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Skin in the Game

book: Skin in the Game
author: Nassim Nicholas Taleb

general overview

Skin in the Game is part of Taleb’s Incerto series, which his past three books are part of. their themes are rationality, uncertainty, information, knowledge, statistics, economics, morality and risk. Taleb uses fairly easily digestible analogies to show the gaps between these factors and how they affect our everyday life.

a major takeaway and overarching theme of Skin in the Game is “don’t tell me what you “think,” just tell me what’s in your portfolio.” that statement is quite literally the premise behind the very words “skin in the game”. i.e. actions over words

notes and highlights

  • if you have the rewards, you must also get some of the risks, not let others pay the price of your mistakes.
  • contact with the real world is done via skin in the game – having exposure to the real world, and paying a price for its consequences, good or bad.
  • pathemata mathemata – Greek for “guide your learning through pain”
  • the knowledge we get by tinkering, via trial and error, experience and the workings of time, in other words, contact with the earth, is vastly superior to that obtained through reasoning, something self-serving institutions have been very busing hiding from us.
  • people who are delusional, literally mentally deranged, simply because they never have to pay for the consequences of their actions, repeating modernist slogans stripped of all depth.
  • those who never take risks should never be involved in making decisions.
  • at one time societies were run by risk takers, not risk transferors.
  • bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions
  • decentralization is based on the simple notion that it is easier to macrobull***t than microbull***t
  • decentralization reduces large structural asymmetries.
  • government interference in general tends to remove skin in the game.
  • importance of being a victim of one’s mistakes.
  • the same mechanism of transferring risk also impedes learning.
  • the curse of modernity is that we are increasingly populated by a class of people who are better at explaining than understanding. i.e. better at explaining than doing
  • skin in the game keeps human hubris in check.
  • The Golden Rule wants you to Treat others the way you would like them to treat you.
  • The Silver Rule says Do not treat others the way  you would not like them to treat you.
  • behave as if your action can be generalized to the behavior of everyone in all places, under all conditions.
  • Agency problem: regulations, while appearing to be a remedy on paper, if anything, exacerbate the problem as they facilitate risk-hiding.
  • avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice.
  • you do not want to win an argument. you want to win.
  • you may not know in your mind where you are going, but you know it by doing.
  • intellectualism is the belief that one can separate an action from the results of such action, that one can separate theory from practice, and that one can always fix a complex system by hierarchical approaches, that is, in a (ceremonial) top-down manner.
  • scientism, a naive interpretation of science as a complication rather than science as a process and skeptical enterprise.
  • those who talk should do and only those who do should talk.
  • things designed by people without skin in the game tend to grow in complication (before their final collapse).
    • non-skin-in-the-game people don’t get simplicity
  • regulatory recapture cancels the effect of what a regulation was meant to do.
  • skin in the game is about honor as an existential commitment, and risk taking (a certain class of risks) as a separation between man and machine and (some may hate it) a ranking of humans.
  • if you do not take risks for your opinion, you are nothing.
  • Spartan saying, “With it or on it.” meaning, either return with your shield or don’t come back alive (the custom was to carry the dead body flat on the shield); only cowards throw away their shields to run faster.
  • artisans have their soul in the game
  • compendiaria res improbitas, virtusque tarda – the villainous takes the short road, virtue the longer one.
  • entrepreneurs are heroes in our society. they fail for the rest of us.
  • read Seneca, Caesar, or Marcus Aurelius. avoid the intermediary when possible.
  • if you can’t put your soul into something, give it up and leave that stuff to someone else.
  • inequality is okay as long as there is churn in who is unequal. i.e. there must be a chance for people to move between classes, and not just one way.
    • no downside for some equals no upside for the rest.
  • in any activity, hidden details are only revealed via Lindy Effect.
    • Lindy effect is a theory that the future life expectancy of some non-perishable things like a technology or an idea is proportional to their current age, so that every additional period of survival implies a longer remaining life expectancy.”
  • do not criticize what people said, criticize what they meant.
  • all risks are not equal.
  • rationality is avoidance of systemic ruin.

 

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