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Skin in the Game: Hidden Asymmetries in Daily Life (Incerto)

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#1 NEW YORK TIMES BESTSELLER • A bold work from the author of The Black Swan that challenges many of our long-held beliefs about risk and reward, politics and religion, finance and personal responsibility

In his most provocative and practical book yet,one of the foremost thinkers of our time redefines what it means to understand the world, succeed in a profession, contribute to a fair and just society, detect nonsense, and influence others. Citing examples ranging from Hammurabi to Seneca, Antaeus the Giant to Donald Trump, Nassim Nicholas Taleb shows how the willingness to accept one’s own risks is an essential attribute of heroes, saints, and flourishing people in all walks of life.

As always both accessible and iconoclastic, Taleb challenges long-held beliefs about the values of those who spearhead military interventions, make financial investments, and propagate religious faiths. Among his insights:

• For social justice, focus on symmetry and risk sharing. You cannot make profits and transfer the risks to others, as bankers and large corporations do. You cannot get rich without owning your own risk and paying for your own losses. Forcing skin in the game corrects this asymmetry better than thousands of laws and regulations.
• Ethical rules aren’t universal. You’re part of a group larger than you, but it’s still smaller than humanity in general.
• Minorities, not majorities, run the world. The world is not run by consensus but by stubborn minorities imposing their tastes and ethics on others.
• You can be an intellectual yet still be an idiot. “Educated philistines” have been wrong on everything from Stalinism to Iraq to low-carb diets.
• Beware of complicated solutions (that someone was paid to find). A simple barbell can build muscle better than expensive new machines.
• True religion is commitment, not just faith. How much you believe in something is manifested only by what you’re willing to risk for it.

The phrase “skin in the game” is one we have often heard but rarely stopped to truly dissect. It is the backbone of risk management, but it’s also an astonishingly rich worldview that, as Taleb shows in this book, applies to all aspects of our lives. As Taleb says, “The symmetry of skin in the game is a simple rule that’s necessary for fairness and justice, and the ultimate BS-buster,” and “Never trust anyone who doesn’t have skin in the game. Without it, fools and crooks will benefit, and their mistakes will never come back to haunt them.”

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You will never fully convince someone that he is wrong; only reality can.
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Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions.
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The curse of modernity is that we are increasingly populated by a class of people who are better at explaining than understanding,
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From the Publisher

Antifragile;Nassim Nicholas Taleb;business;economics;stocks;investments;decision making;leadership


	The Black Swan, Second Edition	Fooled by Randomness	Antifragile	The Bed of Procrustes	Incerto, Deluxe Box Set
	The most influential book of the past seventy-five years: a groundbreaking exploration of everything we know about what we don’t know, now with a new section called “On Robustness and Fragility.”	An investigation about luck–or more precisely, about how we perceive and deal with luck in life and business.	Through deep investigation and insight, Antifragile reveals how to thrive in an uncertain world.	With a rare combination of pointed wit and potent wisdom, Taleb plows through human illusions, contrasting the classical values of courage, elegance, and erudition against the modern diseases of nerdiness, philistinism, and phoniness.	The Incerto Series is an investigation of opacity, luck, uncertainty, probability, human error, risk, and decision making when we don’t understand the world. Makes the perfect gift for the perpetually curious.

Editorial Reviews

Review

Praise for Nassim Nicholas Taleb

“The problem with Taleb is not that he’s an asshole. He is an asshole. The problem with Taleb is that he is right.”—Dan from Prague, Czech Republic (Twitter)

“The most prophetic voice of all . . . [Taleb is] a genuinely significant philosopher . . . someone who is able to change the way we view the structure of the world through the strength, originality and veracity of his ideas alone.”—John Gray, GQ

“Taleb grabs on to core problems that others ignore, or don’t see, and shakes them like an attack dog on a leg.”—Greg from New York (Twitter)

“For my wife and me, Antifragile is an annual reread.”—Colle from Richmond, Virginia (Twitter)

“I read Antifragile four times. First, to get the wisdom to survive. Second, as a memorial statement for Fat Tony. Third, as Das Kapital with correct mathematics. Fourth, as ethics to learn a good way to die.”—Tamitake from Tokyo, Japan (Twitter)

“November . . . time for my annual reread of Antifragile.”—Johann from Vienna, Austria (Twitter)

“[Taleb writes] in a style that owes as much to Stephen Colbert as it does to Michel de Montaigne.”—The Wall Street Journal

About the Author

Nassim Nicholas Taleb spent twenty-one years as a risk taker before becoming a researcher in philosophical, mathematical, and (mostly) practical problems with probability. Although he spends most of his time as a flâneur, meditating in cafés across the planet, he is currently Distinguished Professor at New York University’s Tandon School of Engineering. His books, part of a multivolume collection called Incerto, have been published in forty-one languages. Taleb has authored more than fifty scholarly papers as backup to Incerto, ranging from international affairs and risk management to statistical physics. Having been described as “a rare mix of courage and erudition,” he is widely recognized as the foremost thinker on probability and uncertainty. Taleb lives mostly in New York.

Excerpt. © Reprinted by permission. All rights reserved.

Chapter 1

Why Each One Should Eat His Own Turtles: Equality in Uncertainty

Taste of turtle—Where are the new customers?—Sharia and asymmetry—There are the Swiss, and other people—Rav Safra and the Swiss (but different Swiss)

You who caught the turtles better eat them, goes the ancient adage.

The origin of the expression is as follows. It was said that a group of fishermen caught a large number of turtles. After cooking them, they found out at the communal meal that these sea animals were much less edible than they thought: not many members of the group were willing to eat them. But Mercury happened to be passing by—Mercury was the most multitasking, sort of put-together god, as he was the boss of commerce, abundance, messengers, the underworld, as well as the patron of thieves and brigands and, not surprisingly, luck. The group invited him to join them and offered him the turtles to eat. Detecting that he was only invited to relieve them of the unwanted food, he forced them all to eat the turtles, thus establishing the principle that you need to eat what you feed others.

A Customer Is Born Every Day

I have learned a lesson from my own naive experiences:

Beware of the person who gives advice, telling you that a certain action on your part is “good for you” while it is also good for him, while the harm to you doesn’t directly affect him.

Of course such advice is usually unsolicited. The asymmetry is when said advice applies to you but not to him—he may be selling you something, or trying to get you to marry his daughter or hire his son-in-law.

Years ago I received a letter from a lecture agent. His letter was clear; it had about ten questions of the type “Do you have the time to field requests?,” “Can you handle the organization of the trip?” The gist of it was that a lecture agent would make my life better and make room for the pursuit of knowledge or whatever else I was about (a deeper understanding of gardening, stamp collections, Mediterranean genetics, or squid-ink recipes) while the burden of the gritty would fall on someone else. And it wasn’t any lecture agent: only he could do all these things; he reads books and can get in the mind of intellectuals (at the time I didn’t feel insulted by being called an intellectual). As is typical with people who volunteer unsolicited advice, I smelled a rat: at no phase in the discussion did he refrain from letting me know that it was “good for me.”

As a sucker, while I didn’t buy into the argument, I ended up doing business with him, letting him handle a booking in the foreign country where he was based. Things went fine until, six years later, I received a letter from the tax authorities of that country. I immediately contacted him to wonder if similar U.S. citizens he had hired incurred such tax conflict, or if he had heard of similar situations. His reply was immediate and curt: “I am not your tax attorney”—volunteering no information as to whether other U.S. customers who hired him because it was “good for them” encountered such a problem.

Indeed, in the dozen or so cases I can pull from memory, it always turns out that what is presented as good for you is not really good for you but certainly good for the other party. As a trader, you learn to identify and deal with upright people, those who inform you that they have something to sell, by explaining that the transaction arises for their own benefit, with such questions as “Do you have an ax?” (meaning an inquiry whether you have a certain interest). Avoid at all costs those who call you to tout a certain product disguised with advice. In fact the story of the turtle is the archetype of the history of transactions between mortals.

I worked once for a U.S. investment bank, one of the prestigious variety, called “white shoe” because the partners were members of hard-to-join golf clubs for proto-aristocrats where they played the game wearing white footwear. As with all such firms, an image of ethics and professionalism was cultivated, emphasized, and protected. But the job of the salespeople (actually, salesmen) on days when they wore black shoes was to “unload” inventory with which traders were “stuffed,” that is, securities they had in excess in their books and needed to get rid of to lower their risk profile. Selling to other dealers was out of the question as professional traders, typically non-golfers, would smell excess inventory and cause the price to drop. So they needed to sell to some client, on what is called the “buy side.” Some traders paid the sales force with (percentage) “points,” a variable compensation that increased with our eagerness to part with securities. Salesmen took clients out to dinner, bought them expensive wine (often, ostensibly the highest on the menu), and got a huge return on the thousands of dollars of restaurant bills by unloading the unwanted stuff on them. One expert salesman candidly explained to me: “If I buy the client, someone working for the finance department of a municipality who buys his suits at some department store in New Jersey, a bottle of $2,000 wine, I own him for the next few months. I can get at least $100,000 profits out of him. Nothing in the mahket gives you such return.”

Salesmen hawked how a given security would be perfect for the client’s portfolio, how they were certain it would rise in price and how the client would suffer great regret if he missed “such an opportunity”—that type of discourse. Salespeople are experts in the art of psychological manipulation, making the client trade, often against his own interest, all the while being happy about it and loving them and their company. One of the top salesmen at the firm, a man with huge charisma who came to work in a chauffeured Rolls Royce, was once asked whether customers didn’t get upset when they got the short end of the stick. “Rip them off, don’t tick them off” was his answer. He also added, “Remember that every day a new customer is born.”

As the Romans were fully aware, one lauds merrily the merchandise to get rid of it.

The Price of Corn in Rhodes

So, “giving advice” as a sales pitch is fundamentally unethical—selling cannot be deemed advice. We can safely settle on that. You can give advice, or you can sell (by advertising the quality of the product), and the two need to be kept separate.

But there is an associated problem in the course of the transactions: how much should the seller reveal to the buyer?

The question “Is it ethical to sell something to someone knowing the price will eventually drop?” is an ancient one—but its solution is no less straightforward. The debate goes back to a disagreement between two stoic philosophers, Diogenes of Babylon and his student Antipater of Tarsus, who took the higher moral ground on asymmetric information and seems to match the ethics endorsed by this author. Not a piece from both authors is extant, but we know quite a bit from secondary sources, or, in the case of Cicero, tertiary. The question was presented as follows, retailed by Cicero in De Officiis. Assume a man brought a large shipment of corn from Alexandria to Rhodes, at a time when corn was expensive in Rhodes because of shortage and famine. Suppose that he also knew that many boats had set sail from Alexandria on their way to Rhodes with similar merchandise. Does he have to inform the Rhodians? How can one act honorably or dishonorably in these circumstances?

We traders had a straightforward answer. Again, “stuffing”—selling quantities to people without informing them that there are large inventories waiting to be sold. An upright trader will not do that to other professional traders; it was a no-no. The penalty was ostracism. But it was sort of permissible to do it to the anonymous market and the faceless nontraders, or those we called “the Swiss,” some random suckers far away. There were people with whom we had a relational rapport, others with whom we had a transactional one. The two were separated by an ethical wall, much like the case with domestic animals that cannot be harmed, while rules on cruelty are lifted when it comes to cockroaches.

Diogenes held that the seller ought to disclose as much as civil law requires. As for Antipater, he believed that everything ought to be disclosed—beyond the law—so that there was nothing that the seller knew that the buyer didn’t know.

Clearly Antipater’s position is more robust—robust being invariant to time, place, situation, and color of the eyes of the participants. Take for now that

The ethical is always more robust than the legal. Over time, it is the legal that should converge to the ethical, never the reverse.

Hence:

Laws come and go; ethics stay.

For the notion of “law” is ambiguous and highly jurisdiction dependent: in the U.S., civil law, thanks to consumer advocates and similar movements, integrates such disclosures, while other countries have different laws. This is particularly visible with securities laws, as there are “front running” regulations and those concerning insider information that make such disclosure mandatory in the U.S., though this wasn’t so for a long time in Europe.

Indeed much of the work of investment banks in my day was to play on regulations, find loopholes in the laws. And, counterintuitively, the more regulations, the easier it was to make money.

Equality in Uncertainty

Which brings us to asymmetry, the core concept behind skin in the game. The question becomes: to what extent can people in a transaction have an informational differential between them? The ancient Mediterranean and, to some extent, the modern world, seem to have converged to Antipater’s position. While we have “buyer beware” (caveat emptor) in the Anglo-Saxon West, the idea is rather new, and never general, often mitigated by lemon laws. (A “lemon” was originally a chronically defective car, say, my convertible Mini, in love with the garage, now generalized to apply to anything that moves).

So, to the question voiced by Cicero in the debate between the two ancient stoics, “If a man knowingly offers for sale wine that is spoiling, ought he to tell his customers?,” the world is getting closer to the position of transparency, not necessarily via regulations as much as thanks to tort laws, and one’s ability to sue for harm in the event a seller deceives him or her. Recall that tort laws put some of the seller’s skin back into the game—which is why they are reviled, hated by corporations. But tort laws have side effects—they should only be used in a nonnaive way, that is, in a way that cannot be gamed. As we will see in the discussion of the visit to the doctor, they will be gamed.

Sharia, in particular the law regulating Islamic transactions and finance, is of interest to us insofar as it preserves some of the lost Mediterranean and Babylonian methods and practices—not to prop up the ego of Saudi princes. It exists at the intersection of Greco-Roman law (as reflected from people in Semitic territories’ contact with the school of law of Berytus), Phoenician trading rules, Babylonian legislations, and Arab tribal commercial customs and, as such, it provides a repository of ancient Mediterranean and Semitic lore. I hence view Sharia as a museum of the history of ideas on symmetry in transactions. Sharia establishes the interdict of gharar, drastic enough to be totally banned in any form of transaction. It is an extremely sophisticated term in decision theory that does not exist in English; it means both uncertainty and deception—my personal take is that it means something beyond informational asymmetry between agents: inequality of uncertainty. Simply, as the aim is for both parties in a transaction to have the same uncertainty facing random outcomes, an asymmetry becomes equivalent to theft. Or more robustly:

No person in a transaction should have certainty about the outcome while the other one has uncertainty.

Gharar, like every legalistic construct, will have its flaws; it remains weaker than Antipater’s approach. If only one party in a transaction has certainty all the way through, it is a violation of Sharia. But if there is a weak form of asymmetry, say, someone has inside information which gives an edge in the markets, there is no gharar as there remains enough uncertainty for both parties, given that the price is in the future and only God knows the future. Selling a defective product (where there is certainty as to the defect), on the other hand, is illegal. So the knowledge by the seller of corn in Rhodes in my first example does not fall under gharar, while the second case, that of a defective liquid, would.

As we see, the problem of asymmetry is so complicated that different schools give different ethical solutions, so let us look at the Talmudic approach.

Rav Safra and the Swiss

Jewish ethics on the matter is closer to Antipater than Diogenes in its aims at transparency. Not only should there be transparency concerning the merchandise, but perhaps there has to be transparency concerning what the seller has in mind, what he thinks deep down. The medieval rabbi Shlomo Yitzhaki (aka Salomon Isaacides), known as “Rashi,” relates the following story. Rav Safra, a third-century Babylonian scholar who was also an active trader, was offering some goods for sale. A buyer came as he was praying in silence, tried to purchase the merchandise at an initial price, and given that the rabbi did not reply, raised the price. But Rav Safra had no intention of selling at a higher price than the initial offer, and felt that he had to honor the initial intention. Now the question: Is Rav Safra obligated to sell at the initial price, or should he take the improved one?

Such total transparency is not absurd and not uncommon in what seems to be a cutthroat world of transactions, my former world of trading. I have frequently faced that problem as a trader and will side in favor of Rav Safra’s action in the debate. Let us follow the logic. Recall the rapacity of salespeople earlier in the chapter. Sometimes I would offer something for sale for, say, $5, but communicated with the client through a salesperson, and the salesperson would come back with an “improvement,” of $5.10. Something never felt right about the extra ten cents. It was, simply, not a sustainable way of doing business. What if the customer subsequently discovered that my initial offer was $5? No compensation is worth the feeling of shame. The overcharge falls in the same category as the act of “stuffing” people with bad merchandise. Now, to apply this to Rav Safra’s story, what if he sold to one client at the marked-up price, and to another one the exact same item for the initial price, and the two buyers happened to know one another? What if they were agents for the same customer?

Product details

Publisher ‏ : ‎ Random House; Illustrated edition (February 27, 2018)
Language ‏ : ‎ English
Hardcover ‏ : ‎ 304 pages
ISBN-10 ‏ : ‎ 042528462X
ISBN-13 ‏ : ‎ 978-0425284629
Item Weight ‏ : ‎ 1.25 pounds
Dimensions ‏ : ‎ 6.43 x 1.06 x 9.49 inches

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Nassim Nicholas Taleb

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Nassim Nicholas Taleb spent more than two decades as a risk taker before becoming a full-time essayist and scholar focusing on practical, philosophical, and mathematical problems with chance, luck, and probability. His focus in on how different systems handle disorder.

He now spends most of his time in the intense seclusion of his study, or as a flâneur meditating in cafés. In addition to his life as a trader he spent several years as an academic researcher (12 years as Distinguished Professor at New York University's School of Engineering, Dean's Professor at U. Mass Amherst).

He is the author of the Incerto (latin for uncertainty), accessible in any order (Skin in the Game, Antifragile, The Black Swan, The Bed of Procrustes, and Fooled by Randomness) plus a technical version, The Technical Incerto (Statistical Consequences of Fat Tails). Taleb has also published close to 55 academic and scholarly papers as a backup, technical footnotes to the Incerto in topics ranging from Statistical Physics and Quantitative Finance to Genetics and International affairs. The Incerto has more than 250 translations in 50 languages.

Taleb believes that prizes, honorary degrees, awards, and ceremonialism debase knowledge by turning it into a spectator sport.

""Imagine someone with the erudition of Pico de la Mirandola, the skepticism of Montaigne, solid mathematical training, a restless globetrotter, polyglot, enjoyer of fine wines, specialist of financial derivatives, irrepressible reader, and irascible to the point of readily slapping a disciple." La Tribune (Paris)

A giant of Mediterranean thought ... Now the hottest thinker in the world", London Times

"The most prophetic voice of all" GQ

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Barren Wuffett

About the real world: think in dynamics, not statics. Think in terms of interactions as well as actions.

Reviewed in the United States on February 28, 2018

Verified Purchase

[TLDR] This practical and provocative book is mostly about:
1) Uncertainty and the reliability of knowledge (b/s detection, theory vs practice, cosmetic vs true expertise, etc).
2) Symmetry in human affairs (fairness, justice, responsibility, reciprocity). e.g.: to get the rewards you must also get some of the risks; not let others pay for your mistakes.
3) Information in transactions
4) Rationality in complex systems.

The main aspect of "Skin in the game" (SITG) - a phrase probably made popular by Warren Buffet - is, in Taleb's view, about matching disincentives to incentives. For Taleb, SITG isn’t purely incentives (e.g.: just having a share of some benefits). It is SYMMETRY in both UPSIDE and DOWNSIDE. Taleb makes this important aspect extremely explicit since the very beginning of the book (page-4).

If some actors pocket rewards from a policy they enact or support (without accepting risks/downside), various economists consider it to be a problem of "missing incentives". In contrast, for Taleb, the problem is more fundamentally one of asymmetry: one actor gets the rewards, others are stuck with the risks. Forcing SITG corrects this asymmetry (you cannot make profits and transfer the risks to others as some large corporations do; bankers being bailed out by the public are the antithesis of SITG). Actors, per Taleb, must always bear a symmetric cost when they fail the public (this is SITG!). A fund manager that gets a percentage on wins, but no penalty for losing is incentivised to gamble with his clients funds. Bearing no downside for one's actions, means that one has no "Skin In The Game"

A few insights from the book:

- Having exposure to the real world, with upside and downside, is the best (often the only) way to learn.

- EXPOSURE TO REAL WORLD CONSEQUENCES beats Intellectualizing. Employed intellectuals, professional academics, or bureaucrats are rarely in love with thoughts & ideas. They are primarily in love with orthodoxies in their respective fields.

- There are some risks we just cannot afford to take (e.g.: systemic risks). There are some risks we cannot afford to NOT take.

- Intelligentsia have no downside for their actions (no SITG).

- There is no evolution without skin in the game. Note how most academics (Economists, Psychologists, Sociologists, Social Scientists, etc) can be wrong for so long, while MOST businesses cannot (except the likes of Goldman Sachs and others, provided the Government bails them out when they mess up)

- Government intervention, in general, tends to remove SITG, to weaken robustness in complex (economic, social, financial) systems.
- Interventionists don't suffer the consequences of their bad actions, policies, etc

- About the real world: think in dynamics, not statics. Think in high, not low dimensions. Think in terms of interactions as well as actions.

- SITG doesn’t literally mean an eye for an eye. It just means there is a downside large enough (for individuals) to protect the overall system.

- We know far more what is bad than what is good. Therefore, when treating others: no bad actions > good actions as a rule.

- Universal behavior is great on paper, disastrous in practice. Why? We are local and practical animals, sensitive to scale. The small is not the large; the tangible is not the abstract; the emotional is not the logical. Most behaviors do not scale. Family members are not friends and random people on the street are not friends. What's worse: the general and abstract tend to attract self-righteous psychopaths.

- Avoid taking advice from someone who gives advice for a living, unless there are also penalties for their bad advice.

- The doer wins by doing, not convincing. e.g. if someone is trying to convince you how cool their life is then it is not cool

- How often you forecast correctly is not so important. What matters more is which outcomes you can forecast correctly. The payoffs matter more.

- SITG can help with solving black swan problems. That which has survived over time, with SITG, has proven its robustness.

- People with SITG bring simplicity. People with SITG have no benefit for added complexity. Therefore be careful of people without SITG proposing complex solutions for a problem. They have incentive to seem sophisticated instead of just solving the actual problem

- The average behavior of the market participant will not allow us to understand the general behavior of the market.

- Careful of people who want more regulations as they have incentive to complexify it, so they are more needed.

- People can be largely collaborative except when institutions get in the way.

- Whenever there is a mismatch with "bonus period" (e.g.:1 year) and "statistical blowup" (e.g.:10 years) people will transfer as much risk as possible to the future (get the bonus in 1yr, worry about blowing up much later)

- Learning is rooted in repetition and convexity, reading one book twice is often more useful than two books once.

- Professional reviewers tend to want to impress other reviewers while normal people just say their opinions, so be careful of professional reviewers as they have a lack of SITG

- Freedom entails risks, real skin in the game. Freedom is never free

- Data does not imply rigor

- Never pay for complexity of presentation when all you need is results.

- Change for the sake of change is frequently the enemy of progress (inverse of the Lindy effect)

- You can criticize what a person said or what a person meant. One is honorable, the other is embarrassing

- Virtue is what you do when nobody is looking. Virtue is not something you advertise.

- Survival comes first, truth, understanding, and science later.

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Chris Plemmons

Intellectual Read

Reviewed in the United States on October 25, 2023

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All of Taleb's book require a bit of thinking to read, but I find his thinking insightful and always come away with new perspectives of seeing. Which in the end, is what learning is all about. I would highly recommend reading the entire Incerto series..... but not all at once. Each book needs a little time to sink in.

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Adam Tarnawski

(Pseudo)Intellectual vomit

Reviewed in the United States on November 4, 2020

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Certainly, many of his remarks or ideas are absolutely true, yet short of brilliant and certainly he wasn't the first to make them. His ego, however, is completely limitless. The book can be summed up by one word: RANT. But I prefer to call it a vomit.

It's a collection anecdotes, remarks, thoughts. A lot of breadth with little depth. Far from philosophical as he claims. But let's look at some "brilliant" quotes of his:

Quote 1:
"And it was not because pagans had an intellectual deficit: in fact, my heuristic is that the more pagan, the more brilliant one’s mind, and the higher one’s ability to handle nuances and ambiguity. Purely monotheistic religions such as Protestant Christianity, Salafi Islam, or fundamentalist atheism accommodate literalist and mediocre minds that cannot handle ambiguity".

As an atheist (so no skin in the game) I can only say that it is Taleb who can't handle ambiguity. This is one if his many remarks fitting into the theme: "everything ancient/old is smart, everything new is stupid". Historically most people didn't have much choice when it comes to religion. Once conquered you had to fit in. When Poland adopted Christianity in AD 966 it's not like everyone suddenly became less sophisticated. You can argue that if one has freedom to choose and opts for paganizm or a monotheistic religion, then there are some underlying psychological causes. But there is no data to support that and it's ironic that he is making such a baseless claim while mocking other for doing the same thing.

Quote 2:
"Another attribute of decentralization, and one that the “intellectuals” opposing an exit of Britain from the European Union (Brexit) don’t get".

Ok, so if you doubt an overwhelmingly positive effect of Brexit on UK future, then you are an "intellectual". You think you will find any deeper argument to support that? Nope.

Quote 3:
"Understanding how the subparts of the brain (say, neurons) work will never allow us to understand how the brain works."
This is exactly how science works. Dissect the problem into smaller parts or oversimplified model and gradually add complexity and interactions.

Quote 4:
"Understanding the genetic makeup of a unit will never allow us to understand the behavior of the unit itself"
That's a very bold statement given the fact that our knowledge of genetics is still in infancy. Of course the author doesn't provide an alternative approach.

Quote 5:
"Those who use foul language on social networks (such as Twitter) are sending an expensive signal that they are free—and, ironically, competent."

No, you are not signalling competence by using foul language. If this were true, than people from the lowest tiers of society should be the smartest, right? (A recurring theme in this book)

Quote 6:
"Ironically, in my debates, I’ve seen numerous winners of the so-called Nobel in Economics (the Riksbank Prize in Honor of Alfred Nobel) concerned about losing an argument. I noticed years ago that four of them were actually concerned that I, a nonperson and trader, publicly called them frauds."

You can often read in this book that everyone is an idiot, fraud, etc. Only Taleb brings light! If they are "frauds" then why does it make him so proud that they care about his opinion at all? (we don't know if they actually care). What he fails to understand is that he is a NOBODY. A premier league football team should not play with a local amateur team. There are always chances that they lose. They might have a bad day or their opponents style is non-conservative. From the cost-benefit aspect they have everything to lose but nothing to win. Their amateur opponents, however, are in an opposite situation. They have everything to win and nothing to lose. That's why they don't want to engage with Taleb.

Quote 7:
"The deprostitutionalization of research will eventually be done as follows. Force people who want to do “research” to do it on their own time, that is, to derive their income from other sources. Sacrifice is necessary. It may seem absurd to brainwashed contemporaries, but Antifragile documents the outsized historical contributions of the nonprofessional, or, rather, the non-meretricious. For their research to be genuine, they should first have a real-world day job, or at least spend ten years as: lens maker, patent clerk, Mafia operator, professional gambler, postman, prison guard, medical doctor, limo driver, militia member, social security agent, trial lawyer, farmer, restaurant chef, high-volume waiter, firefighter (my favorite), lighthouse keeper, etc., while they are building their original ideas."

Taleb often expresses this simplistic view of the world based on historic examples of people who came up with brilliant inventions in their spare time (e.g. Einstein was a patent clerk in Germany). He completely overlooks the fact that non-theoretical research requires tons of resources - financial, technical and intellectual. Something that cannot be conducted in spare time or in your backyard.

"If you hear advice from a grandmother or elders, odds are that it works 90 percent of the time. On the other hand, in part because of scientism and academic prostitution, in part because the world is hard, if you read anything by psychologists and behavioral scientists, odds are that it works at less than 10 percent, unless it is has also been covered by the grandmother and the classics, in which case why would you need a psychologist?"

What if your grandmother is an idiot? How can you tell if she is or not an idiot? Are you allowed to question her wisdom if you think she is? Or are you nevertheless obligated to follow her advise? This is as intellectually shallow as you can get. His enchantment with folk wisdom is prevalent across the book.

There are tons of similar nonsense in his book but I only selected a few from the first half. I wanted to recommend some alternatives at the end but it's even hard to say what Taleb's book is about. The term "Skin in the game" refers to the idea that you should be invested in your decisions by having your skin in it. A very old and obvious concept. If you are tasked with making risky decisions, you yourself should partake in a win or loss. But the book touches on many topic, mostly unrelated with the main concept of the book, thus the term VOMIT.

Read at your own peril.

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Ajay Sabharwal

Taleb has Skin in the Game

Reviewed in India on April 29, 2018

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A fair and accurate review of Nassim Nicholas Taleb’s Skin in the Game: Hidden Asymmetries in Daily Life could not be limited to analyzing the text of the 250-odd pages of the book that released in late February of 2018. To understand the origins of Taleb’s idea of skin in the game, one must look back to the last chapters of his previous book, Antifragile (2012). In Antifragile, Taleb argued about the novel idea of certain systems and their ability to gain from volatility, randomness, and being under stress as opposed to breaking as a result of being fragile. It was in Book VII of Antifragile where Taleb introduced his idea of skin in the game and how bankers, interventionists, academics, journalists and bureaucrats avoid facing the negative consequences of their actions, while still benefiting from the potential upside. For example, Taleb has spoken against what he calls the ‘Bob Rubin trade’. The Bob Rubin trade is defined by, say a Treasury Secretary or a Goldman Sachs banker (Rubin was both) or other individuals with enough agency to manage a system, who end up neglecting their responsibilities, weakening the system and crying ‘Black Swan.’ and when crisis strikes, calls. In a sense, rather than taking the blame for their actions (or omissions) they blame the entire thing on unforeseeable circumstances that were completely out of their control. Thus, as the stance of those in the ‘Bob Rubin trade’ towards society lacks symmetrical incentives with proportional upsides and downsides, they do not have skin in the game. Sowing seeds of the next book in the previous, is commonplace in Taleb’s view of presenting the entire Incerto collection as one series rather than separate books. A sense of continuation prevails which leads the reader to gain more depth into the issues covered by Taleb.

As a part of Skin in the Game, Taleb explores the idea of disincentive undesirable behavior by enabling decisions makers to be more accountable by exposing them to the negative consequences of their actions. Bankers, bureaucrats, journalists and academicians seem natural examples for such cases, and Taleb seems to have great contempt for these career professionals. Such a tendency, according to Taleb, stems from a natural desire for what is beneficial for society or the public good.

In a world where leftist academics and journalists criticize Wall Street bankers and politicians for perpetuating inequality, Taleb’s demand is not for equality, but instead, for symmetry. “Taleb argues for decision makers to be held accountable by exposing them to the downsides of their actions. Thus, his approach is to preserve the market place and to not kill it with regulations but instead to make sure the rules are same for everyone. The old ‘equality of opportunity’ requires a base to build on, which Taleb says is symmetry in terms of incentives or disincentives. Once incentives are aligned with actions and the downside is inescapable, economic systems will become more robust. Thus, those with skin in the game, will strive to make the system more efficient, because their incentives are aligned that way. For example, someone who spends billions of dollars on hardware to mine bitcoin wouldn’t want to wreck the blockhain to gain just one block valued at a minuscule fraction of the investment. Having skin the game, thus ensures ethical robustness. As far as the question of inequality resulting from such a symmetrical system is concerned, Taleb finds it tolerable. Why? Because it is no longer because of systemic faults but because an entity might have proposed a better deal or worked on a better technology.

Thus, Taleb kick starts the discussion on something that has been lacking a mention in the academic or journalistic world for a long time — the morality of capitalism. Taleb isn’t against capital creation but against rent-seeking. His broader point is that real value creation is not possible without skin in the game, i.e. being exposed to the downside as much as one can gain from the upside. Thus, society can accept it without bearing the burden for the costs of the actions of others, such as bankers or lobbyists. This, cleanses the system of ethically negligent practices which in turn, presents a permissible form of capitalism.

In the introduction, Taleb mentions the story of the Greek mythological creature, Antaeus to make the point that keeping contact with the ground is essential. This forms the beginning of the skin in the game argument. One can only claim to have skin in the game if one is constantly in touch with the ground. Taleb’s tendency to mention mythical figures is not lost in Skin in the Game. Indeed, the classic example for the central argument in Antifragile was that of another Greek legend/myth — the Hydra. Though many IYI journalists have criticized this as anecdotal and mythical they fail to realize what Taleb mentions in the The Bed of Procrustes (2010) and at the beginning of the fifteenth chapter of the book — he says that “Mathematicians think in symbols, physicists in objects, philosophers in concepts, geometers in images, jurists in constructs, logicians in operators, writers in impressions, and idiots in words.” Taleb’s insistence on mythology does not have as much to do with his religious inclination as it has to do with the fact that many new concepts that he brings to the table are lost out as a result of modernity. These concepts however are in abundance in antiquity even when they lack a proper word for them — for example, antifragility and Hydra. Thus, it is not just permissible but encouraging that Taleb, as a philosopher, brings in concepts, the narratives or examples for which are completely lacking both in modernity and in the thinking of modern IYI journalists.

Taleb further extends Hammurabian principle of an eye for an eye to the Torah and Kant and explains how it is the same principle of symmetrical action. While the likes of Gandhi would disagree with ‘eye for an eye’ but agree with the Rabbi’s interpretation of the Torah as “do unto others as you want them to do to you” Taleb points that it is the same principle that has been mellowed down through the ages. The symmetrical application of laws, (and metaphorical rather than literal interpretation of ‘eye for an eye’) has been at the core of any system in any country dispensing justice. It has been, in fact the bedrock of civilization.

Taleb furthers his argument for symmetry by suggesting that war mongers have existed in the past but those who advocated war were bound to be most effected by it. Warmongers in medieval or classical times lead from the front in the battlefield, as opposed to modern-day journo-academic war mongers in the West who face no consequences whether they advocate invasion in Iraq or Libya or Syria for that matter. He then extends the argument to highlight the asymmetrical information problem in making sales, such as that of the ‘lemons’ or second-hand cars.

Taleb suggests that the seller must reveal all that he knows to ensure a level playing field and not restrict himself to what the law requires him to reveal. Ethics, Taleb says are robust, as compared to the law, which he rightly suggests, become restrictive in terms of jurisdiction or in terms of practice (See: Expensive and shady lawyers bending or fixing the law). Taleb says that one can either give advice or sell but cannot do both at the same time. In recalling classical Roman wisdom, he says that by pitching the product’s benefits one is longer giving genuine advice because the interests of the seller cannot be aligned with those of the potential buyer. This asymmetry in information or the seller’s lack of skin in the game is what makes the deal unfavourable for the buyer who will never get to ascertain the true value or the proverbial ‘lemon’. In such a case, the most credible supporter for the product being sold becomes someone who truly has skin in the game, i.e. a real customer. Thus, Taleb, who objects to such unethical practices in the marketplace takes the classical ‘ethical way’ of approaching the economy in opposition to the modern approach to political economy.

In rejecting more aspects of modernity, Taleb is keen to denounce universality. Apart from rejecting universal behaviour which doesn’t work beyond paper, he also rejects political universalism or the idea that political beliefs or inclinations can be stretched out to scale. He draws from Geoff and Vince Graham who say –

“I am, at the fed level, Libertarian;

at the state level, Republican;

at the local level, Democrat;

at the family and friends level, a socialist.”

Even though at first glance this may sound a bit counter intuitive, it is rooted in reality. ‘How can someone been a Libertarian, Republican and socialist at the same time?’ one may ask. The answer lies in having skin in the game. Even those most shrewd businessmen who do not want to give up even a single extra penny to their clients or suppliers or in taxes could still be open to splurging a lot more on family and friends. Why? Skin in the game. They tend to care for their parents, children and spouse, but may not want to have their skin in someone else’s game in a distant part of the country. The group of which one is a part in a given situation, at a given time would impact their behavior towards other group members and robust political system would not attempt to change these behavioral impulses but instead, aim at incorporating them within the system.

Though Taleb warns against having your skin in the game of others, he does say that this cannot always be escaped. This is where he brings in the question of the most intolerant minority. This group, though small is not willing to change its preferences and if it is not too inconvenient for other groups to accept the demands of this sizable minority, they will eventually be imposed on virtually the entire population. In short, the most intolerant minority wins. Halal is the preferred in many parts of Europe despite the percentage of Muslims being in single digits. In the same way, a small group can impact politics by being on one extreme end, by making sure that others vote for their preference whereas they never shift their own. These minorities ensure that you end up following their rules because you really don’t have many of your own, thus ensuring that they end up winning. While it is possible that an intolerant minority can bring about positive changes in a society, it is equally possible that it forces negative changes as well. Hence, Taleb argues against being tolerant of intolerant forces.

Having brought in mythological examples to explain certain new (but old and forgotten) concepts, Taleb doesn’t shy away from writing three chapter solely dedicated to religion and skin in the game apart from touching upon the most intolerant minorities (which is not about religion in itself). Taleb argues against equating all religions at the same level suggesting the differences in terms of how the worshipers view their respective religions and how they have evolved over time. A proponent religion, he denounces those who denounce religion by claiming that they indulge in some other kind of ritualistic practice which is no different from how the old regions were practiced. In fact, he says that skin in the game is essential for worshipers in the traditional sense. Just as he has argued earlier in the book that ideologies or beliefs without the willingness to fight for them are useless, in the same way Taleb claims that religious beliefs without sacrifice or fasting is nothing more than virtue signalling. This doesn’t hold up for real worshipers for the gods, he says, reject cheap signalling. In the chapter on the Pope, Taleb tacitly suggests that when it comes to the pope’s having his life on the line (or skin in the game) it becomes obvious that the priority isn’t to look up to the lord and pray for a longer life but to rush to the doctor or the hospital. Skin in the game changes the attitude or approach one takes to life and death and god, even if one is the pope, himself.

Taleb’s discourse on symmetry in daily life would be incomplete if it were to only mention religion but not virtues and ethics separately. With respect to virtues, he takes the old road — the path described by the ancients; that it is only virtuous to act in a certain way if it is not being done for show. It is when no one is watching, when someone can truly be virtuous. Standing for certain values in real life can come at a great cost to the individual (or a group) and thus requires a lot of courage and courage, Taleb is correct in pointing out, cannot be faked. Why? Because to practice courage in the real world (and while not faking it) you need to have skin in the game (or better still, soul in the game). Thus, even having strong opinions about something are completely irrelevant unless someone is exposed to the risks of holding that opinion. A decent example is that of Thatcherites before it was popular to be one. This sort of approach to virtues also stems from Taleb’s ardent support for a classical way of thinking.

Being an adherent of classic thought, it is apparent that Taleb would value tradition (which is something that can be drawn from his past works as well as his tweets). His citation of the Lindy effect, time and again, is not surprising. As per the Lindy effect, the longer something has been around, the higher its probability to stick around longer. The bible for example, which has been around for two millennia is bound to be around two more millennia later as compared to a recent murder mystery. Drawing from Antifragile, and considering time to be the greatest stress inducer, one can argue that those institutions, whether they are books, religions or ways of structuring the economy or a political system, that have stood the test of time will only have a stronger chance to be able to persevere in the future.

In a larger move away from modernity, Taleb has been able to create a system of thinking which looks at issues from different perspectives. While most modern philosophers look at an issue from one point of view, say economic, political, pragmatic or ethical, Taleb reaches back to the classic period in creating a system of thinking, (with all of Incerto and not just SITG) which brings together different ways in which one can view risk and related systems of symmetry. Thus, he encapsulates ethical, political, economic and practical arguments to connect to and build the system of thinking. Taleb’s work isn’t bereft of any way of thinking that may be remotely connected, let alone instrumental in dealing with the matters he takes up. So, unlike those political philosophers who disregard morality or those ethical philosophers who disregard economic pragmatism, Taleb is able to satisfy all paradigms by the system of thinking he has developed. In that Taleb’s approach is robust. Once can assume it will stand the test of time.

Skin in the game is also required for, (as we learn form Taleb) true learning. Taleb reverts to Roman times again to recall the principle of ‘pathemata mathemata’ — there can be no true learning without pain. In broader terms, one must suffer through the consequences of one’s actions to be learn about the real world, which can only be possible with skin in the game. Without being exposed to a real downside there can be no possible pain, which is necessary for the real kind of learning — the sort that Taleb wen through. (Taleb has been an options trader for over twenty one years before becoming an essayist.)

Towards the end, Taleb brings the Incerto story to full circle with the chapters on the logic of risk taking and being rational about rationality. The larger take away from this is that there must be distinction between rationality and logic. Preliminary logical apparatus cannot be used to do away with reasonable approach to problems in the real world. Just as the prisoner’s dilemma cannot be an ideal as a model to test the interactions between a parent and an offspring, one cannot deduce simply from logical statements or the use of logic to suggest what is wise. And why? Because we have more skin in the game in matters such as personal relationships. As individuals are more invested in terms of personal bonds or emotions, to suggest that cold logic will always prevail is almost irrational. To know when to use logic and when not to is a mark of rationality, which one can only know by how much skin one has in a particular game.

This review began by suggesting that the origins of skin in the game can be found at least six years before, in the epilogue of Taleb’s previous book. It would only be a fitting ending to this review if it could be argued that Taleb’s approach to skin in the game does not end with the book itself. He makes a genuine attempt to get those who have lacked skin in the game for long to be forced to face the consequences of their actions. In this post on his Medium blog, similar to many others over Twitter, Taleb calls out some journalists who have been reviewing his books. Though it could be argued by many that he is not open to other opinions or cannot take criticism or is arrogant, these arguments would only hold if he is wrong. Irrespective, Taleb has been able to ensure one thing — these journalists now have skin in the game. They could previously review a book or criticize a piece of work or a politician without being challenged on what they said. They stood to lose nothing even if their reviews or reports were factually or logically wrong. What Taleb has made sure of, is that even if this class of journalists is upset with him (and it does not seem that Taleb cares one bit about it) he has forced them to take cognizance of their mistakes. He makes sure that those ‘impartial judges’ in the mainstream media are knocked off their perches of intellectual superiority even if they don’t part with a chunk of their pay packages.

It is unlikely that charlatans in the media or academia would lose out financially because they have been wrong time and again, or that Goldman Sachs will file for bankruptcy anytime soon but Taleb’s position says more about him more than about those he disagrees with. The line of thinking developed by Taleb suggests the opinions don’t matter if you don’t have skin in the game and that courage cannot be faked. The way Taleb takes on the mainstream media, bankers, bureaucrats and professors shows his skin in the game, more than anything else. He is willing to take the risk of alienating himself from these ecosystems just by calling out their BS. In that Taleb is courageous and it is in that he has skin in the game. This volume, just like all others by Taleb, is not to be taken as a theoretical framework with a practical approach but it is Taleb’s actions that are to be understood with the approach put forth in this book.

52 people found this helpful

Harry

Wanted to read it.

Reviewed in India on October 13, 2023

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Taleb is one of the best

Anand

His best book since Fooled By Randomness

Reviewed in India on April 30, 2018

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Book review: Skin In The Game by Nassim Taleb

Taleb is arrogant in how he writes. Writers mostly write for themselves, but Taleb takes it a level further by taking perverse pride in being inscrutable. Reading Taleb is like watching Kamal Haasan movies – there’s substance, but there’s always a Guna lurking around the corner.

If you can get past the above, Taleb is worth reading because he illustrates concepts which are significant and underappreciated, in a manner that is both insightful and grounded in reality. He is one of the rare few with sound real-world judgment in addition to mere book-smarts. Fooled by Randomness (and it’s appendix – Black Swan) was ahead of its time in highlighting the risk of basing the world’s financial system on the pretense that uncertainty and variability can be mastered through mathematical chicanery. Antifragile also highlighted a similarly powerful concept though the idea of making something stronger wasn’t as compelling as talking about blow-up risks. Bed of Procrustes was Taleb at his worst (his Aalavandhan) even though he had sensible things to convey.

Skin in the Game is Taleb’s best book since FBR and in my view, addresses a concept that is even more material -
If you reap rewards, expose others to risk or opine on what others should do, you should bear some of the risk and be exposed to the consequences, especially the severely adverse ones. As an example, politicians and bureaucrats would be more cautious about starting wars if their children were serving on the frontline. Taleb proffers a nuanced view of Skin In The Game, across many facets. Skin in the game isn’t merely an incentive problem, since that usually trivializes it to linking monetary reward to degrees of success without focusing on downside risk. At the extreme, the best of us have a lot more than Skin In The Game (he calls this Soul in the Game). Each of us has witnessed this in a proud chef or craftsman (or in my Appa’s tailor – SK Rao at Purasaiwalkam).

However, the broader point that Taleb highlights is a negative one. Much of the world is run or influenced by people with little to no Skin In The Game. Classic examples include bureaucrats, social-science academics (who mostly just write for each other’s approval without having to worry about the real world), journalists and op-ed columnists (or anyone on Facebook with strong views on what others should do without having any skin in their game). At the opposite end are people such as soldiers, traders (of the own money variety) and entrepreneurs who face the prospect of complete ruin for a misstep. You can hate the guy who tied a rioter to his jeep, but you can’t deny that the prospect of imminent lynching is fairly high on the Skin In The Game spectrum. In an odd way, politicians do have some Skin In The Game, to the extent that they are held accountable every 4-5 years and have something meaningful to lose (excluding the dynastic-types who get rewarded with a promotion and a diaper-change for abysmal failure).

To me, one actionable implication of Taleb’s book is to consciously increase weightage of opinions of people with actual Skin In The Game while ignoring those who are merely impressive, articulate or in-your-face. In fact, making Skin In The Game the gating factor for whether to take an opinion seriously is one of the best filters for separating signal from noise. An illustration in my professional life is that I haven’t read anything from a finance academic in a decade. On the other hand, I take very seriously the views of successful practitioners across both industry and investing.

I cannot do full justice to how Taleb sensibly links Skin In The Game to topics such as reliability of knowledge (i.e. BS detection), fairness, responsibility, efficient functioning of complex systems and avoiding ruin. I’ll end by partially quoting a maxim with which Taleb ends his book:

“No opinion without consequence,
Love without sacrifice,
Facts without rigor,
Teaching without experience,
Degrees without erudition,
Wealth without exposure,
Science without scepticism”

9 people found this helpful

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Nassim is at his best.

Reviewed in India on June 25, 2023

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Nassim is at his best.
He clearly put forth the blackmailing by minorities holdover.
But don't buy the paperback unless you are short sighted because it has very small print .

One person found this helpful

Helena

Vision globale

Reviewed in France on April 12, 2023

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Si on va voir mieux que ce qu'on nous offrent les médias traditionnels

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