This book review was written by Eugene Kernes
“Do not mistake skin in the game as defined here and used in this book for just an incentive problem, just having a share of the benefits (as it is commonly understood in finance). No. It is about symmetry, more like having a share of the harm, paying a penalty if something goes wrong.” – Nassim Nicholas Taleb, Book 1: Introduction, Page 4
“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.” – Nassim Nicholas Taleb, Book 2: Chapter 1: Why Each One Should Eat His Own Turtles, Page 51
“Someone without skin in the game – say, a corporate
executive with upside and no financial downside (the type to speak clearly in
meetings) – is paid according to some metrics that do not necessarily reflect
the health of his company; these he can manipulate, hide risks, get the bonus,
then retire (or go do the same thing at another company) and blame his
successor for subsequent results.” – Nassim Nicholas Taleb, Book 5: Chapter 7:
Inequality and Skin in the Game, Page 130
Is This An Overview?
Skin in the game is outcome symmetry of decisions. A symmetry of the benefits and harm derived
from a decision. Skin in the game within
a transaction means having no asymmetric uncertainty. Skin in the game is about taking risk, rather
than transferring the risk. Advice that
benefits the individual and the adviser, without the adviser sharing the harm,
is bad advice. Those who make decisions
without suffering negative repercussions of being wrong, continue making bad
decisions. Alternatively, being
accountable for errors of decisions, makes people learn from their mistakes and
improve their decision making.
Caveats?
Although the ambiguity of
language is understood, the use of language in the book creates more negative
consequences than benefits. Harsh
language is being used throughout the book, which is partly meant to give
people skin in the game who have not taken responsibility for wrong decisions,
and also to signal freedom. The
consequences of the harsh language can be 1) to make society more intolerant
given the influence of the author, 2) possibly enable a fundamental attribution
bias for dynamic decisions are rarely made by a single person but who then
becomes a scapegoat for others, and 3) make people defensive which prevents
learning.
The focus of skin in the game is about those who are making
wrong decisions without facing the negative consequences, but as the author
recognizes, there have been those who perished even though they were
right. Its uncertain if the author has
skin in the game with the advice given about using skin in the game to improve
situations.
