This is the 5th book in Nassim Nicholas Taleb’s Incerto series which addresses how unpredictable the world is. This book focuses on ethics in an uncertain world, why it’s crucial to have “skin in the game” and how to address various asymmetries in life. In this free Skin in the Game summary, you’ll learn about asymmetries, agency problems, how to look beyond “fake” knowledge, and more.
What is Skin in the Game?
Skin in the game is basically the amount of risk or vested interest you have in an outcome. The more you have to lose, the more skin you have in the game.
According to Taleb, many of our problems come from not having enough skin in the game. Experts and institutions often share advice or intervene to bring harm to others without suffering any consequences.
One of Taleb’s key message is this: Unless you have skin in the game, don’t get involved. Mind your own business. Even if you think you have the skills/knowledge to help someone, you’ll likely cause more harm than good.
This book is written in 8 sections with 19 chapters covering various over-lapping concepts. Here are the core ideas in a nutshell:
Taleb discusses these ideas in various contexts from politics to business, economics, journalism and daily life. In our Skin in the Game summary, we’ve distilled and organized Taleb’s main concepts, observations, criticisms and recommendations into 3 parts:
- Why Skin in the Game Matters
- Asymmetries and Agency Problems
- Appearance vs Reality
Why Skin in the Game Matters
There are several benefits to having skin in the game.
First, it facilitates learning. True learning occurs only when you have something to lose from your mistakes. This is called pathemata mathemata or learning through pain. Theoretical knowledge is never as reliable as direct, first-hand experience. No matter how much you read about public speaking, you won’t improve until you actually start to speak in public.
Second, when we have skin in the game (i.e. something to gain or lose), we care about the outcome and become more motivated. We seek out new solutions, work harder and persist longer. Drug addicts are so ingenuous in finding ways to get more drugs precisely because they have skin in the game.
Finally, we’re less likely to behave unethically if we think we’ll get caught. Taleb argues that skin in the game is more effective than regulations. Lawyers and businesses can always find ways to work around the rules. However, corporations may be more cautious about, say, polluting the environment if they know that the affected residents can band together to sue them. So, don’t rely on legal systems to maintain ethical behavior. Only turn to regulations if skin in the game cannot solve the issue.
Moral Symmetry and Ethical Behavior
One of Taleb’s key tenets is that of moral symmetry. Basically, anyone who enjoys a reward must bear some of the risks. This means that if someone is hurt due to your advice or actions, you should pay a price for it. This concept is actually not new.
Hammurabi’s law (established 3800 years ago) says that if a house collapses and causes the owner’s death, the builder of the house shall be put to death. This is the concept of “An eye for an eye, a tooth for a tooth.”
Philosopher Immanuel Kant’s universal moral law says that you should only do something if you’re ok with the action being replicated by everyone all the time. Taleb argues that such a perfect moral code doesn’t exist, so skin in the game is a more viable moral solution.
Most of us are familiar with the Golden Rule which says “Do unto others as you would have them do unto you.” Taleb prefers the Silver Rule which says “Do not treat others the way you would not like them to treat you.” That’s because:
- It’s hard to know what’s “good” for others. People who think they’re doing good could very well cause harm.
- The Silver Rule seeks to do no harm. Even if you make a mistake in applying this rule, you wouldn’t have hurt others.
The morality of your actions should be judged by their outcomes, not your intention. If you take risks that you don’t understand, you’re a fool, and fools get eliminated naturally by systems over time. But, If you deliberately transfer your risks to others, you’re a crook. Taleb’s criticisms are targeted at this group, especially those whose occupation allows them to cause harm without accountability.
Asymmetries and Agency Problems
Taleb devotes the bulk of the book to discuss how a lack of skin in the game causes problems all around us. This includes hidden asymmetries and agency problems in market transactions, journalism, peace-making, domination by a “stubborn minority”, dynamic inequality, etc.
Asymmetry occurs when 1 party in a transaction is uncertain about the outcome while the other is certain. For instance, a seller often has more information than the buyer in a transaction.
On the other hand, agency problems occur when a person or entity (an agent) can make decisions for and/or impact another person (the principal), without having to act in the principal’s best interest.
We’ll briefly outline 2 examples below. Feel free to get our 18-page version of the Skin in the Game summary bundle to dive deeper into each of these areas.
Others’ Skin in the Game
If you found out that your company is engaged in unethical activities, would you blow the whistle if it means losing your job and risking your reputation? Most people would lie low for the sake of their loved ones’ financial security and well-being. Hence, others’ skin in the game can affect your freedom.
We have more skin in the game where it involves our immediate family, tribe or fraternity. It’s easier to add skin in the game in smaller communities. And, the more you have to lose, the more vulnerable you are. Taleb says that you can’t trust someone to make critical decisions if their survival depends on others’ subjective assessments.
By contrast, people who believe they have nothing to lose are the hardest to “control”. That’s why it has been so hard to curb jihadi terrorism. Taleb argues that the best way to deter suicide bombers is to add skin in the game: let them know that if they kill others’ families, their families will pay a price in return. Do you agree?
The Ultimate Test: The Lindy Effect
The “Lindy effect” was discussed in detail in Taleb’s earlier book Antifragile. It says that time is the best judge of quality, and a “Lindy” is something that lasts the test of time. The most effective ideas and institutions survive and grow stronger with time.
A Lindy has 2 requirements: (i) The people doing the work must take some risks and (ii) the work must survive across generations. So, robust ideas in psychology or social science must have traces from the past. For example, skin in the game is reflected in the old Yiddish proverb “You can’t chew with somebody else’s teeth”, and time discounting is reflected in the Levantine proverb “A bird in the hand is better than ten on the tree”.
Appearance vs Reality
There’s a real difference between theory and practice, academic and real-world knowledge. Taleb is strongly critical of scholars, academics and bureaucrats who preach or theorize in abstract without real-world action or experience. He calls them “Intellectual Yet Idiot”. In the book, he launches into a tirade against several well-known thought leaders including: Thomas Piketty, Steven Pinker, Richard Thaler and Cass Sunstein. The key message is this: Don’t get deceived by appearances. Learn to filter out the bulls**t.
As before, we’ll just zoom in on 1 example here. Do get our complete Skin in the Game summary for more details.
Don’t Over-Complicate Things
Things created without skin in the game tend to be unnecessarily complicated. Practitioners tend to look for simple solutions because they must deliver results efficiently. However, intellectuals tend to complicate things and then sell a “solution” for the complex problem. It’s like giving a brain surgery when the patient just needs some rest or an aspirin.
In the same token, rich people complicate their lives by allowing people with no skin in the game to sell them things they don’t need. For instance, they eat at Michelin-star restaurants–which are rated by bureaucrats to justify ridiculous prices for overly-complex dishes. They hire consultants to advise them on everything from diet to lifestyles and finances. They move into huge mansions, which requires them to hire (and manage) an entire crew of servants, butlers and assistants.
Specialists (including architects, designers or bureaucrats) may design solutions that they don’t personally use. For example, the people who design stage lighting probably never tried to speak or perform on stage with the lights shining right into their eyes.
Scientists who create complex inventions for the sake of doing so are engaged in Scientism, not Science. For example, why create genetically-modified, vitamin-enriched rice when you can just have normal rice and vitamins?
Cutting through the bulls**t
Taleb also discusses the fallacy of theories and policies made from ivory towers, why it’s pointless to debate beliefs and religions when the words mean different things to different people, and how words are useless without action. He also argues that truly rational actions are those that help the collective to survive, and we should take personal risks to reduce collective risks.
Getting the Most from Skin in the Game
There are simply too many details and perspectives on the impact of skin in the game (or lack thereof) to cover everything here. If you find the ideas above intriguing, do check out the our full book summary bundle which includes an infographic, 18-page text summary, and a 31-minute audio summary.
This book is actually 8 books in one. In each “book”, Taleb shares his views on one aspect of skin in the game or his critique of certain professions and thought leaders. The book is full of thought-provoking ideas presented in a caustic tone. Taleb supports his arguments using mainly his own observations and historical or philosophical references. You can purchase the book here or visit fooledbyrandomness.com for more details.
Wish to read more from the Incerto series? Check out The Black Swan summary to learn more about highly unprobable events!
About the Author of Skin in the Game
Skin in the Game: The Hidden Asymmetries in Daily Life is written by Nassim Nicholas Taleb–a Lebanese-American writer, scholar and mathematical statistician, best known for his work on randomness, probability, and uncertainty. He received his bachelor and master of science degrees from the University of Paris. He holds an MBA from the Wharton School at the University of Pennsylvania, and a PhD in Management Science from the University of Paris.
Taleb was a former option trader and risk analyst at various trading and financial firms. He has been a professor at several universities, and has been co-editor-in-chief of the academic journal Risk and Decision Analysis since September 2014. He has also been a practitioner of mathematical finance, a hedge fund manager, and a derivatives trader, and is currently listed as a scientific adviser at Universa Investments.
Skin in the Game Quotes
“Avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice.”
“You can give advice, or you can sell (by advertising the quality of the product), and the two need to be kept separate.”
“The entire growth of society, whether economic or moral, comes from a small number of people.”
“Freedom entails risks—real skin in the game. Freedom is never free.”
“You will never fully convince someone that he is wrong; only reality can.”
“Never pay for complexity of presentation when all you need is results.”
“If wealth is giving you fewer options instead of more (and more varied) options, you’re doing it wrong.”
“How much you truly ‘believe’ in something can be manifested only through what you are willing to risk for it.”
Click here to download the Skin in the Game summary & infographic
Great book. Will read the other 8. Well done Nassim.