Skin in the Game – Why Politicians & Bankers Steal

skin in the game book cover

Skin in the Game (2017) is Nassim Taleb’s last book of his “Incerto” collection.
It investigates the adverse impact of having people acting and making decisions without shouldering any downside if things go wrong (ie.: getting the rewards without the risks).

Summary

About The Author: Nassim Nicholas Taleb is a statistician, former trader, philosopher and, as he hates being called, an intellectual.
Skin in the Game is the latest of Taleb’s series called “Incerto” and comprising Fooled by Randomness (2001), The Black Swan (2007–2010), The Bed of Procrustes (2010), Antifragile (2012), and Skin in the Game (2018).
At the time of writing, Taleb is possibly my favorite author.

The 4 Topics of Skin In The Game

Taleb says in the introduction that “Skin in the Game” is about four topics:

  1. Uncertainty and the reliability of knowledge (or BS detection)
  2. Symmetry in human affairs (fairness, responsibility, justice, values)
  3. Information sharing in transactions
  4. Rationality in complex systems and in the real world

In a nutshell skin in the game means that if you get the rewards, you must also bear the risks.
Taleb makes the point that in many reals of our current society, whole classes of citizens are getting the reward while pushing the risks to the whole society.

To quote Taleb:

Skin in the game is mostly about justice, honor, and sacrifice. Things that are existential for humans.

Complex Systems Don’t Work With Simple Cause/Effect

Complex systems don’t have obvious and simple cause and effect mechanisms. 
And when in doubt, it’s better not to mess with these systems.

Starting a war to implement democracies is an example of messing with a complex system.
Taleb says that clueless politicians compare a local dictator not with the local alternatives but with a Norwegian prime minister.

These people keep staying at their jobs even their reckless decisions because they don’t have skin in the game.
Nobody paid anything for the Iraqi invasion or for supporting “Arab spring” failed uprisings.

Those who don’t take risks should never be involved in making decisions

Why Behavioral Economics is BS

You either love Taleb or hate him for his attitude towards the people he disagrees with.

In “Skin in the Game” he takes it on behavioral economics and authors such as Richard Thaler, the father of behavioral economics and the author of “Misbehaving” and “Nudge“.

He says that Thaler’s and other social psychologists’ construct of “rational” makes no sense because you can’t decide on a desk what’s rational and what’s not.

For Taleb, rational is what makes you survive (and thus passes the Lindy effect test).
This what Taleb contests to behavioral economics:

  • Overestimating tail risks makes sense

Taleb says that it’s perfectly rational to overestimate some tail risks because you can’t consider them in isolation.

Driving after 2 glasses of wine once will not be extremely dangerous, but doing so every day is.

When you measure tail risks in the laboratory you only consider one tail risks at a time, and that’s why their conclusions are wrong.
Subjects are being rational in overestimating the risk because, chances are, they are likely already running several tail risks in their lives.

  • Mental accounting is correct

Taleb says that what “creepy interventionist” Thaler doesn’t get is that what he refers to as “mental accounting” is exactly what allows traders to survive.

Betting harder with money you won and being more conservative with your own money makes sense because that’s how you survive.

Thaler and other behavioral economists don’t get it because they see the world as a one-shot-game instead of a series of repeated trades.

My Note: 
I really enjoyed Talebs’ take on this one.
Yet, if he is trying to refute the idea that people are not rational, then I would have to vehemently disagree.

Minority Rule Is Destroying The West

In societies minorities can come to dictate the rules to the majority.

This usually happens because of asymmetry or because when the majority is either too flexible, too accommodating or too indifferent.

A case of asymmetry is between smokers and non-smokers.
A smoker can sit in a smoke-free area but a non-smoker cannot sit in a smoker area, so the non-smokers will prevail even if they are the minority.

However, this can become an issue when the minority prevails because it’s more aggressive or more intolerant.

It is the most intolerant person who imposes virtues on others precisely because of that intolerance

Taleb says that we need to be intolerant with intolerance. 

We need to be more than intolerant with some intolerant minorities. The West is currently in the process of committing suicide.

Employees Are Broken, Submissive Fellas

LOL I absolutely loved this part.

Taleb says that employees display submission by going through years of personal deprivation.
Givin up 9 hours of one’s time for years, every day is the equivalent of domestication.
And showing up on time every day is the sign of an obedient, housebroken dog.

The question, asks Taleb is whether you want to be a housebroken dog or a free wolf.
However, being a wolf comes with risk. Wolves who seek their own paths have skin in the game.

Also read:

The exceptions

There are a few employees who are not broken dogs though. 

Taleb talks about traders who bring in lots of money, but the same is true for any employee who is a huge asset for the company and for his boss.

Being great gives you leverage against bad bosses.

Virtue Signaling & Limousine Liberals

I couldn’t agree more with what Taleb says on virtue signaling from corporations and upper classes as tantamount to manipulations.

He says:

The widespread enthusiasm for Piketty was representative of the behavior of that class of people who loves to theorize and engage in false solidarity with the oppressed… While consolidating their privileges

And Krugman was one of the economists who raved about that book.

Taleb also says that it is immoral to be against the modern market system and not live in a cave in Afghanistan.
And it is much more immoral to claim virtues without fully living with its consequences. 

It’s intellectual Who Are Jealous of The Super Rich

Taleb says that it’s not the poor who are actually envious of the rich and it’s not the poor who first embrace communist movements.

It’s usually the bourgeois and the intellectuals and the clerical class who first embrace communism. 
Deep down, Taleb says, it’s because of jealousy.

Intellectuals like, say, Steglitz and Krugman, cannot stand that someone less smart than they are is also much richer.

Priceless.

The Idiocy of Naive Empiricism

You often hear people saying that you are more likely to die by X silly thing -ie.: coconut falling- than by terrorist attacks or Ebola outbreaks.

Taleb says that makes no sense.

People dying because of falling coconuts or people who die by drowning in their bathtub will never double from one year to the other -they are examples of mediocre stand-.

But the effects from events in extreme stand, say a huge virus outbreak or a series of terrorist attacks, can increase the death toll by several orders of magnitude. 

Quotes

This quote summarizes The Power Moves:

Don’t give crap, don’t take crap. But if someone starts to exercise power over you, exercise power over him

What is rational

What is rational is what allows the collective to survive for a long time

On scholarly papers:

Anyone who has submitted a scholarly paper knows that you raise the odds of acceptance by making it more complicated than necessary.

On skin in the game in the mafia:

In the orders of the mafia, it’s simple.
A made man, that is ordained, can be wacked if the capo suspects a lack of allegiance. With the transitory stay in the trunk of the car and the guaranteed presence of the boss at the funeral.

On turning down honors and awards (I loved this one, totally my philosophy): 

People who collect honors are hierarchy conscious and I abide by Cato’s injunctions: he preferred being asked why he didn’t have a statue rather than why he had one.

On intellectuals yet idiot (IYI) and Steven Pinker:

If he is a social scientist he uses statistics without knowing how they are derived, like Steven Pinker and psycholophasters in general.

And again on Pinker:

The science journalist Steven Pinker played that trick with the book “The Better Angels of Our Nature” (…) we find out he either didn’t understand his own numbers -actually he didn’t- or he had a story in mind and kept adding charts, not realizing that statistic isn’t about data but distillation, rigour and avoiding being fooled by randomness.
But no matter, the general public, and his state-worshipping IYI found it impressive.
For a while…

On groupthink and the circularity of the scientific system of references:

If you say something crazy you will be deemed crazy.
But if you create a collection of 20 people who set up an academy and say crazy things accepted by the collectivity now you have peer-reviewing.
Academia has a tendency of going unchecked for lack of skin in the game.

About rich people’s idiocy in overspending money on food:

We ended up victims of some complex experiments by a chef judged by some Michelin bureaucrats.
It would fail the Lindy effect: food does better through minute variations from Sicilian grandmother to Sicilian grandmother

Gold Nuggets

  1. The higher you go, the higher the risk to your reputation and the more scared you are of losing an argument -especially with an upstart-
  2. Putin has FU money and doesn’t need to be elected, that’s why he dominates all interactions
  3. Don’t take advice for those who give advice for a living -unless there is a penalty for their advice-
  4. Rich people are easier to scam
  5. Government intervention tends to remove skin in the game
  6. Skin in the game brings simplicity while bureaucrats who are far removed from the effects of their decisions prefer selling overly complex solutions
  7. Selling is often a no skin in the game business
  8. To discourage terrorists: carry the responsibility of their across family and generations. This way you remove some of the asymmetric advantages of people who don’t care about dying 
  9. The current rise of populism is a rebellion against no skin in the game politicians, semi-intellectuals with ivy-league degrees who want to tell us what to think
  10. People who don’t look the part are more likely to be better at what they do because they had to overcome more (social) adversities 
  11. Don’t listen to financial advisors talking about market returns: you can’t get the same returns as the market as by the time you have to pull out your returns will diverge from the market (but I wish Taleb had flashed this one better)

Your Takeaways

  • Become financially independent

People who are not financially independent also become morally dependent.
They have to fit the ethics of the organization they are (forced) to work for

  • Don’t get an assistant

Not having an assistant will force you to focus exclusively on the things you enjoy doing.

  • Read good books twice

Don’t get suckered into the BS of reading 4 books a day from Blinkist or 3x the speed on Audible.
Instead, Taleb says that because of the non-linear effects, learning is rooted in the repetition in complexity. Provided that a text has good content you’re better off reading it twice than reading a new one in the same time.

My Note:
This is an advice I’m already applying. I almost always listen to an audiobook twice now.

skin in the game book cover

Criticism

I need to preface this section by saying that albeit there are many entries here, I still loved the book.
As a rule of thumb, the better the book, the higher the standard to which I hold it.

“Before it was better” fallacy

I love Taleb and I love his classical knowledge.

At times though it feels like he reverts to a “before it was better” and to simplistic solutions of “let’s go back to how it was”.

For example, Taleb tells the story of a corrupt Persian judge flailed alive by the local king.
However, not only that doesn’t seem to be like a good example of justice, but it’s also not written anywhere that the king wasn’t himself a corrupt, SOB king -or the only corrupt party in that interaction-.

No mention to downsides of skin in the game

Taleb admits that skin in the game comes with conflict of interest.

I would have liked to see more on that.
And also a bit more on the exceptions to the rule as I can think of several situations where it’s best to make decisions without skin in the game -or at least, with only little skin in the game-.

Wide brush generalizations

Sometimes it feels like SITG, like some other previous Taleb’s book, over-generalizes about professions.
Sure some good journalists in the profession might have the right of feeling unjustly attacked. 

Sometimes presents unrealistic solutions

Taleb says the only solution to better research is forcing researchers to do research on their own spare time.

“That’s how I did it”, he says.

But thinking that because you did it in a certain way then others should do it the same way rarely leads to flexible systems.
And, in the case of Taleb, it means holding too high a bar for most people.

Society shouldn’t work in a way that worked for the top 1%.
Society should work in a way where average individuals and the bottom 50% can also contribute.

Survivorship bias (lindy effect)

Taleb makes the case that what survives is rational.

Yet I’m somewhat surprised that the man who introduced the idea of “fooled by randomness” hasn’t even thought that survival can also happen by chance.

For example, he says:

It is critical that is not just the books of ancient that are still around and have been filtered by Lindy, but that those populations who read them have survived too

Is he implying here that populations have survived because they heeded great books and wisdom?
That made no sense to me.
Furthermore, I’m not a big believer in this “Wisdom of the crowds” concept. Plenty of shitty books can hang around for a long time.

Are we largely collaborative?

Taleb mocks Dawkins, author of “The Selfish Gene“, but I haven’t seen a proper rebuttal of why the theory behind the selfish gene should be discarded.

He mentions something about Dawkins’ poor understanding of probability, but sure that doesn’t necessarily void Dawkins’ arguments does it?

I also agree that we are largely collaborative and that we overestimated the impact of wars in history.

But that doesn’t mean that we can’t also be selfish.

Taleb also says we underestimate the impact of trade, which went on even during wars and between theoretically incompatible societies (Christian Spain and Muslims).
Yet, he is talking about human societies during periods of great civilizations. Cavemen probably didn’t trade that much for millions of years.

Also read:

Miscellaneous criticism

  • Germany works well because it’s a federation: I’m not convinced. Plenty of federative countries don’t work. It’s more about culture
  • Making fun of social sciences and quoting philosophers for social dynamics doesn’t meet my (highly biased) approval
  • Reality is blind to looks: not really
  • Peace in Europe because of USA and URSS? Not really, URSS has been gone for 20 years now. It’s more because of the EU and, of course, “thanks” to nuclear devices

PROS

All the usual “pros” of Taleb’s work are present here.
The deep wisdom, the biting humor and also the frank, realistic analysis of society.

In “Skin in the Game” the best social analysis was on “limousine liberals”, albeit he doesn’t use that name.

Review

“Skin in the Game” is typical Nassim Taleb, and that’s why I loved it.

The usual wisdom, biting humor, and the typical irreverent yet realistic look into people and society.

I think that one of the reasons why I like Taleb, I think, is because we are somewhat similar.
We both have a certain disdain for the status that so many people chase in this world.
And we both are intolerant to cultural artifacts, social rules and… Of office hours.

Check the best books collection or get the book on Amazon

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