1. Play the odds. How do you know the odds? From gaining experience with people, and by getting all the facts you can:
Detective Mindset part 1: Be the detective you want to see in the world
You’re not looking for certainty here. Nothing so unrealistic. All you need to know is what’s the way to bet.
2. Diversify the risk. What you want is many casual relationships. This doesn’t rule out having a few close friends. In fact, it’s the way to find people worth befriending. But even if you have a posse, you want to schmooze with a crowd.
3. Minimize the risk. Don’t make bigger bets than you need to make. You learn from bad bets, but you can learn cheaper from small bad bets.
This means never, ever follow someone who demands your loyalty. It also means never commit unconditionally or prematurely to anyone or to any organization. Keep it conditional.
4. Always have a backup plan, in case someone lets you down. Always, no exceptions. This is how you sleep at night. Trusting anyone in this world is a poor substitute for having a backup plan. Have a backup plan for the backup plan, if you can manage it.
There’s a trap you can fall into: unconscious trust. You think you’ve got a backup plan for everything, but all your plans rest on an unexamined assumption. Say it’s 2007 and you’re shorting the mortgage market. You think you’re a pretty skeptical guy, because you’re – y’know – shorting the mortgage market. But if you assume the ratings agencies are honest, you could be in for a rough ride. Trust is a hard habit to break because it feels natural. Distrust takes work.
5. As I said before, give people a chance to earn trust, before giving them your trust:
Beyond Trust part 3: What trust rests upon – Deep, Dark Thoughts
The point of that last one is to give something like a high trust society a chance of emerging again.
I say “something like” because if we just try to recreate the high trust society that we have lost, we’ll simply lose it again in the exact same way as now. If you set the clock all the way back and let it run again, where do you expect to end up? This is the recipe for a Groundhog Day scenario.
What we should aim for is what I call an earned trust society. If enough people do all these things, it seems to me earned trust networks will develop, and these will merge and grow into an earned trust society. Note this is a bottom up process, not top down. You’re not looking for a sheriff to ride into town and enforce some law and order. You’re not looking for any procedural justice. Police and the courts are welcome – if they work – but not mandatory. We solve our own problems if we have to.
(I’m not advocating anarchy. I’m accepting it. It’s coming whether we like it or not. In some places, it’s already here. I’m advocating a mindset that will make the best of it. Because the first rule of survival is to adapt to your environment.)
This is an application of:
The demiurge mindset – Deep, Dark Thoughts
Straw Man Objector: “If trust is bad, why would it feel natural? How do you square that with evolutionary psychology?”
Here’s a theory: trust is neotenous behavior. Infants have to trust their mothers because they have no choice. Many people never fully outgrow this. The word “sucker” originally meant a nursing infant. Did you know that?
There’s a sucker born every minute because everyone is born a sucker. To move beyond trust is a coming of age.
SMO: “So, to be trusting is to be a mama’s boy?”
Something like that.
SMO: “Isn’t the Big Short scenario kind of a special case? A historical fluke?”
No. It isn’t. That sort of thing happens a lot.
The Complete History of US Real Estate Bubbles Since 1800
Keep calm and solve for pattern. – Deep, Dark Thoughts
SMO: “Isn’t it lonely to live with this social gambler mindset?”
Compared to what?
SMO: “Isn’t it scary?”
Again, compared to what?
Deep, Dark Thoughts 
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