleb 1:20:50 Okay? Whereas, uh, if you invest in the S&P, you could lose 100% of what you have.

Tim Ferriss 1:20:55 Mm-hmm.

Nassim Nicholas Taleb 1:20:56 So the return that you have on the maximum possible poten- potential loss-

Tim Ferriss 1:20:59 Oh, yeah

Nassim Nicholas Taleb 1:20:59 ... in other words, when you go to bed in the evening, all you could lose is that much, and how much these options were explosive on their maximum loss, right?

Tim Ferriss 1:21:06 Yeah, the-

Nassim Nicholas Taleb 1:21:07 So that was-

Tim Ferriss 1:21:08 The asymmetry on that side

Nassim Nicholas Taleb 1:21:09 ... that was the asymmetry, the 4,000-some percent. But that's not the first time it happened. Nobody noticed. Before the crisis of 1987-

Tim Ferriss 1:21:16 Mm-hmm

Nassim Nicholas Taleb 1:21:17 ... there was a Plaza Accord where a bunch of people got together secretly on a Sunday and then, and made an announcement, "We're gonna support the currencies against the dollar. The dollar is too expensive." We had a huge move. I was at work. We had tiny risk, so an explosion in my P&L, okay? They brought detectives or inspectors to figure out why the P&L is so large for that, so little risk.

Tim Ferriss 1:21:44 Hmm.

Nassim Nicholas Taleb 1:21:45 Because you had your maximum risk. All you could lose is, say, X thousand dollars, and the P&L exploded.

Tim Ferriss 1:21:50 Mm-hmm.

Nassim Nicholas Taleb 1:21:50 So that's how it was. They couldn't believe-

Tim Ferriss 1:21:51 It was in the book, by the way. [laughs]

Nassim Nicholas Taleb 1:21:52 They couldn't believe it, right? So I decided, "Okay, I'm gonna make a living-"

Tim Ferriss 1:21:58 Now, when you say exploded, this is in a, in a bad way or a good way?

Nassim Nicholas Taleb 1:22:01 Good.

Tim Ferriss 1:22:02 Good way.

Nassim Nicholas Taleb 1:22:02 Yeah.

Tim Ferriss 1:22:02 I see. The P&L. Yeah, yeah.

Nassim Nicholas Taleb 1:22:04 Yes. The P&L was too large for the risk. They say you were supposed to only take, say-

Tim Ferriss 1:22:07 You said your computers couldn't handle the numbers of-

Nassim Nicholas Taleb 1:22:09 Right. Yeah, no, that was the... No, no. The computers-

Tim Ferriss 1:22:10 So for them, it's like it's high risk, high reward, how are you getting low risk, high reward?

Nassim Nicholas Taleb 1:22:15 No, no.

Tim Ferriss 1:22:16 Is that what I'm hearing?

Nassim Nicholas Taleb 1:22:16 They said, "You made too much money. You gotta be taking risk. You're hiding something from us."

Tim Ferriss 1:22:20 That's what I mean.

Nassim Nicholas Taleb 1:22:20 And the computers would take something like 10 hours-

Tim Ferriss 1:22:24 Mm-hmm

Nassim Nicholas Taleb 1:22:24 ... at a time to compute the P&L.

Tim Ferriss 1:22:26 Hmm.

Nassim Nicholas Taleb 1:22:27 At the end of day P&L.

Tim Ferriss 1:22:28 Mm-hmm.

Nassim Nicholas Taleb 1:22:29 You see? So every time they'd have to go redo it and stuff like that, and I was frustrated because they couldn't understand it.

Tim Ferriss 1:22:34 [laughs]

Nassim Nicholas Taleb 1:22:35 They couldn't understand it. But, uh, the, this is... And the same thing happened to Mark when he explained-

Tim Ferriss 1:22:39 This is the trade that they did for, you know... That's the beginning of the trade that became Empirica Universa. Something like... I remember when I was talking to Mark back in 2008, he would never tell me this now, [laughs] but I was trying to figure out how they had such incredible returns.

Nassim Nicholas Taleb 1:22:57 Mm-hmm.

Tim Ferriss 1:22:57 And he gave me an example of a trade that they made, and it was... I forget the timing, but it was like a July 2008 S&P 500 put option betting on a 20% decline in, in the S&P 500, bought for two bucks. After the crash, he sold it for 60 bucks. That's the kind of convex-

Nassim Nicholas Taleb 1:23:25 Mm

Tim Ferriss 1:23:25 ... exponential return that you do not get in any other [laughs] kind of trading, and you just, you take that $2 option and you magnify it over millions and millions of dollars-

Nassim Nicholas Taleb 1:23:36 Mm-hmm

Tim Ferriss 1:23:36 ... you get 4,000% return on it.

Nassim Nicholas Taleb 1:23:39 Yeah, but there are even more dramatic than $2 and $60. You always look at how people have lost money because when you read the, you know, reports and stories, they hide the losses because nobody's gonna write a book on how they lost all this money.

Tim Ferriss 1:23:51 Mm-hmm.

Nassim Nicholas Taleb 1:23:51 And it's always invariably the same. There was a story of volume investors, I think. They're selling out-of-the-money options on gold, and they were selling for five cents and end up have to buy them for $40.

Tim Ferriss 1:24:05 [laughs]

Nassim Nicholas Taleb 1:24:05 And then there was a Niederhoffer story, same story, where he liquidated, and when he blew up... I mean, he blew up many times, but, but, but one time he blew up, you can see the prices. He sold them for five, 10 cents, and then he had to buy them back, and he was buying them back for $40.

Tim Ferriss 1:24:20 [laughs]

Nassim Nicholas Taleb 1:24:20 That's what I noticed with, with-

Tim Ferriss 1:24:21 So selling volatility. Mm-hmm.

Nassim Nicholas Taleb 1:24:23 Selling out of the money. Tails, sell- selling rare events. And you don't need large deviations. If people panic, they pay anything because... Or sometimes they're forced to because-

Tim Ferriss 1:24:33 Mm-hmm

Nassim Nicholas Taleb 1:24:33 ... the clearing houses or counterparties cannot handle the risk. They say, "We gotta close you out, sorry."

Tim Ferriss 1:24:38 Hmm.

Nassim Nicholas Taleb 1:24:38 And you close out, there's no liquidity. It's like the famous saying, "Sell everything." And then the clerk, "Hmm? I told you to sell everything. Why are you not moving?" He said, "Please tell me, to whom, sir?"

Tim Ferriss 1:24:49 [laughs]

Nassim Nicholas Taleb 1:24:51 You see?

Tim Ferriss 1:24:55 Let me, let me ask a question that's been sort of, uh, percolating in my mind, and it may not be a good question, but I'm curious. You mentioned Soros, and I don't know that much about Soros. I've never met him. But it was... I, I wanna say Soros was also known as the man who broke the Bank of England, right? Or the-

Nassim Nicholas Taleb 1:25:10 Yeah

Tim Ferriss 1:25:10 ... the British pound.

Nassim Nicholas Taleb 1:25:11 Yeah, against sterling.

Tim Ferriss 1:25:11 So one of my questions is, in this increasingly interconnected world where the equivalent of the black plague, whatever that might be, and it could be in pandemic form or otherwise, instead of taking 300 years, is over a weekend in terms of spread, and things are so- Interdependent. Is, is there the temptation and the risk of investors catalyzing more crises or different types of crises? Not just, not just, I don't wanna say being spectators, but there's one thing to, to have an investment methodology that has certain premises and so on that then results in a windfall return at a certain point in time with tail events. But I'm wondering if... I mean, it seems like there are hedge fund mana- I'm not saying this is what you are. There are investors out there and hedge fund managers who take very active roles in companies, let's just say, that they wanna take a position in, activist investors and so on. It's... And I'm wondering if investors will be able to do more damage as the world becomes more interconnected. May not be a good question. I'm just curious.

Nassim Nicholas Taleb 1:26:25 No, it is an excellent question. Do you wanna answer it?

Speaker 1:26:27 I think that it's possible. I see the damage coming from, you know, negligence and bad risk-taking-

Tim Ferriss 1:26:34 Mm-hmm

Speaker 1:26:34 ... that ends up, you know, creating a contagion effect. Just the same thing that we saw in 2007.

Tim Ferriss 1:26:40 Not among investors, but, like, in the banking...

Speaker 1:26:42 Yeah, banking or hedge funds or crypto.

Tim Ferriss 1:26:46 Mm-hmm.

Speaker 1:26:48 You know, I, I think that financial markets over the past 20 years, and increasingly with electronic trading, are more and more interconnected than ever.

Tim Ferriss 1:26:59 Mm-hmm.

Speaker 1:27:00 And this is something I got in my second book about high-frequency trading, is how you could see the potential risk of some giant move in a, say, a derivative contract or an index, something overseas. Because trading machines are correlating all these assets globally, electronically at hyper speeds, microsecond speeds, that you could see something move very rapidly into all sorts of asset classes in a way that is im- impossible to, to stop because it's so fast.

Tim Ferriss 1:27:37 Mm-hmm.

Speaker 1:27:38 That could be triggered by a trader, or it could be triggered by a computer just going bananas. [laughs]

Tim Ferriss 1:27:45 Mm-hmm. Yeah.

Nassim Nicholas Taleb 1:27:46 We have noticed very early on in '90s a phenomena that international diversification was no longer diversification.

Tim Ferriss 1:27:54 Hmm.

Nassim Nicholas Taleb 1:27:55 Why? Because of that integration.

Tim Ferriss 1:27:57 Mm-hmm.

Nassim Nicholas Taleb 1:27:58 Globalization did a lot of good things, pulled people out of poverty.

Tim Ferriss 1:28:03 Mm-hmm.

Nassim Nicholas Taleb 1:28:04 But a lot of things happened with it. Number one, you can't diversify anymore.

Tim Ferriss 1:28:07 Mm.

Nassim Nicholas Taleb 1:28:08 Because if stocks collapse here, as we saw in '87, collapse everywhere for large, lar- large deviation, and now for mild deviation starting in the 1990s. And also, I mean, the funding [laughs] disappears everywhere or the, it comes everywhere. So this property of globalization is similar to the one that came with it, is that, like, we're gonna have shortages and then gluts.

Tim Ferriss 1:28:36 Mm-hmm.

Nassim Nicholas Taleb 1:28:36 Now we're in a phase of between shortage and glut. But shortages can be very deep, where containers go up 10 times. I mean, container, shipping container.

Tim Ferriss 1:28:49 Mm.

Nassim Nicholas Taleb 1:28:50 And you're gonna have a lot of the reverse happening.

Tim Ferriss 1:28:54 Mm-hmm.

Nassim Nicholas Taleb 1:28:54 Because of the... I've never seen shortages without gluts. I've seen gluts without shortages, but never shortages without glut. But they're very deep. We didn't have that before.

Tim Ferriss 1:29:04 Hmm.

Nassim Nicholas Taleb 1:29:05 We all depend on... The whole, the world's getting bigger and bigger and bigger, but it's, it's like a large movie theater with the same door. You see, it's the size of door that matters when we wanna get out, not the size of the theater. So when the supply chain is narrow [laughs] .

Tim Ferriss 1:29:21 Mm-hmm.

Nassim Nicholas Taleb 1:29:21 It's got narrower. Now probably it will expand and branch out, and we'll have better networks. But people will not understand that. This is, this is why people like to sell tail events, because it costs money to diversify your sources of, you know, whatever, and, and your supply. And it also costs money to hedge tail risk, or you think it costs money. It, you know. You have the illusion. And, and sure enough, you [laughs] sure realize that if a hedge is expensive, well, [laughs] you know, think of absence of hedge-

Tim Ferriss 1:29:56 [laughs]

Nassim Nicholas Taleb 1:29:57 ... how much more expensive

Nassim Nicholas Taleb 1:29:58 it is.

Tim Ferriss 1:29:58 Mm-hmm. So what's your perspective on the capacity of investors to catalyze greater risk? Not necessarily the systemic risk-taking, although this is certainly a factor of, say, the banking sector or fill in the blank, but s- very well-funded investors who are looking for black swan or black swan-like opportunities, their ability to create a self-fulfilling prophecy, in a, in a sense.

Nassim Nicholas Taleb 1:30:34 Okay. As I say, predictions are self-

Tim Ferriss 1:30:37 And I'm probably not wording that-

Nassim Nicholas Taleb 1:30:39 Yeah, okay

Tim Ferriss 1:30:39 ... as well as I should.

Nassim Nicholas Taleb 1:30:40 But as I say, prediction are self-fulfilling-

Tim Ferriss 1:30:42 Mm-hmm

Nassim Nicholas Taleb 1:30:42 ... and they're also self-canceling.

Tim Ferriss 1:30:44 Mm-hmm.

Nassim Nicholas Taleb 1:30:44 See, early on, the self-fulfilling, people get on the bandwagon, and then, and then sure enough, you know, it, the, that's how sort of the glut-

Tim Ferriss 1:30:53 Hmm

Nassim Nicholas Taleb 1:30:53 ... takes place after a shortage. But one thing, you know, that, that's quite... One should realize with the structure of the world in which we live, is that although history is not an indicator for many thing because we live in times of different connectivity and stuff like that, the rules of what can go wrong are very simple. [laughs]

Tim Ferriss 1:31:18 Mm-hmm.

Nassim Nicholas Taleb 1:31:18 You see? It's like as with pandemics, okay? The, the, the Ottomans and the Austrians figured it out, or the lazarettos, okay? Simple, right? The Venetians were expert at it, okay? The rules are very simple. There are not that many of them. And when we talk about precautionary principle- A lot of people have the illusion that it multiplies into zillions of regulations. No. One comment I would like to make about the regulators, like European regulators, they're great at being regulators. In other words, they regulate for pleasure. And if you put 200,000 people in Brussels, you know, of course they have great french fries and beef tallow and whatever, good duck fat, whatever. But at the same time, what comes with it is these people are gonna regulate you out of existence-

Tim Ferriss 1:32:06 Mm-hmm

Nassim Nicholas Taleb 1:32:06 ... on things that are trivial. They like to do the trivial because it's easier to sell.

Tim Ferriss 1:32:09 [laughs]

Nassim Nicholas Taleb 1:32:10 So they regulate vacuum cleaners, right? They want how much energy it should be or the speed of, of your windshield wiper on a farm tractor if it has windshield wipers. Those kind of things. But they can't control the borders.

Tim Ferriss 1:32:25 Mm-hmm.

Nassim Nicholas Taleb 1:32:26 And they didn't think of COVID. Of all the people we spoke to, because a lot of people try to talk to me about risk, thinking that, you know, that you, you sh- should talk to someone like me about risk. Okay. And usually I get upset because, I mean, "Hey, where's the next black swan?" You're not, you're not getting it.

Tim Ferriss 1:32:43 [laughs]

Nassim Nicholas Taleb 1:32:44 The Singaporean government.

Tim Ferriss 1:32:46 Mm-hmm.

Nassim Nicholas Taleb 1:32:46 Because they were... They didn't fare very well with COVID as much as they did before, I think maybe because my friend was gone or something, but, but they were... They knew. They said, "Okay, what can go wrong? And let's reverse engineer our hedge."

Tim Ferriss 1:32:59 Mm-hmm.

Nassim Nicholas Taleb 1:33:00 You see, sort of like the reverse of what you think, and build things in a way to withstand that kind of a shock.

Tim Ferriss 1:33:07 Mm-hmm. Are there other examples outside of Singapore? I'm very interested in Singapore and I guess, who is it, Lee Kuan Yew, and the entire story of Singapore is pretty wild. Any models or leadership outside of Singapore, not necessarily related to COVID, although it could be, that you think does a good job of applying precautionary principle or working backwards in the way you described?

Nassim Nicholas Taleb 1:33:29 All traditional societies, you know, traditional societies or traditional communities like Italy, where there's this GMOs.

Tim Ferriss 1:33:37 Mm-hmm.

Nassim Nicholas Taleb 1:33:37 And, and also people online may say, "Oh, this is anti-scientific." They, they know it's, you know, it's not, science is not about that, for example. So it depends on which domain. There are some domains... Some people are good at some domain, not others.

Tim Ferriss 1:33:50 Mm-hmm.

Nassim Nicholas Taleb 1:33:50 Like Russia was very good at some classes of risk, but not visibly [laughs] at others. Depends on countries. Like, uh, Italy got paranoid about, about nuclear.

Tim Ferriss 1:34:03 Mm-hmm.

Nassim Nicholas Taleb 1:34:04 And, uh, there's one attribute of our environment that we should realize, is the non-trivial effect of propaganda on the mind of people, particularly when it's well organized. The KGB was not very good at spying, we discovered, but was very good at disinformation. So everybody panicked about the nuclear because they didn't want Reagan to put [laughs] ballistic missiles in Germany.

Tim Ferriss 1:34:40 Hmm.

Nassim Nicholas Taleb 1:34:41 And, and they infiltrated... Putin knows so- something about it when he was in Germany. They infiltrated all these green movements by directing the greens against nuclear, for example. So I truly think that, that we're suffering a lot from this disinformation today, when people worry about some risks, not others.

Tim Ferriss 1:35:03 I mean, another example of that is Germany with Fukushima-

Nassim Nicholas Taleb 1:35:07 Yeah

Tim Ferriss 1:35:07 ... that freaked out over something that actually didn't kill people.

Nassim Nicholas Taleb 1:35:12 Mm-hmm.

Tim Ferriss 1:35:12 Shut down their entire nuclear program and, in its place, opened up a bunch of coal-fired power plants [laughs] which is, you know, obviously much more direct risk to humanity than nuclear power plants that don't kill people.

Nassim Nicholas Taleb 1:35:30 The radiation in Chernobyl, I mean, we... I knew that when I was writing "The Black Swan." I didn't talk about it because I knew it was dicey, was lower than that in Utah. [laughs]

Tim Ferriss 1:35:41 Mm-hmm.

Nassim Nicholas Taleb 1:35:41 But it's not the point. It's Chernobyl is too big. If you make small reactors, let them blow up.

Tim Ferriss 1:35:46 Yeah.

Nassim Nicholas Taleb 1:35:46 It's not gonna go beyond... So what happened, if you con- because of convexity-

Tim Ferriss 1:35:50 Mm-hmm

Nassim Nicholas Taleb 1:35:50 ... you see, one reactor is vastly more dangerous than 10 small ones.

Tim Ferriss 1:35:55 Mm-hmm.

Nassim Nicholas Taleb 1:35:55 And the 10 small ones are not likely to blow up at the same time. So that's one... I, I, don't know if one reactor, how, what's the, what's the factor? You know, what's the multiplier? But, but there are nonlinearities.

Tim Ferriss 1:36:08 Mm-hmm.

Nassim Nicholas Taleb 1:36:08 But definitely when you have a lot of small ones that can blow up at different times.

Tim Ferriss 1:36:13 Hmm.

Nassim Nicholas Taleb 1:36:14 One time, you know, about our previous conversation when you say the banking sector, banking sector. The banking sector is very safe for one reason: it's a utility. With high-paid bankers living around here, you see, have big SoHo lofts, $10 million SoHo lofts, basically it's a uti- utility.

Tim Ferriss 1:36:31 Mm-hmm.

Nassim Nicholas Taleb 1:36:31 Because they don't let it go under. It's when... It's not the one you gotta worry about. It's the saving it again that you have to worry about. The effect of saving it, like the, we saved it in 2008, was what? It was government debt.

Tim Ferriss 1:36:48 Mm-hmm.

Nassim Nicholas Taleb 1:36:48 And it exploded. And then again, in 2020, they bought so much commercial paper and so many things. Again, all these things aimed at saving the financial system, bank-wise, have spillover effects. But they're gonna save the bank, bank system because you cannot operate without it. Plus, another thing has happened, is that banks used to take a lot of risk. Since 2008, risk has migrated from banks to hedge funds. Now, it's less concentrated, but it still can be concentrated.

Tim Ferriss 1:37:22 In what way can that be concentrated?

Nassim Nicholas Taleb 1:37:24 In other words, he has a friend who has a big fund that's larger than [laughs] a lot of banks.

Tim Ferriss 1:37:30 Yeah.

Nassim Nicholas Taleb 1:37:30 You see?

Tim Ferriss 1:37:30 You mean Citadel?

Nassim Nicholas Taleb 1:37:32 I'm not mentioning names.

Tim Ferriss 1:37:33 [laughs]

Nassim Nicholas Taleb 1:37:33 All right? So you have a lot of big hedge funds-

Tim Ferriss 1:37:36 Mm-hmm

Nassim Nicholas Taleb 1:37:36 ... you know, and big hedge... But I, I guess they can be diversified. Hedge funds have skin in the game. In other words, the owner of, of the hedge fund has money in it, unlike a bank where you just have the upside, not the downside.

Tim Ferriss 1:37:50 Of course, Long-Term Capital Management is the counter example.

Nassim Nicholas Taleb 1:37:53 No, it is-

Tim Ferriss 1:37:54 They had skin in the game and-

Nassim Nicholas Taleb 1:37:55 Okay. So, so there's two things

Tim Ferriss 1:37:56 ... became very systemic. [laughs]

Nassim Nicholas Taleb 1:37:57 No, no, it is. If people, the, the, the skin in the game is a disincentive, of course, but it also, skin in the game is a filter, you see? So where are the people from? Is anybody from Long-Term Capital Management still around?

Tim Ferriss 1:38:11 Last I heard John Meriwether was, 10 years ago was trying to start a hedge fund, but-

Nassim Nicholas Taleb 1:38:17 There we go

Tim Ferriss 1:38:17 ... no, they're gone. [laughs]

Nassim Nicholas Taleb 1:38:18 So, so if you can't recover, the skin in the game has flow-on effect. The reason you don't see crazy drive, too many crazy drivers is because they're dead.

Tim Ferriss 1:38:26 Mm-hmm.

Nassim Nicholas Taleb 1:38:26 Because you inflict risk on others, but you experience the same risk, so you tend to exit the pool.

Tim Ferriss 1:38:32 Mm. So it seems then, maybe, maybe I'm misunderstanding, but the, the migration of risk-taking to the hedge funds, assuming that the, you know, the, the GPs or the, the people running the fund have sufficient skin in the game would seem to be a net

Tim Ferriss 1:38:51 positive.

Nassim Nicholas Taleb 1:38:51 Yeah. Hedge funds are okay, but we have had the, the risky part, the ones that are most fragile, the private equity, and of course by far people who need funding. Because I don't know if you realize, but we had, since we had our three bottles of champagne, pink champagne-

Tim Ferriss 1:39:10 Yeah

Nassim Nicholas Taleb 1:39:10 ... or like four bot- whatever, a lot of pink champagne to celebrate Lehman's departure from this town.

Tim Ferriss 1:39:17 [laughs]

Nassim Nicholas Taleb 1:39:17 Since then-

Tim Ferriss 1:39:18 Yeah

Nassim Nicholas Taleb 1:39:18 ... we put interest rates at close to zero. So when I was, you know, a student and everything, for me an investment was something that generates cash flow. So you build something that generates cash flow, so you value cash flow and/or residual value at the end, okay? And then, so it can have, you can tolerate negative cash flow if you're gonna get some later on, or if, so it's like us, if you discover gold later on. But there is a, the, so the business model was cash flow based, whether short-term or long-term cash flow. The world has changed, all right? In the funding world. Be- what is the game now is who you're gonna sell your company to.

Tim Ferriss 1:39:59 I see. So you're talking about startups in this case?

Nassim Nicholas Taleb 1:40:01 Exactly. Startups or, or a lot of investments. Uh, you buy an apartment, you buy a house, you buy a building, you buy something, or you invest in some crazy idea. And someone was, was contacting me about, about LLM model, models, you know, ChatGPT, by saying, "Oh, we have this startup, I'm investing in this startup." And I looked at the rationale, and then he said, "Yeah, I'd be able to sell it in within two years." So, so, so this is a trap, okay? So people, uh, so companies, say even Twitter was operating on a following modus. We go to the market, okay, as a cash machine, so you don't even have to generate cash. So basically everything was came from this, it has Ponzi characteristics.

Tim Ferriss 1:40:45 [laughs]

Nassim Nicholas Taleb 1:40:45 Someone else will buy our company or we're packaging a company to sell it to someone else.

Tim Ferriss 1:40:50 Mm-hmm.

Nassim Nicholas Taleb 1:40:50 Okay? Now, that started before the, the great financial crisis, but it was very moderate. It, of course, it took place during the crazy period of the internet bubble, and then died. So we had had episodes of, of that effect. But now it's ingrained in, in people who now for 15 years of low interest rates, you have people in their 40s who have never seen interest rates.

Tim Ferriss 1:41:15 Mm-hmm.

Nassim Nicholas Taleb 1:41:16 And they don't know how to behave, they don't know how to invest. So I think the most fragile part today is not the banks, of course, as we said, and it's not hedge fund because they're sort of like mature adults typically. It is those startups.

Tim Ferriss 1:41:31 [laughs] Yeah.

Nassim Nicholas Taleb 1:41:31 And, and the VCs and the venture capitalist. But venture capitalists actually played quite a nasty game because they cashed out. All, all of them are rich on companies that never made a penny.

Tim Ferriss 1:41:41 Hmm.

Nassim Nicholas Taleb 1:41:42 You see, I, I know a lot, there's a lot of... Think how many billionaires you have in Silicon, from Silicon Valley-

Tim Ferriss 1:41:47 Mm-hmm

Nassim Nicholas Taleb 1:41:47 ... right? Who ever made a penny. It's valuation maybe, as they say.

Tim Ferriss 1:41:53 Yeah. Yeah, there's, there's a lot to that game. I will say also, I think there are gonna be tremendous just [laughs] fatalities in the next probably three quarters in the startup world because there's been a lot of contraction of funding, which I think is ultimately probably a good thing. But a lot of these companies that raised as-

Nassim Nicholas Taleb 1:42:17 It's not necessarily, it's a necessary thing.

Tim Ferriss 1:42:18 Yeah, no, that's, well, right. I mean, it's, it's culling of the herd, so I think we're gonna see a lot of-

Nassim Nicholas Taleb 1:42:22 But, but think about it. This will, will finally we'll get waiters out of these people because we have shortage of waiters.

Tim Ferriss 1:42:28 [laughs]

Nassim Nicholas Taleb 1:42:29 Okay? We, we finally will get wait- I mean, you go to restaurants and, you know, they have one waiter for the whole room. And we said we'll get more waiters, we'll get more people who, you know, will help you mow the grass and stuff. I mean, we got a lot of supply of-

Tim Ferriss 1:42:42 [laughs] Former, former startup founders serving you your Negroni. We'll see, we'll see how it shakes out. I'm curious to see.

Tim Ferriss 1:42:51 Nassim, and are there any ideas, concepts you would like to discuss? Is there anything that we've missed? Ed Thorp? [laughs] We could always talk about Ed Thorp.

Nassim Nicholas Taleb 1:43:01 Convexity is at the center of things.

Tim Ferriss 1:43:03 Mm-hmm.

Nassim Nicholas Taleb 1:43:03 So I started writing on convexity or studying convexity. You know, after, between the time we had the, you know-

Tim Ferriss 1:43:13 The eggs and the champagne

Nassim Nicholas Taleb 1:43:14 ... the eggs. No, no, the, the eggs. The eggs was 2002, 2001, 2002. And since then I, I had a, some, some 80 scientific papers.

Tim Ferriss 1:43:22 Mm-hmm.

Nassim Nicholas Taleb 1:43:23 So I, so, so my, my enemies, they, they don't know how to handle it because they would, they can't say that it's not science.

Tim Ferriss 1:43:28 Mm-hmm.

Nassim Nicholas Taleb 1:43:29 So anyway, so I think the, the central thing for me is convexity, and it led me into papers in oncology-

Tim Ferriss 1:43:36 Hmm

Nassim Nicholas Taleb 1:43:36 ... and medicine because again, oncologists knew stuff, doctors knew stuff, but their language did, the language they used did not accommodate- This notion of convexity 10 times one, the, the nonlinearity, they sort of suspected it, but it was not formalized.

Speaker 1:43:52 Mm.

Nassim Nicholas Taleb 1:43:52 So I've just published something in oncology. We did a lot of stuff in epidemiology on tails, so convexity and tails, and convexity is, is, is the most important. For example, people don't realize that convexity means you like volatility.

Speaker 1:44:07 Mm-hmm.

Nassim Nicholas Taleb 1:44:07 Concavity you don't, and there's zones where you're convex. And people missed the point that was already mentioned in a paper I wrote before COVID on citing sources for lung ventilators, that if you give someone a dose of 100%, the person may die, but if you give that person 80%, 120%, they have much higher survival rate. Why? Because they like volatility. Like, we like to get things, our, our system likes to get volatility.

Speaker 1:44:39 Like heart rate variability.

Nassim Nicholas Taleb 1:44:41 Like heart rate var- wh- when I wrote Antifragile, I was writing between 2009 and 2012, nobody believed in heart rate variability. You see? They thought you need a steady heart rate, that's a predictor of death.

Speaker 1:44:53 Mm.

Nassim Nicholas Taleb 1:44:54 But so, so it's the same thing for a lot of things where you have... That's the convexity effect. So that's sort of what I'm focusing on now, is these convex responses, convex stuff applied to fields where, you know, they need to be applied, like medicine, and the same thing with nutrition.

Speaker 1:45:13 Mm-hmm.

Nassim Nicholas Taleb 1:45:14 The nutrition figured out early on intermittent fasting.

Speaker 1:45:17 Mm.

Nassim Nicholas Taleb 1:45:17 Well, it's a convexity thing. Instead of having a dose throughout the day, you have it, and it's a different response, but there's a limit, you see?

Speaker 1:45:25 Mm.

Nassim Nicholas Taleb 1:45:25 You'd rather have your calories at concentration limits than rather have your calories... You know, once a day is okay. Once a week, not so sure, you see?

Speaker 1:45:34 [laughs]

Nassim Nicholas Taleb 1:45:35 So there's an optimum thing. It's the same thing can be generalized to other things. This is, this is what I'm working on.

Speaker 1:45:39 Mm-hmm.

Nassim Nicholas Taleb 1:45:40 And it's taken me a while, and all that comes from optionality, option trading.

Speaker 1:45:44 Does it make sense for people to become familiar, even if they never engage with options, in some basic education in options trading, or would you say skip that and study-

Nassim Nicholas Taleb 1:45:55 Skip that because they're gonna sell options.

Speaker 1:45:56 [laughs] Okay.

Nassim Nicholas Taleb 1:45:58 About... They used to say nine-tenths of option players will be, will come in, will be sellers. I think it's 99 out of 100.

Speaker 1:46:08 Mm-hmm.

Nassim Nicholas Taleb 1:46:09 It's so appealing because someone's gonna give them the story, "You sell options, you have steady income." There's nothing people like more than steady income, and the reason Mark is in business, because he's the only person I know who doesn't care about having a steady, the psychological pro-pop of having steady income.

Speaker 1:46:28 Mm-hmm.

Nassim Nicholas Taleb 1:46:28 Because everybody else has a steady income, they would debase the trade to have a steady income, and sure enough, you get steady in- income by selling the tails. And that is generalized. To give you an idea, companies that have steady income-

Speaker 1:46:42 Mm

Nassim Nicholas Taleb 1:46:43 ... are short on options somewhere.

Speaker 1:46:44 Mm.

Nassim Nicholas Taleb 1:46:45 You see? So it's not trading options that will help you. It's looking at optionality in business and in places who will short that optionality.

Speaker 1:46:56 Mm-hmm.

Nassim Nicholas Taleb 1:46:57 Like, you can have two funds. They all have now the same return. One fund can be, have a lot of short options, and one fund can be robust. You won't be able from the outside, and security analysts have no idea.

Speaker 1:47:13 Weapons of mass destruction, that's what Warren Buffett called them, so-

Nassim Nicholas Taleb 1:47:16 [laughs]

Speaker 1:47:17 ... ordinary people should stay away [laughs] from these derivative contracts. And it's one of the things that I had to deal with this book was, is with my editor and, you know, and people who I've, who've interviewed me since then is everybody wants to know how to do the universal trade.

Nassim Nicholas Taleb 1:47:37 Mm-hmm.

Speaker 1:47:37 You know, mom and pop.

Nassim Nicholas Taleb 1:47:38 [laughs]

Speaker 1:47:39 How, how do you... How does mom and pop protect themselves against these things?

Nassim Nicholas Taleb 1:47:44 Yeah.

Speaker 1:47:44 'Cause in the book, I warn these downturns are very bad for your portfolio. This, these are the things that kill you.

Nassim Nicholas Taleb 1:47:51 Mm.

Speaker 1:47:51 You know, if you go down 40, 50%, this is something that Mark talks a lot about, you lose 50%, to get back to where you were before it happened, you have to make 100%.

Nassim Nicholas Taleb 1:48:02 Mm-hmm.

Speaker 1:48:02 So these are the things that you really wanna protect yourself against, and my editor was like, "Well," you know, he wanted to know for his own [laughs] ... 'Cause he was getting scared.

Nassim Nicholas Taleb 1:48:10 [laughs]

Speaker 1:48:11 How does ordinary person do this? How do they protect themselves against these big events and-

Nassim Nicholas Taleb 1:48:16 My answer is an ordinary person should focus on her or his business. A dentist should focus on dentistry, not trading gold.

Speaker 1:48:25 [laughs] Yeah.

Nassim Nicholas Taleb 1:48:26 You see? I mean, my experience, you see people whose business is not the finance, and they think that they've got to make money out of their checking account. So what happens is they have so much scrutiny by their own business. Say, they run a bakery, they know the suppliers, this guy pays, this guy, they know all the risks, and then they blindly put their money into something they've, they have no idea what's going on.

Speaker 1:48:49 [laughs]

Nassim Nicholas Taleb 1:48:49 Okay? So, so this is where the sucker, you know when I say it's domain dependent?

Speaker 1:48:53 Mm.

Nassim Nicholas Taleb 1:48:53 That some people are skeptical in one area but don't transfer to stock market. It's the same thing. So, so there's something about the stock market, particularly with the, the weakness of religion, that makes people believe in stories of returns, but not believe in theological arguments that we've had for 2,000 years. So it's the same thing. It's that sucker that, and I tell people, "Listen, what do you do?" "Oh, I have a bakery." "Mm, focus on baking, and, and, and use your money to preserve."

Speaker 1:49:24 Mm-hmm.

Nassim Nicholas Taleb 1:49:24 That's not your business. So this is what you tell the pop and mom. You don't tell them how to do universal trade. You tell them-

Speaker 1:49:31 They can't do it.

Nassim Nicholas Taleb 1:49:32 Yeah.

Speaker 1:49:32 That's the problem [laughs] is it's not an option.

Nassim Nicholas Taleb 1:49:33 Well, I mean, I, I get the, you know, after being in Silicon Valley for 17 years and having some pretty good luck with startups, I get the question like, [laughs] "How can I invest in early stage startups?" I'm like, "Don't."

Speaker 1:49:45 Yeah.

Nassim Nicholas Taleb 1:49:45 Do not under any circumstances do that. It's like unless you're living in the middle of the switch box and you're dedicating your time to that-

Tim Ferriss 1:49:53 To not do it 'cause-

Nassim Nicholas Taleb 1:49:54 Yeah, unless you're a trader, don't trade.

Tim Ferriss 1:49:56 Yeah.

Nassim Nicholas Taleb 1:49:56 Unless you're a baker, don't bake.

Tim Ferriss 1:49:58 [laughs]

Nassim Nicholas Taleb 1:49:59 Unless you're a dynamite maker, okay, don't make dynamite.

Tim Ferriss 1:50:03 [laughs]

Nassim Nicholas Taleb 1:50:03 And stuff like that. I mean, the, it's elementary.

Tim Ferriss 1:50:05 [laughs] This is Scott. The new book, Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis, a, is available where all fine books can be found. And you find me online, scottpattersonbooks.com, on Twitter @pattersonscott. And Nassim, where would you like people to engage with you, if they engage with you, or with your books, understanding that you have begun work on these, these various, I suppose, parts of your multi-part essay at different points in time? Is there a place where you would suggest people engage with your work first? I suppose it depends on their orientation.

Nassim Nicholas Taleb 1:50:45 I think Fooled by Randomness is the one that people like-

Tim Ferriss 1:50:49 Mm-hmm

Nassim Nicholas Taleb 1:50:49 ... the most. The Black Swan, well, they cite the most.

Tim Ferriss 1:50:52 [laughs]

Nassim Nicholas Taleb 1:50:53 And Antifragile is the one they misuse the most.

Tim Ferriss 1:50:56 Misuse?

Nassim Nicholas Taleb 1:50:56 Misuse, yeah, because they say, "Oh yeah, the virus, you get stronger. What doesn't kill you make you stronger." I know, but what kills you doesn't make you stronger.

Tim Ferriss 1:51:03 [laughs]

Nassim Nicholas Taleb 1:51:04 I mean, they're not getting it right. Like, the first thing to be fragile, uh, to be antifragile, is first you have to eliminate fragilities.

Tim Ferriss 1:51:10 Mm-hmm.

Nassim Nicholas Taleb 1:51:11 You see?

Tim Ferriss 1:51:11 [laughs]

Nassim Nicholas Taleb 1:51:12 That, that's the first rule. You eliminate, you tail the risk. You don't open it up. So I don't know, but I would say Fooled by Randomness is a good start.

Tim Ferriss 1:51:19 Mm-hmm.

Nassim Nicholas Taleb 1:51:20 Or if you're a lawyer, Skin in the Game.

Tim Ferriss 1:51:22 Mm-hmm.

Nassim Nicholas Taleb 1:51:23 I have no idea because I'm not thinking in terms of my past books. I'm thinking about the book I'm writing now.

Tim Ferriss 1:51:29 Yeah, what are you working on now, if you can say?

Nassim Nicholas Taleb 1:51:31 Well, two things. There's a Technical Incerto second volume, which is all the scientific papers around these points, and I'm working now on a book that is pretty much, like, structured like, like an ancient Roman, Latin treatise, Latin language treatise. Okay? With questions and, and stuff like that.

Tim Ferriss 1:51:52 Mm-hmm.

Nassim Nicholas Taleb 1:51:52 And it's liberating to be able to write without having the narrative.

Tim Ferriss 1:51:59 Mm-hmm.

Nassim Nicholas Taleb 1:51:59 Just boom, point-blank. And in it, I cover all these points.

Tim Ferriss 1:52:03 Mm-hmm.

Nassim Nicholas Taleb 1:52:03 Question, what is convexity? What is, what is this? So, and I've decided to do all of that in one book, and it's gonna be called Principia. For example, why the risk of an individual, you know-

Tim Ferriss 1:52:16 Mm

Nassim Nicholas Taleb 1:52:16 ... getting this is, is, doesn't translate into a collective risk in the same way.

Tim Ferriss 1:52:22 Right, the swimming pool versus COVID.

Nassim Nicholas Taleb 1:52:23 The swimming pool, stuff like that, and also why, for, you, you can generalize, a lot of it has to do with scalability. People have the idea that we should have a virtuous individuals to have a virtuous society. Typically, if you force, no. There's a lot of greedy individuals can build a virtuous society. That's the Adam Smith argument, or actually the one in Malebranche. So the idea of scalability, for, for example, is the most misunderstood thing. Like, a town is not a small village. I started the topic in Antifragile, but how things scale differently. So a, a town is not the same village. Let's say it's not a large village. A country is not the same as a municipality, and why, for example, you could be libertarian at the national level and autocratic at the municipal level.

Tim Ferriss 1:53:16 Hmm.

Nassim Nicholas Taleb 1:53:16 You see? Or communist in a kibbutz, but libertarian at state level. You, you could have a lot of these gradations, so things are more complicated.

Tim Ferriss 1:53:23 Hmm.

Nassim Nicholas Taleb 1:53:24 Among these things, I debunk in it, and then finally, one, one idea that also will be explored, but structured in it, on the main difference between BS and non-BS.

Tim Ferriss 1:53:34 [laughs]

Nassim Nicholas Taleb 1:53:36 What I call verbalism.

Tim Ferriss 1:53:37 BS as in bullshit?

Nassim Nicholas Taleb 1:53:40 Yeah.

Tim Ferriss 1:53:40 Yeah, okay. No, I was just making sure I'm understanding.

Nassim Nicholas Taleb 1:53:42 I just call it verbalism. Let's go with verbalism and non-verbalism. What is not BS. Because a lot of scientific papers have BS, and a lot of casual things don't have BS.

Tim Ferriss 1:53:50 Mm-hmm.

Nassim Nicholas Taleb 1:53:51 So I'm exploring all of these in a volume. I may call it Summa or Principia to give it an arrogant title.

Tim Ferriss 1:53:57 Yeah, [laughs] Principia. I like it.

Nassim Nicholas Taleb 1:53:59 Or Summa or Principia Incertorum or something. I'm uncertain.

Tim Ferriss 1:54:04 So what characterizes non-BS? I have to ask.

Nassim Nicholas Taleb 1:54:07 I have rigidity of meaning.

Tim Ferriss 1:54:09 Hmm.

Nassim Nicholas Taleb 1:54:09 Rigidity of meaning. I, I learned that from arbitrage trading. I learned a lot of things from trading.

Tim Ferriss 1:54:14 Mm-hmm.

Nassim Nicholas Taleb 1:54:15 And arbitrage trading, the law of one price, is like, if you combine things, you should, they should have the same price here, Singapore, or downtown, uptown combination, that you should have no arbitrage. I can't really buy... I used to do arbitrage. I used to buy, I started doing arbitrages, like could buy an option with this, this converted to across them, and end up with something cheaper than some other one I would short, and then just get it. So it should not have a law of one price. It's a rigidity of meaning. So in other words, whatever the, whatever words you use always refers to the same thing.

Tim Ferriss 1:54:47 Mm-hmm.

Nassim Nicholas Taleb 1:54:48 That's what my criteria of rigidity.

Nassim Nicholas Taleb 1:54:50 In it, by the way, I cite you in my new book.

Tim Ferriss 1:54:53 Well, hopefully it's a good citation.

Nassim Nicholas Taleb 1:54:55 What you call bigoteering.

Tim Ferriss 1:54:56 Mm-hmm. Oh, yeah. Yeah, yeah.

Nassim Nicholas Taleb 1:54:57 Okay, so in other words, I have a so-called retrospective bigoteering. I have one section is on scalability, and one section on, is on the passage of time, how we don't get time right. And in it, I explain why, for example, it is improper to blame someone retrospectively for values we have today, what we didn't have then.

Tim Ferriss 1:55:20 Yeah.

Nassim Nicholas Taleb 1:55:20 You see, it's like, for example, Aristotle, he was, you know, a male chauvinist, chauvinist. I would say, okay, is it, was it, it is wrong. Yeah, we know now, but he didn't know.

Tim Ferriss 1:55:31 Mm-hmm.

Nassim Nicholas Taleb 1:55:32 You see? He didn't know. It's just like saying, "Okay, why don't we blame him for not using a, a computer?"

Tim Ferriss 1:55:36 [laughs]

Nassim Nicholas Taleb 1:55:37 Okay? There was no computer at the time. So you gotta look at these terms. You should not flow back values backwards.

Tim Ferriss 1:55:42 Mm-hmm.

Nassim Nicholas Taleb 1:55:43 But effectively, the Talmud, which I've been studying for a while, has, has a lot of, uh, things on it.

Tim Ferriss 1:55:49 Hmm. Why, how do you mean?

Nassim Nicholas Taleb 1:55:50 And, and, and tell me, tell me what, what it has on it that it says. So for example, it say Noah was virtuous for his day. Someone pointed out to me in the, in the Talmud because I got a lot of... Twitter is very helpful.

Tim Ferriss 1:56:02 Mm-hmm.

Nassim Nicholas Taleb 1:56:03 I like these ancient texts to see how, how they, they would judge their own.

Tim Ferriss 1:56:08 Mm-hmm.

Nassim Nicholas Taleb 1:56:09 You see? Like ef- effectively when in 18th century, they had different values than the 15th century, and how did they judge them? And at the same time, people, the wise people know that hey, they did not... It was not part of the customs at the time.

Tim Ferriss 1:56:24 How did you decide specifically on the Talmud? Because, because that's not your upbringing.

Nassim Nicholas Taleb 1:56:29 Okay. No.

Tim Ferriss 1:56:29 Yeah.

Nassim Nicholas Taleb 1:56:29 It's because I like Aramaic, which is closer to my native language, which is the, the Levantine dialect.

Tim Ferriss 1:56:35 Mm-hmm.

Nassim Nicholas Taleb 1:56:36 Aramaic. And, and then started having interaction on Twitter with, with people who are Talmudic scholars.

Tim Ferriss 1:56:43 Based on the interest in the language?

Nassim Nicholas Taleb 1:56:45 No, my interest in language. I have interest in ancient languages more than interest in ideas.

Tim Ferriss 1:56:49 Mm.

Nassim Nicholas Taleb 1:56:49 But I'm poor with languages, so it's not taking me anywhere except exploring text, and I'm enjoying, you know, the stuff. So you co- have a collection of ancient wisdom in the Talmud, embedded in the Talmud-

Tim Ferriss 1:57:05 Mm

Nassim Nicholas Taleb 1:57:05 ... that is very interesting because it, it explain... I mean, the, the, it's monumental work.

Tim Ferriss 1:57:12 I'm just wondering, I guess in addition to or amongst the different sacred text or scriptures that you could study, why that stands out.

Nassim Nicholas Taleb 1:57:21 No, what stands out really is more like someone like Aquinas.

Tim Ferriss 1:57:26 Mm-hmm.

Nassim Nicholas Taleb 1:57:26 The Summa Theologiae because written by one person, whereas the Talmud is a concoction of opinion on opinions, right?

Tim Ferriss 1:57:35 Mm-hmm. Yeah.

Nassim Nicholas Taleb 1:57:35 So... But I like the Talmud only because I have the privilege of understanding Semitic languages.

Tim Ferriss 1:57:42 Mm.

Nassim Nicholas Taleb 1:57:42 So I'm enjoying it for l- more for linguistic stuff, just for the fun of it.

Tim Ferriss 1:57:46 I see. I get it.

Nassim Nicholas Taleb 1:57:47 And, and it's fun-

Tim Ferriss 1:57:48 Mm-hmm

Nassim Nicholas Taleb 1:57:48 ... to read something and you understand. This is why I-

Tim Ferriss 1:57:51 I'm jealous

Nassim Nicholas Taleb 1:57:51 ... plus it is e- effectively a body of work that's quite monumental, you know, that took centuries to build, a collection of scholars talking about scholars and, and discussing one another over time.

Tim Ferriss 1:58:04 Mm-hmm.

Nassim Nicholas Taleb 1:58:04 This is what, what I like, I like about Aquinas is took a topic and boom, put everything in it. All the questions and answer you can have in it.

Tim Ferriss 1:58:13 Hmm.

Nassim Nicholas Taleb 1:58:13 He questioned himself. So this is why, why I'm much more impressed with Aquinas as an individual. I can never imitate, uh, Aquinas.

Tim Ferriss 1:58:21 Mm.

Nassim Nicholas Taleb 1:58:21 So all I could be is a, a scholar, like one of those who contributed to that Talmud, you know, or one of small contributor. Not Talmud, that collective piece of work.

Tim Ferriss 1:58:32 I'm jealous of your ability to engage with the Semitic languages and just be able to access some of the, the text in its original form. I'm very jealous of that.

Nassim Nicholas Taleb 1:58:43 No, I enjoy that. I, I don't do as well with Greek as I should, Ancient Greek. I can do better with modern, but Latin is, is easier-

Tim Ferriss 1:58:53 Mm-hmm

Nassim Nicholas Taleb 1:58:53 ... than Semitic languages. But the grammar is more complicated than Aramaic and Latin.

Tim Ferriss 1:58:57 Hmm. Well, we could go down that rabbit hole. Maybe sound- save that for, for the next round. I know we have food and booze to get to, but Scott, is there anything else you'd like to mention before we wrap up? Anything that maybe we didn't get to, or anywhere you'd like to point people that I didn't mention? Or the next book that you'd like to give a teaser for? Anything.

Speaker 1:59:16 [laughs]

Tim Ferriss 1:59:16 Anything at all that you'd like to mention before we wrap up?

Speaker 1:59:18 No, we covered a lot. I really appreciate you taking the time. I appreciate Nassim taking the time. I don't know about my next book. I mean, I'm right now just completely immersed in this climate world, and last year the Biden administration passed the Inflation Reduction Act, which has nothing to do with inflation, but-

Tim Ferriss 1:59:42 Yeah

Speaker 1:59:43 ... that thing is sending shock waves through the climate technology world in ways that's just... It's kind of mind-blowing.

Tim Ferriss 1:59:51 Hmm.

Speaker 1:59:52 And it's changed the game for America at least in, in its attempt to catch up with what China has started 10... more than 10 years ago to develop these technologies. But it's gonna take a while, but in my opinion, it's, it's pretty necessary to start doing that.

Tim Ferriss 2:00:10 I find the entire space super fascinating, and I, I know we were talking about the, the ideas in the current book, so we didn't spend a lot of... didn't allocate a lot of real estate to that particular topic. But, you know, I was thinking about what you were mentioning about climate change and the, some of the challenges in engaging different parties. And what I've found, I live in Texas, right? A lot of people engaged in the hydrocarbon businesses and so on, and I've spent time with a lot of these people who are not stupid, right? They're-

Speaker 2:00:36 Yeah

Tim Ferriss 2:00:36 ... they're some very smart people, but there are... You study the incentives and you see certain behaviors. You looked at the in- sort of incumbent interests. And w- where I have found productive conversations to be had is if I avoid certain types of language. So for instance, if I don't mention climate change, but I say-

Speaker 2:00:55 Yeah. [laughs]

Tim Ferriss 2:00:55 ... "Let's put aside the question of whether humans are causing this or not," which is very painful for a lot of people to do, but it's a great way to fight, you know? But if I'm like, "Look, let's put that aside and just look at extreme weather events, and look at some of the upside potential with some of these technologies," and like where they could find incentives, like financial incentives outside of some of their current sandboxes. I've had pretty good luck engaging people with that. I don't always have the most-

Speaker 2:01:25 Yeah

Tim Ferriss 2:01:25 ... compelling opportunities to immediately present them necessarily, although there are a, I mean, quite a few out there.

Speaker 2:01:31 I've been working on some stories about climate technology in Appalachia, so I've had a lot of conversations with Republican lawmakers in states like West Virginia-

Tim Ferriss 2:01:42 Mm

Speaker 2:01:42 ... about efforts to bring in renewable energy into the state.

Tim Ferriss 2:01:47 Mm-hmm.

Speaker 2:01:48 And you can have perfectly rational conversations with them, and they love it.

Tim Ferriss 2:01:54 Mm-hmm.

Speaker 2:01:55 And you don't talk about global warming or, you know, climate change.

Tim Ferriss 2:02:00 Yeah.

Speaker 2:02:00 You talk about energy.

Tim Ferriss 2:02:01 Yeah.

Speaker 2:02:02 And you talk about how, you know, why would we not use this new form of energy that's actually cheaper than everything else-

Tim Ferriss 2:02:10 Mm

Speaker 2:02:10 ... you know, wind and solar, and they get that. They're, they're like, "We're energy people. We, we understand it," and they're embracing it.

Tim Ferriss 2:02:18 Yeah, I think energy independence is sort of a bipartisan-

Speaker 2:02:22 In competition with China.

Tim Ferriss 2:02:23 In competition. Well, I guess we can save that for round two. But I really appreciate the time from both of you.

Speaker 2:02:30 Thank you.

Tim Ferriss 2:02:30 I took, took a ton of notes. For people listening also, we'll have show notes linking to everything that we mentioned, as usual, at tim.blog/podcast. You'll be able to find references and links to certainly everything I have in my notes and a lot more that came up in conversation. Any last parting words, gentlemen?

Nassim Nicholas Taleb 2:02:50 You're not gonna leave us dinner this time. I'm paying.

Tim Ferriss 2:02:53 [laughs] Okay, agreed. Agreed.

Nassim Nicholas Taleb 2:02:55 'Cause last time-

Tim Ferriss 2:02:56 No games

Nassim Nicholas Taleb 2:02:56 ... I'm telling you.

Speaker 2:02:57 I'm fine with that. [laughs]

Nassim Nicholas Taleb 2:02:57 Last time he went and paid.

Tim Ferriss 2:02:59 [laughs] No games. I won't skulk off and surreptitiously pay for anything.

Speaker 2:03:03 [laughs]

Tim Ferriss 2:03:04 So on that note, off to dinner we go, and thank you very much, guys. And to everybody listening, thanks for tuning in.