January 16, 2025 • 47 mins
Nate and Maria discuss the California wildfires. How do incentives in insurance markets drive decisions by homeowners – and by insurers? What’s the best way to make rational decisions about the disaster risks we all face?
And they discuss a question from listener JM who asks what happens when the River and the Village mix it up in Washington?
Further Reading:
Colm Toíbin on the loss of Gary Indiana’s personal library in the Palisades fire
An overview of California’s insurance issues from the WSJ
For more from Nate and Maria, subscribe to their newsletters:
The Leap from Maria Konnikova
Silver Bulletin from Nate Silver
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:15):
Pushkin. Welcome back to Risky Business, a show about making
better decisions. I'm Maria Kannakoma.
Speaker 2 (00:36):
And I'm Nate Silver.
Speaker 3 (00:39):
Today on the show, we'll talk about the ongoing wildfires
in Los Angeles and we'll take a listener question about
Elon Musk, the river and the village.
Speaker 1 (00:48):
All right, let's get into it. Before we get into
the wildfires. You know, really serious, weighty topic, incredibly important,
Let's talk about something a little bit lighter. Nate, you
(01:08):
just got back from a trip to Tokyo and a soul,
so you were halfway around the world.
Speaker 2 (01:14):
Yeah, I know, if I'm fifteen.
Speaker 3 (01:16):
We had this debate my partner like, can you really
be like fifteen hours ahead? Doesn't that mean like eleven
hours behind or nine? Can't be the fucking math. But yeah,
I'm a little little guy, a little be the lag.
Speaker 1 (01:27):
As we say, welcome back to New York, and we
hope that your your jet lag well evaporate soon enough.
But tell us a little bit about about that trip,
just because I think it's absolutely fascinating. Two great cities,
such a fascinating part of the world, but also one
(01:48):
where you had to make a lot of travel decisions. Right,
A lot of risky decisions.
Speaker 3 (01:53):
Yeah, I mean, so one thing is so, first of all,
I love both cities. We were lucky enough to have
a good Korean American friend that we traveled with and
caught up with another friend in Tokyo, so we had.
Speaker 2 (02:06):
The other friend helped to help got up.
Speaker 1 (02:09):
You wouldn't know the other Fay, not our mutual poker
friend who listen in Tokyo.
Speaker 3 (02:15):
No, no degenerate poker playing this start degenerously was merely
no pachinko parlors.
Speaker 2 (02:22):
We just ate a lot.
Speaker 1 (02:23):
You know.
Speaker 3 (02:23):
Everyone's like, oh, I went to Asia and or Europe
and actually I lost weight because I walked.
Speaker 1 (02:27):
So it's like, nah, I always find that that's bullshit.
I'm like, God, just give me food.
Speaker 3 (02:34):
I mean, they are like they are in some ways,
like Japan is kind of a more risk of society
than other countries. You know, I'm not sure if I
want to, you know, as Korea as in certain ways too.
But like so, apart from the food, which was wonderful
seeing these two countries.
Speaker 2 (02:51):
Back to back, where on the one hand, if you look.
Speaker 3 (02:54):
At the per capita GDP of Japan's may not be
exactly precisely right, but like it's like basically the same
as it was in the nineties, So the country has
not really grown for for forty years now.
Speaker 1 (03:08):
Crazy where Korea.
Speaker 3 (03:10):
Has now per capital wise, caught up with Japan or
surpassed it and feels more modern in certain ways. I mean, certainly,
you know, Tokyo is a very comfortable place to live,
but you know, solely the English they speak tends to
be a little bit better. It's a little bit more
modern in different ways. I think Korean culture, to make
(03:31):
very broad way gay state has been this is like emerging, right.
You have like all these oscar Ward winning films and
the art we saw it was interesting, and you know,
it's a culture that's gone from being for a long
time a very poor country to being relatively wealthy in
a hurry.
Speaker 2 (03:46):
It's interesting now.
Speaker 3 (03:47):
I was at both countries, but especially Korea have these
very low birth rates, which is that's what we've talked
about before. I guess neither of us have kids, so
many were part of the problem, right, But like I know,
just again dumb wake eye observations to arrive in this
country that just as all of a sudden found itself
as being like kind of a big player in the
(04:07):
region and on the world stage. But now it's like, yeah,
I think we're comfortable here, and maybe that's not It's
just it's just interesting. I'm not sure how to how
to like put without having too many stereotypes. I suppose, yeah, which,
see the contrast back to back was fascinating to me.
Speaker 1 (04:22):
I'm sure it was. I'm sure it was. So. I've
actually never been to Seoul, but I did last week
watch Maybe Happy Ending on Broadway, which is a play
about two robots uh in South Korea who end up
falling in love and taking a trip to Jju Islands.
So bonus shout out to poker players who like to
play the Jju series. There is a poker scene in
(04:45):
Korea as well, so so I I, you know, I
felt like I was missing out on your trip, so
I had to vicariously make it happen on Broadway.
Speaker 2 (04:54):
Yeah, we did.
Speaker 3 (04:54):
Travel only those two destinations, Seoul in Tokyo. So it's
a little bit weird after a long year with elections
and the podcast getting started, whatever else to like relax
by going to these gigantic cities. But I think it
was Actually I think we are grouped three of us
we have planned maybe go to Kyoto or maybe we'll
go somewhere else in Korea or both. And like I think,
(05:15):
I think I advocate for having fewer yeah destinations, right.
Speaker 1 (05:20):
Yes, I'm actually with you. I think this is a
good you know, we did our gto travel episode and
I think this is actually what I find. I think travel,
you know, is different for different people, but one of
my travel tips is don't put too many destinations on there.
And I actually prefer to go to just one place
and uh and stay there. And I know every single
(05:42):
person is different, but for me, I think that's like
maxid for for a trip that you'll really get a
lot out of. On that note, let's talk about the
LA fires. Obviously, you know, much more serious, much heavier topic,
but I think it's a really important one for us
to discuss because obviously there are so many topics of
risky decision making, risk perception, how we act on risky information,
(06:08):
and I think we want to talk about it from
two different perspectives, right one. And this is something we've
talked about on the show before, but I think it's
incredibly relevant and kind of relevant for the future and
for the entire country, not just for California, which is
the insurance angle, right, and the future of the insurance industry.
How to think about risk from that perspective, both as
(06:30):
the insurance company, but also as the individual purchasing property,
purchasing or electing not to purchase insurance. And then I'd
also like to talk about kind of the individual psychological
risk perceptions here, not just the insurance component, but like,
you know, what happens if you're in one of these zones,
how do you handle risk? How do you respond? I
think that those are two related but distinct areas, and
(06:54):
I think that both are really interesting and core core
risky decision metrics. So let's start with the insurance angle.
We've talked a little about this before in California, not
just in California, all over the country, you know, Florida,
some other states. Insurance have been pulling out of regions
(07:16):
where the risk of disasters natural disasters has risen, and
that is a lot of different parts of the country.
And in the last few years insurers have started using
different models, right, because insurance isn't backwards looking business in general, right,
you look at risks and then you try to kind
of extrapolate, and that's not working anymore with climate change,
(07:37):
with all of these things happening, and so especially I
don't know whether all insurance companies are doing this, but
I know that a lot of insurance companies and a
lot of the insurers in California have started using AI
and other things to try to change their risk models
to take into account the fact that the world is changing.
And they even flagged the Palisades as an incredibly dangerous area.
(08:03):
And so some of those you can't get insurance anymore. So, yeah,
let's let's talk about it. Let's hear some of your
thoughts on this process and on what it means.
Speaker 3 (08:12):
Yeah, So, in addition to the challenge with doing any
type of statistical modeling, which is always more difficult than
people want to let on, if you have disaster risk
it's affected by climate change, then you don't really have
an empirical baseline, right, You're probably doing more elaborate forms
of modeling or maybe actually trying to do some climatology
(08:34):
or whatever else. Right, But it's a lot of like
educated guesswork. I guess, i'd say, right from what little
research I've done on you know, what's the effect of
climate change and particular types of disasters.
Speaker 2 (08:47):
I think it's not quite so linear as you might assume.
It's probably bad, but.
Speaker 3 (08:53):
You know, some of the models say, for example, that
the hurricanes are fewer hurricanes, but they're more severe, probably worse.
Net from like a climate modeling perspective, right to a
fewer but more devastating storms, and we had some this year,
it's probably worse. But you know, if you're seeing you
get into different problems, you also get an issue that
like it's not like a thing where like, I know,
(09:15):
if you have like some home insurance, we're like, oh,
my home gets broken into whatever. Like that's more stochastic
and random, not perfectly. There's probably some correlation, whether there's
some gang of I don't know, bandits or thieves or whatever.
But like, but you know, if this disaster all comes
at once and all of well not all of Los Angeles,
should emphasize. By the way, LA is a very it's
(09:36):
a very large area. I mean I was very briefly
in LA on the way home, and you know, we
were in the part of LA which wasn't on fire.
But it's a very large area and certainly the you know,
expensive area too, and so so you know, one issue
is like the modeling issue.
Speaker 1 (09:54):
So yes, so we have we have these issues of modeling.
But even even with those problems, I think that you
know something that you just started mentioning is when you
have risks that are highly correlated, right, it's very very
difficult to to try to figure out, Okay, how much
should I charge in premiums. And in some place like California,
(10:15):
you also have another thing where there's regulation right where
insurance companies are required to have a certain number of reserves.
Until very recently, they couldn't raise their premiums as much
as their models said they needed to raise their premiums.
So instead they just said, okay, fine, like fuck it,
we're not going to ensure these places like you can't
renew your insurance, you can't, you can't do anything. And
(10:36):
that puts a lot of people in very difficult situations.
And the areas that are burning in La Sure, you
have the Palisades with some incredibly expensive housing, some of
the most expensive real estate in the country, but then
you also have parts of you know, Altadena and other
parts of LA where there are lots of people who
are poor, who have been there forever. And you know
(10:59):
what in the world happens right when you can no longer,
when either the insurance says we won't ensure you or
the premiums are so expensive, then you're like, I can't
afford this anymore. You do, and there are families that
chose like last year, right, I'm not going to renew
my insurance coverage, and then this happens.
Speaker 2 (11:16):
Yeah. Look, I mean.
Speaker 3 (11:19):
This has been in the news a lot because of
like these beautiful, glamorous properties and like outside Malibu when
the Palisades burning, for example, but like, yeah, it's affected
all types of.
Speaker 2 (11:30):
Areas of LA and LA is like more of a.
Speaker 3 (11:33):
More of a middle class kind of working class town
than I think some people realize. Really, right, the average
per capita income isn't that high, you know. Look, so yeah,
there are these three issues, like we mentioned with insurance.
One is that the modeling itself is difficult, involves a
moving target. A second is that there's some degree maybe
(11:55):
less so with like home insurance, but some degree of
adverse selection is a term where if you're someone who
buys insurance and not everybody does, and maybe you're more
of a risk than the model would let on, right,
you're buying insurance. I mean the anauochy I give is
like if you have like an all you can eat buffet, right,
there is adverse selection for who comes and eats at
(12:17):
the all you can.
Speaker 2 (12:18):
Eat the fe right.
Speaker 3 (12:19):
Probably if you don't you don't want to have it
all you can eat buffet set up outside like a
sumo wrestling tournament for example.
Speaker 1 (12:27):
That's another that's a business model.
Speaker 3 (12:29):
Yeah, and that if you know, for some people, the
expected value of insurance, I mean you know this is complicated.
On the one hand, it has to do with like
hedging catastrophic risk and diminishing marginal returns. Right, Like if
your home is worth two million dollars, your net worth
is four million dollars, so it's half your net worth, right, Well,
(12:50):
then probably in principle there is negative expected value for
most forms of insurance in terms of like the pure
dollar amount. Right, the risk of your house burning is
supposedly lower than than the premium that you get from it.
But you know, you much rather pay the small amount
then than have to have to uh lose half your
net worth in one inverno basically, But yeah, the third
(13:13):
issue is at California is a state with lots of
I wouldn't even say well intended regulations necessarily. I mean
it's I don't think it's the most economically literate state, frankly,
or the postumakers are especially smart, uh, frankly, but you know,
based in a combination including by the way, some of
(13:34):
these are things that like are ballot measures passed by
you know, to stay with a bunch of referendum right,
everything goes to direct democracy. People like me might think
this is kind of wonderful in the abstract it's ruled
by true democracy and not ruled by the expert class,
et cetera.
Speaker 2 (13:50):
But like it creates issues.
Speaker 3 (13:52):
I believe the rules that basically any insurance increase has
to be appointed by an insurance commissioner in California, which
is like a regulated industry, instead of kind of letting
them market take care of it. So, yeah, these insurance
cups are correct. I think to say that if you
have limits on what we can charge and we have
(14:13):
now have negative expected value, then fuck you, We're not
going to offer insurance in the first place. And that's
a rational reaction.
Speaker 2 (14:20):
I think.
Speaker 1 (14:20):
On top of the other risks, it is completely rational.
I mean, you have to remember that insurance companies are
also businesses, right, They're not pro bono organizations. This is
not like a federal relief fund that is there to
catch you it is. It is something that you know,
even if the returns are low, you need some positive returns.
It's not a business that's going to be a money
(14:41):
losing business. And so you understand that, but then you
end up in this situation where like, what the fuck
do you do?
Speaker 3 (14:48):
Right?
Speaker 1 (14:48):
If I am a person who you know has always
lived in California and who lives in California and I,
you know, my house burned down, what do I do? Right? Like?
It puts people in these impossible situations, and it's it's horrible,
Like I you know, I'm just a little bit of editorializing,
but like we shouldn't be in a situation where people are,
(15:10):
you know, sharing GoFundMe campaigns for everyone, right like that
that shouldn't be the case. There should be especially if
you're somewhere like California where you know this is a
thing there, they should figure out a way to make
this work or you know, or not and just not
let people live there. You know that it's kind of
one of these one of these very very stark contrasts.
Speaker 3 (15:33):
Yeah, look, I mean there is a backup state program
called Fair fai R.
Speaker 2 (15:40):
The mechanics are a little bit complicated.
Speaker 3 (15:43):
It looks like if it runs, I mean, you know,
you can buy a premium, right, it's not particularly cheap.
If fair overall runs out of money, I think there's
some pocket they're taking from private insurers who are selling
insurance in California, which ultimately makes insurance more expensive to
sell in California. And so you know, it's one of
these other perverse incentives. But but there is there is
(16:04):
that option at least available up to some limit, I
think up to three million dollars worth of coverage. So
let me be a little bit of the turn in
the punch bowl for a second. Right, you don't see
a lot of efforts to like be honest and forthright
about the about the fire risk here, right with the
(16:25):
way different properties are built and the amount of distance
between for example, the amount of distance between this.
Speaker 2 (16:30):
Like shrubbery, what's called chaparral or chaparral. How do you
say that?
Speaker 1 (16:34):
Yeah, I don't know. That's one of those words that
I read and never say out loud.
Speaker 2 (16:38):
So I've never said that word out loud, have.
Speaker 1 (16:40):
I know I have good syndrome. There are so many chaparral, chaparral, chaparral, chaparral.
Speaker 2 (16:52):
I don't know if I like how that AI bought
said that.
Speaker 3 (16:57):
But you have a lot of this kind of shrubbery
and they're not like forests per se. They're catching on fire, right.
I mean, if you've been to California maybe get a
little bit of this and Vegas then not quite right.
But you have those kind of dry, bushy area, right,
it's not super dense, but where fires can to spread
(17:18):
pretty fast. Right, they're not doing a lot of cultivation.
You can do controlled burns and areas that are fire risks.
There is reluctance to do that. Whenever you do one
of those things, you have to go through five years
of regulation and environmental studies and whatever else. Right, But
there's not a lot of honesty about like the way
these properties are designed to mitigate fire risk. And maybe
(17:39):
that will be there will be more now, right, but
like you know, and that kind of puts homeowners at risk,
and so you know, so if your home can be
covered by insurance, then that can create a moral hazard.
It's the other famous insurance turn along with ever selection, right,
where like if I am covering, I mean the classic
(18:00):
example is like the bank bailouts, right, where if the
government steps in and prevents whichever companies Morgan Stanley you
I want to accuse because companies, I'm sure all the
all the all the big Wall Street firms had like
something's evolved, right, But if they're going to come and
bail you out if you fuck up, h then you
have an incentive to like make risk your bets, right.
(18:22):
And I don't think homeowners individually are are quite as
calculating as like the banks might be. But like I
almost as a rule that like, if you create a
rule where there is financial upside to basically what we
what we term like an exploitative strategy in poker, right.
Speaker 2 (18:40):
Then people will exploit that.
Speaker 3 (18:41):
In the capitalist system, people will build right up to
the edges kind of figured oily or literally, and so
that can be that can be a problem to potentially, Yeah, I.
Speaker 1 (18:51):
Think this is a good kind of pivot point to
to looking at this from the individual side as opposed
to from the from the insurance company side. Because people,
you know, when we've we talk about this all the time.
People are not rational when they're evaluating risks, and they're
especially not rational when it's like a personal thing like
(19:11):
you know, I've always lived in this area, right, or
or you know, I you know, I want to do this.
And sometimes they're gamblers, right, sometimes they're actually risk seeking
in this particular case because they kind of take the
gamble that, oh, sure, like there's a risk of a fire,
but like my house isn't going to burn down because
it hasn't burned down for you know, however many years,
(19:34):
and there are properties. So one of the one of
the places that burned one of the businesses that burned
down in La is real In, where I've been. You've
probably been there too. It's on the way kind of
on the road to Malibu. There's only one road by
the way, which is also not great in terms of
natural disaster and like trying to get away and trying
to get the fuck out of there when it's burning,
(19:55):
which is why people have had to abandon cars and
bad things have happened. But real In burned down and
it was there for I think over thirty five years, right,
that specific business. But if you've been there for thirty
five years. You think, oh, well, yes, they're fire risks
in Malibu, blah blah blah. But we've always been fine, right,
so we're going to just continue to be fine. People
(20:16):
do have this tendency to be ostrich, like right, ostriches
are the ones that bury their hand in the sand,
and do I have the right analogy? And you want
to when it's convenient to ignore these things. You want
to ignore it because you want to be comfortable, Like
you don't want to make the tough decision of saying, Okay,
you know what, we need to sell our house and
we need to move to a different part of the state.
(20:36):
We need to move all the way out of California. Like,
people don't want to make those hard decisions, and so
instead of doing that, they're just going to fudge the
risk in their mind and take something which to us
looks like, you know, an irrational or very gambly decision,
which might not actually align with their risk preferences. Right.
I doubt that all the people who had houses that
(20:57):
burned down were risk seeking. Some of them might not
have cared, right, like some of the If you're very
wealthy and you just say, Okay, if my house burns down, fine,
I'll just rebuild, right, Like, That's that's one way of
looking at it. But I'm talking about like the lower
middle class people who aren't thinking that way. They might
appear risk seeking because of that choice, but in their
minds they're not right. They just they do they miscalculate willfully,
(21:23):
if that makes sense.
Speaker 3 (21:23):
Yeah, I mean there's a famous story for my book
where Elon Musk sells his first company, buys a McLaren
sports car which is worth like a million bucks or something,
and then crashes it on the way to the pitch meeting.
And he doesn't have insurance on this car, right, and
part because he I think thought he was invincible.
Speaker 2 (21:40):
But also he might say, hey, look I just told this.
Speaker 3 (21:42):
Company for seventeen million dollars or whatever it was, and
this car is worth one million dollars.
Speaker 2 (21:46):
So like, I am far enough along that.
Speaker 3 (21:49):
Diminishing returns curve right where I don't kind of carry
their way about a million dollars, Right, I'm not going
to pay because insurance again ought to be in principle
negative expected value in a narrow sense if you don't
account for diminishing returns right, And he's at the other
aspectrum where it's like, Okay, well who cares, right, I'll
just wire another million bucks to the McClary dealership buy
a new car, right. It doesn't really affect me much
(22:11):
either way, and so like, so I don't think it's
necessarily I want to be very careful, right, But like
if having your home destroyed by an earthquake or a
flood or a fire is something where you'd make out okay, right,
notwithstanding the psychological damage and the damage to the artifacts
and the belongings and your pets and whatever else, right,
(22:33):
and you're safe, well, like, it may not be rational
to buy insurance, right.
Speaker 1 (22:39):
Yeah, I think, Well, that's why I try to distinguish
between the people who can afford to lose it and
the people who can't. And I'm wondering if as these
things because we know with risk perception, right, so much
of it is personal experience and what has typically happened
to you or two people you know. And I wonder
as kind of these risks are spreading to communities that
(23:02):
you know before thought that they were relatively safe, as
we have so many properties that have been destroyed, so
many people that have been displaced, if that's going to
start changing, right, Like, I'm in Las Vegas right now,
and I've heard multiple conversations around Las Vegas about you know,
is Las Vegas going to see an even greater inflow
of Californians than it has in recent years after this? Right?
(23:23):
Are people going to actually change their kind their risk
preference is based on the newly available data. There are
some Hollywood executives who are starting to look at building
studios here right. There are a lot of people who
are saying, Okay, you know, this might have been the
tipping point. And I think that that's also interesting to
observe and to see what will happen.
Speaker 3 (23:48):
And we'll be right back after this break. One thing
I think you sometimes see happen is that when you
have these tumultuous and tragic events, they accelerate processing that
(24:09):
were already underway.
Speaker 1 (24:12):
Right.
Speaker 3 (24:12):
So one example is that you have the pandemic, actually
a bunch of these with the pandemic, right, Yeah, the pandemic,
people stop going to the movies, and then the movies recover,
but to some substantially lower baseline, right, And people are
just kind of calculating, well, you know what, you have
so many ways to watch a movie in your beautiful
home theater or whatever. Set up that like just a
special occasion kind of thing now, and like that's kind
(24:34):
of a permanent change that maybe happened in two years
when it would have happened in ten years instead. Look,
California has been losing population. It's gonna lose I think
it's lost an electoral vote and will lose more, probably
at the next redistricting process. So in a relative sentence
(24:54):
relative the rest of the country, it's no longer a
growth state, exactly. You have movement all over the West
right to Nevada, to Idaho, to Colorado, also like Texas
and Florida, which are fairly good substitutes for it.
Speaker 1 (25:07):
Right.
Speaker 3 (25:08):
So yeah, I know, I don't know how many people
have actually been put out of their home, but you
can imagine.
Speaker 2 (25:15):
I mean, I don't know. When I've been to.
Speaker 3 (25:19):
California recently, I mean it feels like a little bit sleepier, right.
I don't think New Yorkers have the jealousy of California
that they kind of once did. Maybe you do, dude,
have vice versa a little bit. I mean, you do
have Silicon valley that is still booming, at least as
an industry, right, I don't know as a town, but like,
(25:41):
you know, that's still attracting talent from like all around
the world, and with AI being another potential boom, then
that seems not to be going away very much. But like,
but yeah, I don't know, I don't think i'd want
to live in No.
Speaker 1 (25:55):
It's definitely changed the way that I look about it,
that I that I look at it, that I think
about it, because there was part of me that always thought,
you know, oh, you know, maybe at some point I'll
live in LA And at this point, I'm like, no
fucking way, right, Like, you know, why would I do that?
Certainly would never buy property there because you know, I
think that the risk reward I don't think it's a
(26:15):
rational decision right now, And you know a lot of
people are going to disagree with that, because everyone's risk
preferences are different and everyone's you know, decision matrix is different,
and I think that that's that's important. Right, We're right
now we're talking about personally the calculations. One final thing
that I wanted to talk about is the actual experience
of fires, right because there are people who died, and
(26:38):
some of those deaths couldn't be prevented, but others were
because of just frankly, absolutely asinine decisions where like you,
you know, decide that you're going to pick up a
hose and protect your home from the fire, which is
endangering you and endangering firefighters. You know, that's it's when
people say evacuate, you're supposed to evacuate, and I think,
you know, looking from the side, you say, that is
(26:59):
really asenine. But for some people, if they've never experienced
a fire, right, if they've never seen how quickly fires
can spread, it might have seemed rational. They might have
been like, oh, the fires a block, like it'll it'll
be fine, right, I have time. And what you don't
understand because you don't have kind of the experience, the
visceral experience of it, and your brain can't comprehend it
(27:20):
when people are telling you go now, it's just how
quickly fires can spread, like it is insane. You remember
last year we had a fire in our backyard in
New York when there was an explosion in the middle
of the night of batteries and of the of a
restaurant and our building almost burned down. But I just
remember from the moment of the explosion to like the
(27:41):
fires being taller than our windows, which is a fourth
floor apartment. It was seconds, right, and I was like,
holy shit, Like it went from what's going on too?
We need to get out right now? In under a minute,
and so I think that and that's not even a wildfire, right,
That's that was a very different situation. That was an
(28:01):
electrical fire. But it's I think that people's risk in
the in the moment, you know, in that hot situation,
your risk assessment can be off and you can say, oh,
I have time, I can do this, I want to
protect my home, and so you just lose perspective that
actually the only thing that matters is your life and
the life of firefighters, and so people make just really
(28:24):
really stupid decisions, which is why I always say, like
you need to in hot situations. This is like poker too, right,
and like being on being on tilt and poker, like
you need to think of it in advance, like how
am I going to react to this situation, because in
the moment, you're going to make a bad decision if
you don't know what you're going to do. If you
haven't thought it through. You might think that you'll be
(28:47):
able to think clearly, but you can't write when you're emotional.
When you're stressed, clear thinking goes out the window unless
you already have a plan of action.
Speaker 2 (28:56):
Yeah, and it kind of happens fast.
Speaker 3 (28:57):
I was trying to explain to someone the other day
who has not played much poker about how you know
if you're playing a five to ten no limic game, right,
and like and the effect stacks are like five thousand dollars, Well,
how do you ever get kind of like the whole
five thousand dollars involved when when they're only fifteen dollars
(29:17):
in blinds to pick up initially? Right? I maybe it's
not the best analog, but the point is that, like,
danger can happen quite quickly, and you don't necessarily have
a moment to like kind of catch your breath, right.
I mean there are different cases with with hurricanes, which
is something that we deal with a little bit more
on the East Coast, although not in New York that
(29:39):
we wouldn't like Florida or something like that, Like there you.
Speaker 2 (29:41):
Do have some.
Speaker 3 (29:44):
Advanced warning, right, It's not like the hurricanes come exactly
out of nowhere. But you know, but you have the
risks that, like, you know, if you evacuate people too
early in New Orleans with Hurricane ktwna hit. There have
been kind of a long history of New Orleans.
Speaker 2 (29:59):
Having good luck with storms.
Speaker 3 (30:01):
That were bad but not as bad as feared or forecasted.
Right there, I think, you know, I think the literature.
I wrote this in the first book of mine more
than ten years ago. I think the literature is pretty
consistent that there are real consequences to false alarms. Yeah,
any type of natural disaster, and people really feel invincible
if like, oh, last time he said it's gonna be.
Speaker 2 (30:21):
Bad, yeah, and it wasn't, right.
Speaker 1 (30:23):
Yeah, And I think that it creates this it's kind of,
you know, coming full circle to what we were talking about.
It creates this perverse incentive where you personally feel more
invulnerable than you should because you've gotten away with it
in the past, Right, like California, while my house hasn't
burned yet, Right, You've told me to evacuate before and
everything was fine, So I'm just going to be comfortable
(30:45):
and it's all going to be fine, and once again
head in the sand, because that's just that's easier, right,
that's the path of least resistance, and you know it's
scary to just leave and to do it quickly. Do
you have a Do you have a go bag Nate
by the way or no? No?
Speaker 2 (31:03):
Yeah, I mean I maybe we should.
Speaker 1 (31:08):
I think I think we should. Yeah we yeah, we
have we have go bags. And it's something that you know,
I thought through, like, you know, because in New York
there have been situations so like obviously nine to eleven
where you think about, like, you know, what happens if
I need to get out of here, what happens if
I need to get out of here on foot Hurricane Sandy,
(31:29):
you know, we lost powered, had no cell phone reception.
So after after those experiences, I have thought a lot
about you know, go bags and the fact that this
is something that you just need to be able to
grab and it should be light, right, there shouldn't be
too much in it. Mine is like passport, copies of documents. Cash.
It's really important to have cash, even though we're turning
(31:50):
towards the cashless world. But if you know, if there's
no connectivity, if you can't use Apple pay, if you know,
if if shit goes bad, like cash is actually an
important thing to have. Laptop, right. I when when my
apartment you know, was threatened by fire last year, I
grabbed my notebook because I write all my first drafts
(32:11):
by hand. So and I don't you know if that's lost,
like you know, huge chunks of my next book are lost,
So I grab that, you know, laptop, passport, and you're
out of their cell phone. But I think that it's
important to just figure out what are those things that
you need immediately, and also the things that you can't replace, right,
Like if you have photographs, I my grandmother's letters to
(32:33):
her sister, which are you know, handwritten. It's their correspondence
and it's you know, the only thing I have left
of her. So like I would grab that even though
it weighs a ton, right, it's not like a it's
not a life changing thing. But to me, it's something
that like I could never replace, and that's really really important.
So I think that you have to there's like a
balance of obviously water some bars, but you need to
(32:56):
replace that stuff, right, Like some stuff goes bad in
your go bag, you need to replace it constantly so
that it stays fresh. And so it's a little bit
of a pain in the ass, but once you have it,
it's pretty easy.
Speaker 3 (33:06):
Yeah, I guess, I guess. I guess our main risk
in New York is probably a terrorist attack. I mean
because with the hurricane you have some warning time, right,
I mean, you can get severe summer weather in New York.
The winds are but yeah, the main risk, for being
honest is like some terror attack. And the fact that
I live in Manhattan, right, you're kind of on kind
(33:29):
of on an island. Right, there's only so many physical
ways to like connect with the rest of the United States, right,
and so and so that gets a little bit frightening.
Speaker 2 (33:38):
I suppose.
Speaker 1 (33:39):
Yeah. Well, one of my friends who lives in Tribeca,
actually after Sandy, they ended up buying and you know,
one of those like inflatable boats so that they could, okay,
because also thinking about terrorist attacks, like what happens if
all the roads are closed, So they bought a little
inflatable raft that they can take to the Hudson River
and get out of there. And at first I laughed
(34:01):
and that I was like, huh, should we get one
of those? Right? Like how far do you want to
take this? And obviously there's like a you know, there's
a full spectrum from no go bag whatsoever. I'm totally
fine to prepper right, and I've got a bunker. I'm
that I paid for that I'm going to go to
and like I know exactly, you know, off grid what
I'm going to do. So there's there's a whole lot
(34:23):
of room in between. But I think that doing the
bare minimum is a good thing to do. It's just
that to me is like where I where I come
out rationally. I did not end up buying an inflatable boat,
by the way.
Speaker 3 (34:36):
You didn't, Okay, now I do a little nitty I
don't know, I don't know.
Speaker 1 (34:44):
Yeah, so so I do not have an inflatable boat.
By the way, that friend moved from Tribeca to La
and just and had to evacuate was in one of
the evacuation zones, so sore that the inflatable boat is
not very helpful over there. Yeah. So I think that
these are all these are all important decisions something you
have to think through for yourself. But it's something you
(35:04):
do have to think through. I just want to like
make one last push. People do like to nor things
that are scary, that are inconvenient, that forces them to
make difficult decisions. Don't do that, right, and instead, like
actually sit down and do a rational calculus, look at
the numbers, look at the risk, and try to figure
(35:26):
out if it's worth it or not.
Speaker 3 (35:28):
Right. Yeah, you don't have to make a commitment, right.
You can't say this is silly, the risk is low
enough and we're probably fucked anyway or whatever.
Speaker 2 (35:35):
Right. You can do that calculation and then decide not
to write.
Speaker 1 (35:38):
Yeah, but at least do the calculation. Please. So on
that note, let's take a break, and then let's take
oh listener question. So we got a listener question from
(36:02):
JM and Nate. This listener question is directly about your work.
Speaker 2 (36:06):
Right, yeah, So Elon must if Ramaswami. Is that how
you say it?
Speaker 1 (36:12):
Right?
Speaker 2 (36:12):
Yeah?
Speaker 3 (36:14):
Our meeting with top government officials and they also are
trying to kind of formulate this quasi official agency called DOGE.
It's a backronym for Department of Governmental Efficiency and also
a meme coin and a meme coin Elon's favorite meme coin,
I think.
Speaker 2 (36:34):
Yeah, And the question is how do you integrate the
river and the village.
Speaker 3 (36:39):
So, if you have not read on the Edge the
Art of risking, everything published in twenty twenty four.
Speaker 2 (36:44):
But these are my.
Speaker 3 (36:45):
Terms where the the village is the you know East
Coast establishment risk averse government, at least when Biden's in office.
Speaker 2 (36:55):
Right, government and academia and media.
Speaker 3 (36:59):
Right, these people who were super concerned about Cohen risk
and the types of risk, and they're you know, they're
the ones who are doing more speech policing and things
like that, right, And I mean they're kind of become
like the liberal establishment, the expert class, right, whereas the
River are the risk taking degenerate types and finance and
Silicon Valley as well as a poker world and the
(37:20):
in the gaming quote unquote world more general. But parts
of the River have had an increase in their political power.
Speaker 1 (37:29):
So typically you know, government seems more villagy, right, you know,
old establishment, et cetera. But people like Musk and Ramaswami
are more from the River and are trying to inject
some of those ideas into kind of old Washington. So
how how does that play out? How do we integrate
(37:50):
the two together? Right? How do you how do you
make the two mesh and how do you actually make
it a productive thing as opposed to you know, two
sides entrenching against each other and and polarizing even further,
which is obviously one one possible outcome.
Speaker 3 (38:10):
Yeah, I mean, you know, look, there's long been a
conservative critique that there is a lot of waste, fraud
and abuse that taxpays are on the hook for, which
I'm relatively sympathetic toward. So you know, I guess one
critique I would have.
Speaker 2 (38:28):
And you see it in like this La wildfire stuff, right,
where like.
Speaker 3 (38:36):
You know, they'll make five accusations about how it's all
the liberals fault. Right, I'm no fan of Gavin Newsom
or governance of California in general.
Speaker 2 (38:46):
Right, But then you actually kind of.
Speaker 3 (38:47):
Like check these and like maybe one of the five
is basically true and one of the five is half true,
and the other three and a half are just deranged.
Speaker 2 (38:58):
Right.
Speaker 3 (38:58):
There's a big deal about, like, you know, the LA
fire chief is like a lesbian and somehow this is
like a DEEI thing somehow for reasons I don't entirely understand. Right,
And you hear it claims about like where water takes.
I guess there is one water take in Pacific Palisades
that was up for repair or that seems not good.
(39:19):
It seems like you probably want the repair time, you know,
to be quicker than Oh, I'll get around to it
at some point.
Speaker 2 (39:25):
But if you can go with scrutinize his.
Speaker 3 (39:27):
Claims, you know, Noah Smith, the writer of the blogger,
has a good rundown. And again there are things, there
are elements of it that have some degree kind of truth,
but like it's not very precise, right, And you know,
there is this like duality in the river the way
I can see it, where on the one hand, the
river is supposed to be kind of like the moneyballization
(39:48):
of everything, where it's calculating and.
Speaker 2 (39:52):
Precise, right.
Speaker 3 (39:53):
On the other hand, there is this like degenerate gambler
side Elin in particular as someone who I mean, look
you got an added to him. He's we found it
all these amazing businesses. He's clearly doing something right, including
by the way, being a co founder of open Ai.
But not a guy you'd say has like a lot
of precision, really right, and like and like the giddiness
(40:16):
of someone who's on a winning streak. Right, I mean,
they not only have one in all sorts of ways
in terms of becoming wealthier and wealthier, right, but also
now this faction of the River. Again, I think the
average person the river probably is a moderate Democrat. But
this faction, I just said, this kind of kind of
gigantic wind. Clearly, you know, they were backing Trump, and
(40:37):
clearly they're going to have I think a fair amount
of influence on Trump. It's already also also bolstered Elon's
net worth in certain ways, right, even without kind of
electing anything untoward. Right, His business are all subject to regulation,
and if you have a more friendly regulator at office,
is probably worth something to you.
Speaker 2 (40:58):
So it's it's it's been disappointing to see this side
of the river.
Speaker 3 (41:03):
Become become the side that one I guess, but you know,
but look, I mean it's you know, one mester of
the book is like these people are actually not so
rational necessarily, right.
Speaker 1 (41:14):
Yeah, Now that the definitely is is a message, and
I think that from a psychological standpoint, you also have
hit on something that is really important to remember as
we see kind of these Ribeians making their move on Washington,
which is there is a hubris that comes from being
on a winning streak, right, and and that definitely makes
(41:37):
you irrational, Like that irrational exuberance, right, and a lot
of bad shit happens from that. And to bring it
back down to kind of the poker level, right, think
about poker players who are on a hot streak, right,
who are running well, who are son running in poker terms,
and then you know, they think they can't lose. I'm
not gonna I'm not going to mention the name of
(41:58):
this player, but there was a player who went on
this incredible streak a number of years ago and like
just would would win everything and ended up winning, you know,
shit ton of money and just like couldn't lose, and
people are like, oh my god, this is like the
best player in the world. And then the sun run
ended and I remember one specific stream this was televised
(42:21):
where this player lost, not even a flip, like it
was just like lost and all in and was behind
and stayed behind, didn't hit the miracle card, had always
hit the miracle card in the past, and was you know,
just expecting it to happen and it didn't and this
was a huge hand and he was out of the tournament.
(42:43):
I could say it was a man, right, because we
know that ninety seven to ninety percent. I don't want
to I don't want to put them on blast right now,
but this is one of the this is one of them.
Maybe maybe another time. This was one of like it
was an epic meltdown. This person like got up from
the table and threw the chips, like just threw the
(43:03):
chips at the other player and out the dealer and
stormed off, And I was like, holy shit, Like this
is someone who is not used to losing. And when
you when you are at a poker table, like you
can watch the stream and laugh and be like haha, right,
sun run over, like and you do not your mental
game because this person also pride in themselves on good
mental game, Like mental game non existent, like you've just
(43:25):
been winning. But when you when that happens now, like
let's go back when when that happens in Washington, the
stakes are much higher than you know, throwing chips at
a player, which, by the way, if you play poker,
big poker, no, no, you never throw your chips right,
Like that is a that is a big etiquette no. No,
Like chips should never fall off the table, like do
not do things with a lot of force, like just
(43:48):
be be nice about it. Splashing the pot not good.
So Yeah, when that happens in Washington, consequences are much
more dire and it's no longer quite as amusing. So
when I always say, like, beware, people who've been on
huge winning streaks, right, their decision making is going to
be colored by.
Speaker 3 (44:08):
That American or euro could you say that much hero? Okay,
the euro the heroes, I don't know, Eroes kind of
believe in uh in luck.
Speaker 1 (44:19):
Guy.
Speaker 2 (44:19):
They're a little superstitious.
Speaker 1 (44:20):
I think, right, there's a rational superstition. I think in
a lot of Riverians, right, a lot. And I don't
even know. I don't know about Musk, like, I don't
know if he has irrational superstitions. But a lot of
people who are Riverians and who are kind of the
these gambling types and who do you think about risk,
they also are superstitious. And I just find it amusing
(44:41):
and also, you know, sometimes disappointing. And some people are
aware of it, like I Caxton, you know, in the
Biggest Bluff, I have a section where I talked to
Ike about superstition and he fully owned it and he's like, yeah,
I know this is totally irrational, but like I'm gonna
do it anyway, right, I'm going to have my like rituals,
et cetera. But then there are other people who are like, no,
(45:02):
I'm not superstitious at all. Oh, yes, but this is
the same shirt I was wearing from day one of
the tournament because you know, I've been well in it.
But no, I'm not superstitious at all. But I think
I think that that's perspective that it can't hurt, right, Like,
you know, it's probably it's not. It's it's bullshit, but like,
can it really hurt? And my argument is yes, it
(45:22):
can hurt because when your rituals, when your superstitions are disrupted,
it can actually really fuck with your mental equilibrium. Right,
Like what happens if that lucky shirt that you've been
wearing every single day suddenly you can't find it, or
like you know that if you're staying in a hotel,
like you know, got lost somewhere, housekeeping took it, like
and then suddenly like you have a day four restart
(45:43):
day five, you're deep and like you're thrown off by this.
And I wrote about this, but it's happened to Olympic athletes.
It's like there was one Olympic athlete who lost her
lucky necklace right before a run and like just completely
fucked up her run right like, So, yes, there is
a downside to this. It can hurt because when you're
kind of reliant on that it can take, it can
be really difficult to kind of to move past it.
(46:07):
But I think this is a This is a good
way to wrap up the show because in some ways,
like there have been some themes that have gone through
all all of our segments today, from fires to now.
One of them is kind of the irrational exuberance and
people people not making correct decisions because they're a little
bit overconfident and misperceived risk, whether it's risk of fire.
Speaker 3 (46:28):
Or we're a quarter of the way now through the
twenty first century. I'm getting that right, Yeah, we are,
And irrational exuberance is still a thing.
Speaker 2 (46:35):
I'm sorry to report.
Speaker 1 (46:37):
It absolutely is, and I think it's here to stay.
And on that note, Nate gets some rest. Let's get
over your jet lag so that you're fully awake, and
we will see you all next week, where Nate will
no longer be in a time zone that he doesn't
even know what time it is anymore, So we'll see
We'll see you next week. Let us know what you
(47:08):
think of the show. Reach out to us at Risky
Business at pushkin dot Fm. Risky Business is hosted by
me Maria Kondakova.
Speaker 2 (47:21):
And byby Nate Silver.
Speaker 1 (47:23):
The show is a co production of Pushkin Industries and iHeartMedia.
This episode was produced by Isabel Carter. Our associate producer
is Gabriel Hunter Chang. Our executive producer is Jacob Goldstein.
Speaker 3 (47:34):
If you like the show, please rate and review us
so all the people can find us too. And if
you want to listen to an AD free version, sign
up for Pushkin Plus. For six, ten and nine a month,
you had access to ad free listening. Thanks for tuning in.
Pushkin. Welcome back to Risky Business, a show about making
better decisions. I'm Maria Kannakoma.
Speaker 2 (00:36):
And I'm Nate Silver.
Speaker 3 (00:39):
Today on the show, we'll talk about the ongoing wildfires
in Los Angeles and we'll take a listener question about
Elon Musk, the river and the village.
Speaker 1 (00:48):
All right, let's get into it. Before we get into
the wildfires. You know, really serious, weighty topic, incredibly important,
Let's talk about something a little bit lighter. Nate, you
(01:08):
just got back from a trip to Tokyo and a soul,
so you were halfway around the world.
Speaker 2 (01:14):
Yeah, I know, if I'm fifteen.
Speaker 3 (01:16):
We had this debate my partner like, can you really
be like fifteen hours ahead? Doesn't that mean like eleven
hours behind or nine? Can't be the fucking math. But yeah,
I'm a little little guy, a little be the lag.
Speaker 1 (01:27):
As we say, welcome back to New York, and we
hope that your your jet lag well evaporate soon enough.
But tell us a little bit about about that trip,
just because I think it's absolutely fascinating. Two great cities,
such a fascinating part of the world, but also one
(01:48):
where you had to make a lot of travel decisions. Right,
A lot of risky decisions.
Speaker 3 (01:53):
Yeah, I mean, so one thing is so, first of all,
I love both cities. We were lucky enough to have
a good Korean American friend that we traveled with and
caught up with another friend in Tokyo, so we had.
Speaker 2 (02:06):
The other friend helped to help got up.
Speaker 1 (02:09):
You wouldn't know the other Fay, not our mutual poker
friend who listen in Tokyo.
Speaker 3 (02:15):
No, no degenerate poker playing this start degenerously was merely
no pachinko parlors.
Speaker 2 (02:22):
We just ate a lot.
Speaker 1 (02:23):
You know.
Speaker 3 (02:23):
Everyone's like, oh, I went to Asia and or Europe
and actually I lost weight because I walked.
Speaker 1 (02:27):
So it's like, nah, I always find that that's bullshit.
I'm like, God, just give me food.
Speaker 3 (02:34):
I mean, they are like they are in some ways,
like Japan is kind of a more risk of society
than other countries. You know, I'm not sure if I
want to, you know, as Korea as in certain ways too.
But like so, apart from the food, which was wonderful
seeing these two countries.
Speaker 2 (02:51):
Back to back, where on the one hand, if you look.
Speaker 3 (02:54):
At the per capita GDP of Japan's may not be
exactly precisely right, but like it's like basically the same
as it was in the nineties, So the country has
not really grown for for forty years now.
Speaker 1 (03:08):
Crazy where Korea.
Speaker 3 (03:10):
Has now per capital wise, caught up with Japan or
surpassed it and feels more modern in certain ways. I mean, certainly,
you know, Tokyo is a very comfortable place to live,
but you know, solely the English they speak tends to
be a little bit better. It's a little bit more
modern in different ways. I think Korean culture, to make
(03:31):
very broad way gay state has been this is like emerging, right.
You have like all these oscar Ward winning films and
the art we saw it was interesting, and you know,
it's a culture that's gone from being for a long
time a very poor country to being relatively wealthy in
a hurry.
Speaker 2 (03:46):
It's interesting now.
Speaker 3 (03:47):
I was at both countries, but especially Korea have these
very low birth rates, which is that's what we've talked
about before. I guess neither of us have kids, so
many were part of the problem, right, But like I know,
just again dumb wake eye observations to arrive in this
country that just as all of a sudden found itself
as being like kind of a big player in the
(04:07):
region and on the world stage. But now it's like, yeah,
I think we're comfortable here, and maybe that's not It's
just it's just interesting. I'm not sure how to how
to like put without having too many stereotypes. I suppose, yeah, which,
see the contrast back to back was fascinating to me.
Speaker 1 (04:22):
I'm sure it was. I'm sure it was. So. I've
actually never been to Seoul, but I did last week
watch Maybe Happy Ending on Broadway, which is a play
about two robots uh in South Korea who end up
falling in love and taking a trip to Jju Islands.
So bonus shout out to poker players who like to
play the Jju series. There is a poker scene in
(04:45):
Korea as well, so so I I, you know, I
felt like I was missing out on your trip, so
I had to vicariously make it happen on Broadway.
Speaker 2 (04:54):
Yeah, we did.
Speaker 3 (04:54):
Travel only those two destinations, Seoul in Tokyo. So it's
a little bit weird after a long year with elections
and the podcast getting started, whatever else to like relax
by going to these gigantic cities. But I think it
was Actually I think we are grouped three of us
we have planned maybe go to Kyoto or maybe we'll
go somewhere else in Korea or both. And like I think,
(05:15):
I think I advocate for having fewer yeah destinations, right.
Speaker 1 (05:20):
Yes, I'm actually with you. I think this is a
good you know, we did our gto travel episode and
I think this is actually what I find. I think travel,
you know, is different for different people, but one of
my travel tips is don't put too many destinations on there.
And I actually prefer to go to just one place
and uh and stay there. And I know every single
(05:42):
person is different, but for me, I think that's like
maxid for for a trip that you'll really get a
lot out of. On that note, let's talk about the
LA fires. Obviously, you know, much more serious, much heavier topic,
but I think it's a really important one for us
to discuss because obviously there are so many topics of
risky decision making, risk perception, how we act on risky information,
(06:08):
and I think we want to talk about it from
two different perspectives, right one. And this is something we've
talked about on the show before, but I think it's
incredibly relevant and kind of relevant for the future and
for the entire country, not just for California, which is
the insurance angle, right, and the future of the insurance industry.
How to think about risk from that perspective, both as
(06:30):
the insurance company, but also as the individual purchasing property,
purchasing or electing not to purchase insurance. And then I'd
also like to talk about kind of the individual psychological
risk perceptions here, not just the insurance component, but like,
you know, what happens if you're in one of these zones,
how do you handle risk? How do you respond? I
think that those are two related but distinct areas, and
(06:54):
I think that both are really interesting and core core
risky decision metrics. So let's start with the insurance angle.
We've talked a little about this before in California, not
just in California, all over the country, you know, Florida,
some other states. Insurance have been pulling out of regions
(07:16):
where the risk of disasters natural disasters has risen, and
that is a lot of different parts of the country.
And in the last few years insurers have started using
different models, right, because insurance isn't backwards looking business in general, right,
you look at risks and then you try to kind
of extrapolate, and that's not working anymore with climate change,
(07:37):
with all of these things happening, and so especially I
don't know whether all insurance companies are doing this, but
I know that a lot of insurance companies and a
lot of the insurers in California have started using AI
and other things to try to change their risk models
to take into account the fact that the world is changing.
And they even flagged the Palisades as an incredibly dangerous area.
(08:03):
And so some of those you can't get insurance anymore. So, yeah,
let's let's talk about it. Let's hear some of your
thoughts on this process and on what it means.
Speaker 3 (08:12):
Yeah, So, in addition to the challenge with doing any
type of statistical modeling, which is always more difficult than
people want to let on, if you have disaster risk
it's affected by climate change, then you don't really have
an empirical baseline, right, You're probably doing more elaborate forms
of modeling or maybe actually trying to do some climatology
(08:34):
or whatever else. Right, But it's a lot of like
educated guesswork. I guess, i'd say, right from what little
research I've done on you know, what's the effect of
climate change and particular types of disasters.
Speaker 2 (08:47):
I think it's not quite so linear as you might assume.
It's probably bad, but.
Speaker 3 (08:53):
You know, some of the models say, for example, that
the hurricanes are fewer hurricanes, but they're more severe, probably worse.
Net from like a climate modeling perspective, right to a
fewer but more devastating storms, and we had some this year,
it's probably worse. But you know, if you're seeing you
get into different problems, you also get an issue that
like it's not like a thing where like, I know,
(09:15):
if you have like some home insurance, we're like, oh,
my home gets broken into whatever. Like that's more stochastic
and random, not perfectly. There's probably some correlation, whether there's
some gang of I don't know, bandits or thieves or whatever.
But like, but you know, if this disaster all comes
at once and all of well not all of Los Angeles,
should emphasize. By the way, LA is a very it's
(09:36):
a very large area. I mean I was very briefly
in LA on the way home, and you know, we
were in the part of LA which wasn't on fire.
But it's a very large area and certainly the you know,
expensive area too, and so so you know, one issue
is like the modeling issue.
Speaker 1 (09:54):
So yes, so we have we have these issues of modeling.
But even even with those problems, I think that you
know something that you just started mentioning is when you
have risks that are highly correlated, right, it's very very
difficult to to try to figure out, Okay, how much
should I charge in premiums. And in some place like California,
(10:15):
you also have another thing where there's regulation right where
insurance companies are required to have a certain number of reserves.
Until very recently, they couldn't raise their premiums as much
as their models said they needed to raise their premiums.
So instead they just said, okay, fine, like fuck it,
we're not going to ensure these places like you can't
renew your insurance, you can't, you can't do anything. And
(10:36):
that puts a lot of people in very difficult situations.
And the areas that are burning in La Sure, you
have the Palisades with some incredibly expensive housing, some of
the most expensive real estate in the country, but then
you also have parts of you know, Altadena and other
parts of LA where there are lots of people who
are poor, who have been there forever. And you know
(10:59):
what in the world happens right when you can no longer,
when either the insurance says we won't ensure you or
the premiums are so expensive, then you're like, I can't
afford this anymore. You do, and there are families that
chose like last year, right, I'm not going to renew
my insurance coverage, and then this happens.
Speaker 2 (11:16):
Yeah. Look, I mean.
Speaker 3 (11:19):
This has been in the news a lot because of
like these beautiful, glamorous properties and like outside Malibu when
the Palisades burning, for example, but like, yeah, it's affected
all types of.
Speaker 2 (11:30):
Areas of LA and LA is like more of a.
Speaker 3 (11:33):
More of a middle class kind of working class town
than I think some people realize. Really, right, the average
per capita income isn't that high, you know. Look, so yeah,
there are these three issues, like we mentioned with insurance.
One is that the modeling itself is difficult, involves a
moving target. A second is that there's some degree maybe
(11:55):
less so with like home insurance, but some degree of
adverse selection is a term where if you're someone who
buys insurance and not everybody does, and maybe you're more
of a risk than the model would let on, right,
you're buying insurance. I mean the anauochy I give is
like if you have like an all you can eat buffet, right,
there is adverse selection for who comes and eats at
(12:17):
the all you can.
Speaker 2 (12:18):
Eat the fe right.
Speaker 3 (12:19):
Probably if you don't you don't want to have it
all you can eat buffet set up outside like a
sumo wrestling tournament for example.
Speaker 1 (12:27):
That's another that's a business model.
Speaker 3 (12:29):
Yeah, and that if you know, for some people, the
expected value of insurance, I mean you know this is complicated.
On the one hand, it has to do with like
hedging catastrophic risk and diminishing marginal returns. Right, Like if
your home is worth two million dollars, your net worth
is four million dollars, so it's half your net worth, right, Well,
(12:50):
then probably in principle there is negative expected value for
most forms of insurance in terms of like the pure
dollar amount. Right, the risk of your house burning is
supposedly lower than than the premium that you get from it.
But you know, you much rather pay the small amount
then than have to have to uh lose half your
net worth in one inverno basically, But yeah, the third
(13:13):
issue is at California is a state with lots of
I wouldn't even say well intended regulations necessarily. I mean
it's I don't think it's the most economically literate state, frankly,
or the postumakers are especially smart, uh, frankly, but you know,
based in a combination including by the way, some of
(13:34):
these are things that like are ballot measures passed by
you know, to stay with a bunch of referendum right,
everything goes to direct democracy. People like me might think
this is kind of wonderful in the abstract it's ruled
by true democracy and not ruled by the expert class,
et cetera.
Speaker 2 (13:50):
But like it creates issues.
Speaker 3 (13:52):
I believe the rules that basically any insurance increase has
to be appointed by an insurance commissioner in California, which
is like a regulated industry, instead of kind of letting
them market take care of it. So, yeah, these insurance
cups are correct. I think to say that if you
have limits on what we can charge and we have
(14:13):
now have negative expected value, then fuck you, We're not
going to offer insurance in the first place. And that's
a rational reaction.
Speaker 2 (14:20):
I think.
Speaker 1 (14:20):
On top of the other risks, it is completely rational.
I mean, you have to remember that insurance companies are
also businesses, right, They're not pro bono organizations. This is
not like a federal relief fund that is there to
catch you it is. It is something that you know,
even if the returns are low, you need some positive returns.
It's not a business that's going to be a money
(14:41):
losing business. And so you understand that, but then you
end up in this situation where like, what the fuck
do you do?
Speaker 3 (14:48):
Right?
Speaker 1 (14:48):
If I am a person who you know has always
lived in California and who lives in California and I,
you know, my house burned down, what do I do? Right? Like?
It puts people in these impossible situations, and it's it's horrible,
Like I you know, I'm just a little bit of editorializing,
but like we shouldn't be in a situation where people are,
(15:10):
you know, sharing GoFundMe campaigns for everyone, right like that
that shouldn't be the case. There should be especially if
you're somewhere like California where you know this is a
thing there, they should figure out a way to make
this work or you know, or not and just not
let people live there. You know that it's kind of
one of these one of these very very stark contrasts.
Speaker 3 (15:33):
Yeah, look, I mean there is a backup state program
called Fair fai R.
Speaker 2 (15:40):
The mechanics are a little bit complicated.
Speaker 3 (15:43):
It looks like if it runs, I mean, you know,
you can buy a premium, right, it's not particularly cheap.
If fair overall runs out of money, I think there's
some pocket they're taking from private insurers who are selling
insurance in California, which ultimately makes insurance more expensive to
sell in California. And so you know, it's one of
these other perverse incentives. But but there is there is
(16:04):
that option at least available up to some limit, I
think up to three million dollars worth of coverage. So
let me be a little bit of the turn in
the punch bowl for a second. Right, you don't see
a lot of efforts to like be honest and forthright
about the about the fire risk here, right with the
(16:25):
way different properties are built and the amount of distance
between for example, the amount of distance between this.
Speaker 2 (16:30):
Like shrubbery, what's called chaparral or chaparral. How do you
say that?
Speaker 1 (16:34):
Yeah, I don't know. That's one of those words that
I read and never say out loud.
Speaker 2 (16:38):
So I've never said that word out loud, have.
Speaker 1 (16:40):
I know I have good syndrome. There are so many chaparral, chaparral, chaparral, chaparral.
Speaker 2 (16:52):
I don't know if I like how that AI bought
said that.
Speaker 3 (16:57):
But you have a lot of this kind of shrubbery
and they're not like forests per se. They're catching on fire, right.
I mean, if you've been to California maybe get a
little bit of this and Vegas then not quite right.
But you have those kind of dry, bushy area, right,
it's not super dense, but where fires can to spread
(17:18):
pretty fast. Right, they're not doing a lot of cultivation.
You can do controlled burns and areas that are fire risks.
There is reluctance to do that. Whenever you do one
of those things, you have to go through five years
of regulation and environmental studies and whatever else. Right, But
there's not a lot of honesty about like the way
these properties are designed to mitigate fire risk. And maybe
(17:39):
that will be there will be more now, right, but
like you know, and that kind of puts homeowners at risk,
and so you know, so if your home can be
covered by insurance, then that can create a moral hazard.
It's the other famous insurance turn along with ever selection, right,
where like if I am covering, I mean the classic
(18:00):
example is like the bank bailouts, right, where if the
government steps in and prevents whichever companies Morgan Stanley you
I want to accuse because companies, I'm sure all the
all the all the big Wall Street firms had like
something's evolved, right, But if they're going to come and
bail you out if you fuck up, h then you
have an incentive to like make risk your bets, right.
(18:22):
And I don't think homeowners individually are are quite as
calculating as like the banks might be. But like I
almost as a rule that like, if you create a
rule where there is financial upside to basically what we
what we term like an exploitative strategy in poker, right.
Speaker 2 (18:40):
Then people will exploit that.
Speaker 3 (18:41):
In the capitalist system, people will build right up to
the edges kind of figured oily or literally, and so
that can be that can be a problem to potentially, Yeah, I.
Speaker 1 (18:51):
Think this is a good kind of pivot point to
to looking at this from the individual side as opposed
to from the from the insurance company side. Because people,
you know, when we've we talk about this all the time.
People are not rational when they're evaluating risks, and they're
especially not rational when it's like a personal thing like
(19:11):
you know, I've always lived in this area, right, or
or you know, I you know, I want to do this.
And sometimes they're gamblers, right, sometimes they're actually risk seeking
in this particular case because they kind of take the
gamble that, oh, sure, like there's a risk of a fire,
but like my house isn't going to burn down because
it hasn't burned down for you know, however many years,
(19:34):
and there are properties. So one of the one of
the places that burned one of the businesses that burned
down in La is real In, where I've been. You've
probably been there too. It's on the way kind of
on the road to Malibu. There's only one road by
the way, which is also not great in terms of
natural disaster and like trying to get away and trying
to get the fuck out of there when it's burning,
(19:55):
which is why people have had to abandon cars and
bad things have happened. But real In burned down and
it was there for I think over thirty five years, right,
that specific business. But if you've been there for thirty
five years. You think, oh, well, yes, they're fire risks
in Malibu, blah blah blah. But we've always been fine, right,
so we're going to just continue to be fine. People
(20:16):
do have this tendency to be ostrich, like right, ostriches
are the ones that bury their hand in the sand,
and do I have the right analogy? And you want
to when it's convenient to ignore these things. You want
to ignore it because you want to be comfortable, Like
you don't want to make the tough decision of saying, Okay,
you know what, we need to sell our house and
we need to move to a different part of the state.
(20:36):
We need to move all the way out of California. Like,
people don't want to make those hard decisions, and so
instead of doing that, they're just going to fudge the
risk in their mind and take something which to us
looks like, you know, an irrational or very gambly decision,
which might not actually align with their risk preferences. Right.
I doubt that all the people who had houses that
(20:57):
burned down were risk seeking. Some of them might not
have cared, right, like some of the If you're very
wealthy and you just say, Okay, if my house burns down, fine,
I'll just rebuild, right, Like, That's that's one way of
looking at it. But I'm talking about like the lower
middle class people who aren't thinking that way. They might
appear risk seeking because of that choice, but in their
minds they're not right. They just they do they miscalculate willfully,
(21:23):
if that makes sense.
Speaker 3 (21:23):
Yeah, I mean there's a famous story for my book
where Elon Musk sells his first company, buys a McLaren
sports car which is worth like a million bucks or something,
and then crashes it on the way to the pitch meeting.
And he doesn't have insurance on this car, right, and
part because he I think thought he was invincible.
Speaker 2 (21:40):
But also he might say, hey, look I just told this.
Speaker 3 (21:42):
Company for seventeen million dollars or whatever it was, and
this car is worth one million dollars.
Speaker 2 (21:46):
So like, I am far enough along that.
Speaker 3 (21:49):
Diminishing returns curve right where I don't kind of carry
their way about a million dollars, Right, I'm not going
to pay because insurance again ought to be in principle
negative expected value in a narrow sense if you don't
account for diminishing returns right, And he's at the other
aspectrum where it's like, Okay, well who cares, right, I'll
just wire another million bucks to the McClary dealership buy
a new car, right. It doesn't really affect me much
(22:11):
either way, and so like, so I don't think it's
necessarily I want to be very careful, right, But like
if having your home destroyed by an earthquake or a
flood or a fire is something where you'd make out okay, right,
notwithstanding the psychological damage and the damage to the artifacts
and the belongings and your pets and whatever else, right,
(22:33):
and you're safe, well, like, it may not be rational
to buy insurance, right.
Speaker 1 (22:39):
Yeah, I think, Well, that's why I try to distinguish
between the people who can afford to lose it and
the people who can't. And I'm wondering if as these
things because we know with risk perception, right, so much
of it is personal experience and what has typically happened
to you or two people you know. And I wonder
as kind of these risks are spreading to communities that
(23:02):
you know before thought that they were relatively safe, as
we have so many properties that have been destroyed, so
many people that have been displaced, if that's going to
start changing, right, Like, I'm in Las Vegas right now,
and I've heard multiple conversations around Las Vegas about you know,
is Las Vegas going to see an even greater inflow
of Californians than it has in recent years after this? Right?
(23:23):
Are people going to actually change their kind their risk
preference is based on the newly available data. There are
some Hollywood executives who are starting to look at building
studios here right. There are a lot of people who
are saying, Okay, you know, this might have been the
tipping point. And I think that that's also interesting to
observe and to see what will happen.
Speaker 3 (23:48):
And we'll be right back after this break. One thing
I think you sometimes see happen is that when you
have these tumultuous and tragic events, they accelerate processing that
(24:09):
were already underway.
Speaker 1 (24:12):
Right.
Speaker 3 (24:12):
So one example is that you have the pandemic, actually
a bunch of these with the pandemic, right, Yeah, the pandemic,
people stop going to the movies, and then the movies recover,
but to some substantially lower baseline, right, And people are
just kind of calculating, well, you know what, you have
so many ways to watch a movie in your beautiful
home theater or whatever. Set up that like just a
special occasion kind of thing now, and like that's kind
(24:34):
of a permanent change that maybe happened in two years
when it would have happened in ten years instead. Look,
California has been losing population. It's gonna lose I think
it's lost an electoral vote and will lose more, probably
at the next redistricting process. So in a relative sentence
(24:54):
relative the rest of the country, it's no longer a
growth state, exactly. You have movement all over the West
right to Nevada, to Idaho, to Colorado, also like Texas
and Florida, which are fairly good substitutes for it.
Speaker 1 (25:07):
Right.
Speaker 3 (25:08):
So yeah, I know, I don't know how many people
have actually been put out of their home, but you
can imagine.
Speaker 2 (25:15):
I mean, I don't know. When I've been to.
Speaker 3 (25:19):
California recently, I mean it feels like a little bit sleepier, right.
I don't think New Yorkers have the jealousy of California
that they kind of once did. Maybe you do, dude,
have vice versa a little bit. I mean, you do
have Silicon valley that is still booming, at least as
an industry, right, I don't know as a town, but like,
(25:41):
you know, that's still attracting talent from like all around
the world, and with AI being another potential boom, then
that seems not to be going away very much. But like,
but yeah, I don't know, I don't think i'd want
to live in No.
Speaker 1 (25:55):
It's definitely changed the way that I look about it,
that I that I look at it, that I think
about it, because there was part of me that always thought,
you know, oh, you know, maybe at some point I'll
live in LA And at this point, I'm like, no
fucking way, right, Like, you know, why would I do that?
Certainly would never buy property there because you know, I
think that the risk reward I don't think it's a
(26:15):
rational decision right now, And you know a lot of
people are going to disagree with that, because everyone's risk
preferences are different and everyone's you know, decision matrix is different,
and I think that that's that's important. Right, We're right
now we're talking about personally the calculations. One final thing
that I wanted to talk about is the actual experience
of fires, right because there are people who died, and
(26:38):
some of those deaths couldn't be prevented, but others were
because of just frankly, absolutely asinine decisions where like you,
you know, decide that you're going to pick up a
hose and protect your home from the fire, which is
endangering you and endangering firefighters. You know, that's it's when
people say evacuate, you're supposed to evacuate, and I think,
you know, looking from the side, you say, that is
(26:59):
really asenine. But for some people, if they've never experienced
a fire, right, if they've never seen how quickly fires
can spread, it might have seemed rational. They might have
been like, oh, the fires a block, like it'll it'll
be fine, right, I have time. And what you don't
understand because you don't have kind of the experience, the
visceral experience of it, and your brain can't comprehend it
(27:20):
when people are telling you go now, it's just how
quickly fires can spread, like it is insane. You remember
last year we had a fire in our backyard in
New York when there was an explosion in the middle
of the night of batteries and of the of a
restaurant and our building almost burned down. But I just
remember from the moment of the explosion to like the
(27:41):
fires being taller than our windows, which is a fourth
floor apartment. It was seconds, right, and I was like,
holy shit, Like it went from what's going on too?
We need to get out right now? In under a minute,
and so I think that and that's not even a wildfire, right,
That's that was a very different situation. That was an
(28:01):
electrical fire. But it's I think that people's risk in
the in the moment, you know, in that hot situation,
your risk assessment can be off and you can say, oh,
I have time, I can do this, I want to
protect my home, and so you just lose perspective that
actually the only thing that matters is your life and
the life of firefighters, and so people make just really
(28:24):
really stupid decisions, which is why I always say, like
you need to in hot situations. This is like poker too, right,
and like being on being on tilt and poker, like
you need to think of it in advance, like how
am I going to react to this situation, because in
the moment, you're going to make a bad decision if
you don't know what you're going to do. If you
haven't thought it through. You might think that you'll be
(28:47):
able to think clearly, but you can't write when you're emotional.
When you're stressed, clear thinking goes out the window unless
you already have a plan of action.
Speaker 2 (28:56):
Yeah, and it kind of happens fast.
Speaker 3 (28:57):
I was trying to explain to someone the other day
who has not played much poker about how you know
if you're playing a five to ten no limic game, right,
and like and the effect stacks are like five thousand dollars, Well,
how do you ever get kind of like the whole
five thousand dollars involved when when they're only fifteen dollars
(29:17):
in blinds to pick up initially? Right? I maybe it's
not the best analog, but the point is that, like,
danger can happen quite quickly, and you don't necessarily have
a moment to like kind of catch your breath, right.
I mean there are different cases with with hurricanes, which
is something that we deal with a little bit more
on the East Coast, although not in New York that
(29:39):
we wouldn't like Florida or something like that, Like there you.
Speaker 2 (29:41):
Do have some.
Speaker 3 (29:44):
Advanced warning, right, It's not like the hurricanes come exactly
out of nowhere. But you know, but you have the
risks that, like, you know, if you evacuate people too
early in New Orleans with Hurricane ktwna hit. There have
been kind of a long history of New Orleans.
Speaker 2 (29:59):
Having good luck with storms.
Speaker 3 (30:01):
That were bad but not as bad as feared or forecasted.
Right there, I think, you know, I think the literature.
I wrote this in the first book of mine more
than ten years ago. I think the literature is pretty
consistent that there are real consequences to false alarms. Yeah,
any type of natural disaster, and people really feel invincible
if like, oh, last time he said it's gonna be.
Speaker 2 (30:21):
Bad, yeah, and it wasn't, right.
Speaker 1 (30:23):
Yeah, And I think that it creates this it's kind of,
you know, coming full circle to what we were talking about.
It creates this perverse incentive where you personally feel more
invulnerable than you should because you've gotten away with it
in the past, Right, like California, while my house hasn't
burned yet, Right, You've told me to evacuate before and
everything was fine, So I'm just going to be comfortable
(30:45):
and it's all going to be fine, and once again
head in the sand, because that's just that's easier, right,
that's the path of least resistance, and you know it's
scary to just leave and to do it quickly. Do
you have a Do you have a go bag Nate
by the way or no? No?
Speaker 2 (31:03):
Yeah, I mean I maybe we should.
Speaker 1 (31:08):
I think I think we should. Yeah we yeah, we
have we have go bags. And it's something that you know,
I thought through, like, you know, because in New York
there have been situations so like obviously nine to eleven
where you think about, like, you know, what happens if
I need to get out of here, what happens if
I need to get out of here on foot Hurricane Sandy,
(31:29):
you know, we lost powered, had no cell phone reception.
So after after those experiences, I have thought a lot
about you know, go bags and the fact that this
is something that you just need to be able to
grab and it should be light, right, there shouldn't be
too much in it. Mine is like passport, copies of documents. Cash.
It's really important to have cash, even though we're turning
(31:50):
towards the cashless world. But if you know, if there's
no connectivity, if you can't use Apple pay, if you know,
if if shit goes bad, like cash is actually an
important thing to have. Laptop, right. I when when my
apartment you know, was threatened by fire last year, I
grabbed my notebook because I write all my first drafts
(32:11):
by hand. So and I don't you know if that's lost,
like you know, huge chunks of my next book are lost,
So I grab that, you know, laptop, passport, and you're
out of their cell phone. But I think that it's
important to just figure out what are those things that
you need immediately, and also the things that you can't replace, right,
Like if you have photographs, I my grandmother's letters to
(32:33):
her sister, which are you know, handwritten. It's their correspondence
and it's you know, the only thing I have left
of her. So like I would grab that even though
it weighs a ton, right, it's not like a it's
not a life changing thing. But to me, it's something
that like I could never replace, and that's really really important.
So I think that you have to there's like a
balance of obviously water some bars, but you need to
(32:56):
replace that stuff, right, Like some stuff goes bad in
your go bag, you need to replace it constantly so
that it stays fresh. And so it's a little bit
of a pain in the ass, but once you have it,
it's pretty easy.
Speaker 3 (33:06):
Yeah, I guess, I guess. I guess our main risk
in New York is probably a terrorist attack. I mean
because with the hurricane you have some warning time, right,
I mean, you can get severe summer weather in New York.
The winds are but yeah, the main risk, for being
honest is like some terror attack. And the fact that
I live in Manhattan, right, you're kind of on kind
(33:29):
of on an island. Right, there's only so many physical
ways to like connect with the rest of the United States, right,
and so and so that gets a little bit frightening.
Speaker 2 (33:38):
I suppose.
Speaker 1 (33:39):
Yeah. Well, one of my friends who lives in Tribeca,
actually after Sandy, they ended up buying and you know,
one of those like inflatable boats so that they could, okay,
because also thinking about terrorist attacks, like what happens if
all the roads are closed, So they bought a little
inflatable raft that they can take to the Hudson River
and get out of there. And at first I laughed
(34:01):
and that I was like, huh, should we get one
of those? Right? Like how far do you want to
take this? And obviously there's like a you know, there's
a full spectrum from no go bag whatsoever. I'm totally
fine to prepper right, and I've got a bunker. I'm
that I paid for that I'm going to go to
and like I know exactly, you know, off grid what
I'm going to do. So there's there's a whole lot
(34:23):
of room in between. But I think that doing the
bare minimum is a good thing to do. It's just
that to me is like where I where I come
out rationally. I did not end up buying an inflatable boat,
by the way.
Speaker 3 (34:36):
You didn't, Okay, now I do a little nitty I
don't know, I don't know.
Speaker 1 (34:44):
Yeah, so so I do not have an inflatable boat.
By the way, that friend moved from Tribeca to La
and just and had to evacuate was in one of
the evacuation zones, so sore that the inflatable boat is
not very helpful over there. Yeah. So I think that
these are all these are all important decisions something you
have to think through for yourself. But it's something you
(35:04):
do have to think through. I just want to like
make one last push. People do like to nor things
that are scary, that are inconvenient, that forces them to
make difficult decisions. Don't do that, right, and instead, like
actually sit down and do a rational calculus, look at
the numbers, look at the risk, and try to figure
(35:26):
out if it's worth it or not.
Speaker 3 (35:28):
Right. Yeah, you don't have to make a commitment, right.
You can't say this is silly, the risk is low
enough and we're probably fucked anyway or whatever.
Speaker 2 (35:35):
Right. You can do that calculation and then decide not
to write.
Speaker 1 (35:38):
Yeah, but at least do the calculation. Please. So on
that note, let's take a break, and then let's take
oh listener question. So we got a listener question from
(36:02):
JM and Nate. This listener question is directly about your work.
Speaker 2 (36:06):
Right, yeah, So Elon must if Ramaswami. Is that how
you say it?
Speaker 1 (36:12):
Right?
Speaker 2 (36:12):
Yeah?
Speaker 3 (36:14):
Our meeting with top government officials and they also are
trying to kind of formulate this quasi official agency called DOGE.
It's a backronym for Department of Governmental Efficiency and also
a meme coin and a meme coin Elon's favorite meme coin,
I think.
Speaker 2 (36:34):
Yeah, And the question is how do you integrate the
river and the village.
Speaker 3 (36:39):
So, if you have not read on the Edge the
Art of risking, everything published in twenty twenty four.
Speaker 2 (36:44):
But these are my.
Speaker 3 (36:45):
Terms where the the village is the you know East
Coast establishment risk averse government, at least when Biden's in office.
Speaker 2 (36:55):
Right, government and academia and media.
Speaker 3 (36:59):
Right, these people who were super concerned about Cohen risk
and the types of risk, and they're you know, they're
the ones who are doing more speech policing and things
like that, right, And I mean they're kind of become
like the liberal establishment, the expert class, right, whereas the
River are the risk taking degenerate types and finance and
Silicon Valley as well as a poker world and the
(37:20):
in the gaming quote unquote world more general. But parts
of the River have had an increase in their political power.
Speaker 1 (37:29):
So typically you know, government seems more villagy, right, you know,
old establishment, et cetera. But people like Musk and Ramaswami
are more from the River and are trying to inject
some of those ideas into kind of old Washington. So
how how does that play out? How do we integrate
(37:50):
the two together? Right? How do you how do you
make the two mesh and how do you actually make
it a productive thing as opposed to you know, two
sides entrenching against each other and and polarizing even further,
which is obviously one one possible outcome.
Speaker 3 (38:10):
Yeah, I mean, you know, look, there's long been a
conservative critique that there is a lot of waste, fraud
and abuse that taxpays are on the hook for, which
I'm relatively sympathetic toward. So you know, I guess one
critique I would have.
Speaker 2 (38:28):
And you see it in like this La wildfire stuff, right,
where like.
Speaker 3 (38:36):
You know, they'll make five accusations about how it's all
the liberals fault. Right, I'm no fan of Gavin Newsom
or governance of California in general.
Speaker 2 (38:46):
Right, But then you actually kind of.
Speaker 3 (38:47):
Like check these and like maybe one of the five
is basically true and one of the five is half true,
and the other three and a half are just deranged.
Speaker 2 (38:58):
Right.
Speaker 3 (38:58):
There's a big deal about, like, you know, the LA
fire chief is like a lesbian and somehow this is
like a DEEI thing somehow for reasons I don't entirely understand. Right,
And you hear it claims about like where water takes.
I guess there is one water take in Pacific Palisades
that was up for repair or that seems not good.
(39:19):
It seems like you probably want the repair time, you know,
to be quicker than Oh, I'll get around to it
at some point.
Speaker 2 (39:25):
But if you can go with scrutinize his.
Speaker 3 (39:27):
Claims, you know, Noah Smith, the writer of the blogger,
has a good rundown. And again there are things, there
are elements of it that have some degree kind of truth,
but like it's not very precise, right, And you know,
there is this like duality in the river the way
I can see it, where on the one hand, the
river is supposed to be kind of like the moneyballization
(39:48):
of everything, where it's calculating and.
Speaker 2 (39:52):
Precise, right.
Speaker 3 (39:53):
On the other hand, there is this like degenerate gambler
side Elin in particular as someone who I mean, look
you got an added to him. He's we found it
all these amazing businesses. He's clearly doing something right, including
by the way, being a co founder of open Ai.
But not a guy you'd say has like a lot
of precision, really right, and like and like the giddiness
(40:16):
of someone who's on a winning streak. Right, I mean,
they not only have one in all sorts of ways
in terms of becoming wealthier and wealthier, right, but also
now this faction of the River. Again, I think the
average person the river probably is a moderate Democrat. But
this faction, I just said, this kind of kind of
gigantic wind. Clearly, you know, they were backing Trump, and
(40:37):
clearly they're going to have I think a fair amount
of influence on Trump. It's already also also bolstered Elon's
net worth in certain ways, right, even without kind of
electing anything untoward. Right, His business are all subject to regulation,
and if you have a more friendly regulator at office,
is probably worth something to you.
Speaker 2 (40:58):
So it's it's it's been disappointing to see this side
of the river.
Speaker 3 (41:03):
Become become the side that one I guess, but you know,
but look, I mean it's you know, one mester of
the book is like these people are actually not so
rational necessarily, right.
Speaker 1 (41:14):
Yeah, Now that the definitely is is a message, and
I think that from a psychological standpoint, you also have
hit on something that is really important to remember as
we see kind of these Ribeians making their move on Washington,
which is there is a hubris that comes from being
on a winning streak, right, and and that definitely makes
(41:37):
you irrational, Like that irrational exuberance, right, and a lot
of bad shit happens from that. And to bring it
back down to kind of the poker level, right, think
about poker players who are on a hot streak, right,
who are running well, who are son running in poker terms,
and then you know, they think they can't lose. I'm
not gonna I'm not going to mention the name of
(41:58):
this player, but there was a player who went on
this incredible streak a number of years ago and like
just would would win everything and ended up winning, you know,
shit ton of money and just like couldn't lose, and
people are like, oh my god, this is like the
best player in the world. And then the sun run
ended and I remember one specific stream this was televised
(42:21):
where this player lost, not even a flip, like it
was just like lost and all in and was behind
and stayed behind, didn't hit the miracle card, had always
hit the miracle card in the past, and was you know,
just expecting it to happen and it didn't and this
was a huge hand and he was out of the tournament.
(42:43):
I could say it was a man, right, because we
know that ninety seven to ninety percent. I don't want
to I don't want to put them on blast right now,
but this is one of the this is one of them.
Maybe maybe another time. This was one of like it
was an epic meltdown. This person like got up from
the table and threw the chips, like just threw the
(43:03):
chips at the other player and out the dealer and
stormed off, And I was like, holy shit, Like this
is someone who is not used to losing. And when
you when you are at a poker table, like you
can watch the stream and laugh and be like haha, right,
sun run over, like and you do not your mental
game because this person also pride in themselves on good
mental game, Like mental game non existent, like you've just
(43:25):
been winning. But when you when that happens now, like
let's go back when when that happens in Washington, the
stakes are much higher than you know, throwing chips at
a player, which, by the way, if you play poker,
big poker, no, no, you never throw your chips right,
Like that is a that is a big etiquette no. No,
Like chips should never fall off the table, like do
not do things with a lot of force, like just
(43:48):
be be nice about it. Splashing the pot not good.
So Yeah, when that happens in Washington, consequences are much
more dire and it's no longer quite as amusing. So
when I always say, like, beware, people who've been on
huge winning streaks, right, their decision making is going to
be colored by.
Speaker 3 (44:08):
That American or euro could you say that much hero? Okay,
the euro the heroes, I don't know, Eroes kind of
believe in uh in luck.
Speaker 1 (44:19):
Guy.
Speaker 2 (44:19):
They're a little superstitious.
Speaker 1 (44:20):
I think, right, there's a rational superstition. I think in
a lot of Riverians, right, a lot. And I don't
even know. I don't know about Musk, like, I don't
know if he has irrational superstitions. But a lot of
people who are Riverians and who are kind of the
these gambling types and who do you think about risk,
they also are superstitious. And I just find it amusing
(44:41):
and also, you know, sometimes disappointing. And some people are
aware of it, like I Caxton, you know, in the
Biggest Bluff, I have a section where I talked to
Ike about superstition and he fully owned it and he's like, yeah,
I know this is totally irrational, but like I'm gonna
do it anyway, right, I'm going to have my like rituals,
et cetera. But then there are other people who are like, no,
(45:02):
I'm not superstitious at all. Oh, yes, but this is
the same shirt I was wearing from day one of
the tournament because you know, I've been well in it.
But no, I'm not superstitious at all. But I think
I think that that's perspective that it can't hurt, right, Like,
you know, it's probably it's not. It's it's bullshit, but like,
can it really hurt? And my argument is yes, it
(45:22):
can hurt because when your rituals, when your superstitions are disrupted,
it can actually really fuck with your mental equilibrium. Right,
Like what happens if that lucky shirt that you've been
wearing every single day suddenly you can't find it, or
like you know that if you're staying in a hotel,
like you know, got lost somewhere, housekeeping took it, like
and then suddenly like you have a day four restart
(45:43):
day five, you're deep and like you're thrown off by this.
And I wrote about this, but it's happened to Olympic athletes.
It's like there was one Olympic athlete who lost her
lucky necklace right before a run and like just completely
fucked up her run right like, So, yes, there is
a downside to this. It can hurt because when you're
kind of reliant on that it can take, it can
be really difficult to kind of to move past it.
(46:07):
But I think this is a This is a good
way to wrap up the show because in some ways,
like there have been some themes that have gone through
all all of our segments today, from fires to now.
One of them is kind of the irrational exuberance and
people people not making correct decisions because they're a little
bit overconfident and misperceived risk, whether it's risk of fire.
Speaker 3 (46:28):
Or we're a quarter of the way now through the
twenty first century. I'm getting that right, Yeah, we are,
And irrational exuberance is still a thing.
Speaker 2 (46:35):
I'm sorry to report.
Speaker 1 (46:37):
It absolutely is, and I think it's here to stay.
And on that note, Nate gets some rest. Let's get
over your jet lag so that you're fully awake, and
we will see you all next week, where Nate will
no longer be in a time zone that he doesn't
even know what time it is anymore, So we'll see
We'll see you next week. Let us know what you
(47:08):
think of the show. Reach out to us at Risky
Business at pushkin dot Fm. Risky Business is hosted by
me Maria Kondakova.
Speaker 2 (47:21):
And byby Nate Silver.
Speaker 1 (47:23):
The show is a co production of Pushkin Industries and iHeartMedia.
This episode was produced by Isabel Carter. Our associate producer
is Gabriel Hunter Chang. Our executive producer is Jacob Goldstein.
Speaker 3 (47:34):
If you like the show, please rate and review us
so all the people can find us too. And if
you want to listen to an AD free version, sign
up for Pushkin Plus. For six, ten and nine a month,
you had access to ad free listening. Thanks for tuning in.
Hosts And Creators
Maria Konnikova
Nate Silver
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