5 ms·

"Rare" might be a strong word, but I would have order of magnitude more confidence living in an apartment if I know the head engineer who supervised its constru

by ak_111 3y ago

"Rare" might be a strong word, but I would have order of magnitude more confidence living in an apartment if I know the head engineer who supervised its construction lives in the top floor. Or I would feel 10x more confident in an investment if I know its seller has a significant amount of his net worth invested in it. It is a very natural heuristic and has a long history. Where it mostly fails is incompetence, some might have the best intention of something succeeding but their best effort is still not worth much.

escapedmoose 3y ago
Seemingly, “skin in the game” is only assurance against getting scammed, not incompetence.
- mrguyorama 3y ago
  And specifically only protective against getting scammed by someone who does not believe their own bullshit, which isn't always the case.
- BurningFrog 3y ago
  There is also a big "grey zone" where people will do a good job when evaluating security for others, but a really good job with their own security. You could think of this as avoiding "a scam", but there is no conscious intention involved.
- throw9away6 3y ago
  Madoff had skin in the game it didn’t help
bombcar 3y ago
It fights against one kind of incompetence (direct and deliberate fraud) but it doesn't remove a bunch of other types. Many people will happily live in a deathtrap because they don't really think anything will happen to them.
MrJohz 3y ago
I don't doubt you would have more confidence, but human estimations of risk tend to be very poor. So it would still be useful to see whether that sort of belief holds true: that is, whether people who "have skin in the game" really do take fewer risks. And even if that were the case, it's still quite a complex calculation to make. Let's say there are two architects building a tower block with the knowledge that they will be living in the top floor when it's built. One of them has little appetite for risk and builds their skyscraper very safely, without any real deviation from classic proven standards. Meanwhile, the other architect is much more open to risk and designs their skyscraper using brand new ideas and techniques. Both of them are equally happy to stay in the top floors of their buildings, but are the two buildings equally safe and risk free?
- falcor84 3y ago
  I'm unclear on what your argument is - of course if you have additional information about the architects, you should consider it. But if you don't have any other information, all other things being equal, it would be rational to strongly prefer to live in a building where the architect is willing to live. Of course, if possible, you should choose the place where the structural engineer lives.
  - MrJohz 3y ago
    It's two arguments. Firstly, you've made the assertion that someone whose own life of at risk based their decisions is more likely to make safe decisions. As you say, it's an intuitive assumption to make, but reality tends to be very counterintuitive, especially when it comes to human logic and risk. Look at misconceptions around dangers of fighting vs driving, for example, or health risks and causes of death. So my first argument is that you should find evidence for that assertion before relying on it. I just don't trust it. My second argument is that, even if it is true that people will take fewer risks if they know their life will be affected by those risks, I still don't think that would make that a useful tool in judging absolute risk. This is because human appetites for risk seem to vary a lot. Judging whether a building is safe based on whether the builder sleeps there is meaningless unless we know the builder's own propensity for risky decisions. To give a more concrete example not directly related to risk: say you've got a disease, and I come to you with two medicines, A and B. I won't tell you how effective they are, but I will give you a double dose of medicine B, which will double its effectivity. Which one of these medicines should you take? The logical answer here being that you just don't know, because you don't know the baseline effectivity of the medicines. Maybe they work about the same, in which case the double dose is obviously better. Maybe A is ten times more powerful to start with, so it doesn't really matter that B gets doubled. Similarly, unless we have some indication of people's baseline propensity for risk, I don't think we can effectively make genuine (as in, statistically valid, data-backed) judgements about the situations you're describing, however counterintuitive that might feel.
fatfingerd 3y ago
I think these people are more likely to be habituated to any risk than people who are forced to keep a professional distance and imagine what might happen with less personal experience.
deleted 3y ago
[deleted]
crazygringo 3y ago
> but I would have order of magnitude more confidence living in an apartment if I know the head engineer who supervised its construction lives in the top floor I absolutely do not. Pretty much all of the risky decisions I see people make, they seem to be self-harming just as often as they harm others. To me whether the engineer lives in his own building doesn't tell me anything, because a guy who cuts corners does it because he thinks it's safe to cut corners. What I want to know is, is the engineer's personality risk-seeking or risk-averse? Are they the kind of person who does things by the book or is always looking to cut corners? Do they value a job well done or do they value speed? These are the things that matter, not their personal tolerance for risk.
- potatolicious 3y ago
  Exactly. The notion that skin in the game decreases risky behavior assumes that everyone is perfectly rational, which is demonstrably untrue. It's a classic "spherical cow" modeling of human behavior. Overconfidence, hubris, obsession, laziness, envy, spite, and a nearly-infinite list of other "irrational" behaviors are a function of human existence and would cause someone to take stupid risks with both themselves and others!
  - cjbgkagh 3y ago
    No assumption of rationality is necessary, when the people who take the risks suffer the consequences they’re no longer around to take more risks no matter how irrational they are.
mandevil 3y ago
Evidence from the US mortgages before the Financial Crisis doesn't seem to support this. Middle managers at Countrywide (etc.) played even more games with their mortgages than normal people, interest-only up the wazoo etc. to get themselves into even nicer houses than they could afford, because they thought that they understood how the mortgage system worked. The problem is that old line from Upton Sinclair about how it was "difficult get a man to understand something when his salary depends on not understanding it." The engineers, investment people, mortgage people etc. are motivated to believe that what they are doing is sufficient. This is supposed to be why disinterested government regulators- people whose pay does not change on whether this building, investment, submarine, mortgage etc. is safe- jump in and actually approve things. But, of course, government regulators are silly and just slow things down, because they don't understand how our new system uses computers/crypto/AI/whatever to be just as safe.
thelongernight 3y ago
[dead]

by ak_111 3y ago

escapedmoose 3y ago

Seemingly, “skin in the game” is only assurance against getting scammed, not incompetence.

mrguyorama 3y ago
And specifically only protective against getting scammed by someone who does not believe their own bullshit, which isn't always the case.
BurningFrog 3y ago
There is also a big "grey zone" where people will do a good job when evaluating security for others, but a really good job with their own security. You could think of this as avoiding "a scam", but there is no conscious intention involved.
throw9away6 3y ago
Madoff had skin in the game it didn’t help

bombcar 3y ago

It fights against one kind of incompetence (direct and deliberate fraud) but it doesn't remove a bunch of other types. Many people will happily live in a deathtrap because they don't really think anything will happen to them.

MrJohz 3y ago

I don't doubt you would have more confidence, but human estimations of risk tend to be very poor. So it would still be useful to see whether that sort of belief holds true: that is, whether people who "have skin in the game" really do take fewer risks. And even if that were the case, it's still quite a complex calculation to make. Let's say there are two architects building a tower block with the knowledge that they will be living in the top floor when it's built. One of them has little appetite for risk and builds their skyscraper very safely, without any real deviation from classic proven standards. Meanwhile, the other architect is much more open to risk and designs their skyscraper using brand new ideas and techniques. Both of them are equally happy to stay in the top floors of their buildings, but are the two buildings equally safe and risk free?

falcor84 3y ago
I'm unclear on what your argument is - of course if you have additional information about the architects, you should consider it. But if you don't have any other information, all other things being equal, it would be rational to strongly prefer to live in a building where the architect is willing to live. Of course, if possible, you should choose the place where the structural engineer lives.
- MrJohz 3y ago
  It's two arguments. Firstly, you've made the assertion that someone whose own life of at risk based their decisions is more likely to make safe decisions. As you say, it's an intuitive assumption to make, but reality tends to be very counterintuitive, especially when it comes to human logic and risk. Look at misconceptions around dangers of fighting vs driving, for example, or health risks and causes of death. So my first argument is that you should find evidence for that assertion before relying on it. I just don't trust it. My second argument is that, even if it is true that people will take fewer risks if they know their life will be affected by those risks, I still don't think that would make that a useful tool in judging absolute risk. This is because human appetites for risk seem to vary a lot. Judging whether a building is safe based on whether the builder sleeps there is meaningless unless we know the builder's own propensity for risky decisions. To give a more concrete example not directly related to risk: say you've got a disease, and I come to you with two medicines, A and B. I won't tell you how effective they are, but I will give you a double dose of medicine B, which will double its effectivity. Which one of these medicines should you take? The logical answer here being that you just don't know, because you don't know the baseline effectivity of the medicines. Maybe they work about the same, in which case the double dose is obviously better. Maybe A is ten times more powerful to start with, so it doesn't really matter that B gets doubled. Similarly, unless we have some indication of people's baseline propensity for risk, I don't think we can effectively make genuine (as in, statistically valid, data-backed) judgements about the situations you're describing, however counterintuitive that might feel.

fatfingerd 3y ago

I think these people are more likely to be habituated to any risk than people who are forced to keep a professional distance and imagine what might happen with less personal experience.

deleted 3y ago

[deleted]

crazygringo 3y ago

> but I would have order of magnitude more confidence living in an apartment if I know the head engineer who supervised its construction lives in the top floor I absolutely do not. Pretty much all of the risky decisions I see people make, they seem to be self-harming just as often as they harm others. To me whether the engineer lives in his own building doesn't tell me anything, because a guy who cuts corners does it because he thinks it's safe to cut corners. What I want to know is, is the engineer's personality risk-seeking or risk-averse? Are they the kind of person who does things by the book or is always looking to cut corners? Do they value a job well done or do they value speed? These are the things that matter, not their personal tolerance for risk.

potatolicious 3y ago
Exactly. The notion that skin in the game decreases risky behavior assumes that everyone is perfectly rational, which is demonstrably untrue. It's a classic "spherical cow" modeling of human behavior. Overconfidence, hubris, obsession, laziness, envy, spite, and a nearly-infinite list of other "irrational" behaviors are a function of human existence and would cause someone to take stupid risks with both themselves and others!
- cjbgkagh 3y ago
  No assumption of rationality is necessary, when the people who take the risks suffer the consequences they’re no longer around to take more risks no matter how irrational they are.

mandevil 3y ago

Evidence from the US mortgages before the Financial Crisis doesn't seem to support this. Middle managers at Countrywide (etc.) played even more games with their mortgages than normal people, interest-only up the wazoo etc. to get themselves into even nicer houses than they could afford, because they thought that they understood how the mortgage system worked. The problem is that old line from Upton Sinclair about how it was "difficult get a man to understand something when his salary depends on not understanding it." The engineers, investment people, mortgage people etc. are motivated to believe that what they are doing is sufficient. This is supposed to be why disinterested government regulators- people whose pay does not change on whether this building, investment, submarine, mortgage etc. is safe- jump in and actually approve things. But, of course, government regulators are silly and just slow things down, because they don't understand how our new system uses computers/crypto/AI/whatever to be just as safe.

thelongernight 3y ago

[dead]