Skin in the Game: A Review

I just finished reading Skin In the Game by Nassim Nicholas Taleb
After reading his book, I feel like a gold miner looking for diamonds in the rough. This was not an easy read. Taleb, the author (that is to say, the one who wrote the book) uses clauses -and addendums to any and every statement- like they’re going out of style. Nothing he says is straight forward. Perhaps this is a book for lawyers who read exceptions and clauses as a career, or perhaps Taleb is just a pretentious jerk.

There were three main concepts delivered in the book which made the whole read worth it: Skin in the game, hidden asymmetries, and sequential risk vs collective risk.
Skin in the game is another way of saying that one is invested in the outcome. Advice is given freely because there’s no consequence if it’s useful. There is less pressure for editors to do a good job, because their name doesn’t get printed on the cover of the book. Politicians make rules which don’t apply to themselves, and thus, making endless rules is consequence free for them. “They are not victims of their mistakes.” as Taleb astutely puts it. This rule acts as an excellent filter for BS. If someone doesn’t have skin in the game, take what they say with a grain of salt. It’s another way of saying “talk is cheap” or “watch what people do, rather than hear what they say.”

There are hidden asymmetries within a mixed population where one subset is adamant, and the general population is complacent. The most obvious example is that non-smoking people insist that people around them refrain from smoking, while smoking people can both smoke or not smoke. Thus the “non-smoking section” continued to grow until it encompassed not just the whole restaurant, but also the area outside the doors. Another example is kosher drinks. It’s important for people who keep kosher to be able to drink only kosher drinks, while non-kosher people don’t care if it’s kosher. If you go to a grocery store and check the soda bottles, orange juice, and sports drinks, you’ll find that they’re all kosher, even though only a tiny percent of the US population keeps kosher. This is good news for people with virtues and values. It’s actually much easier to change the world than you think!

Finally, the concept of sequential risk vs collective risk was totally new to me. If you make six people in a room play Russian roulette once, the success rate is about 83%. However, if you play Russian roulette six times, your success rate is 0%. It is a dire mistake to compare sequential risks to collective risks. The rule to follow is, “never engage in ‘one-off’ risks.” Either do them indefinitely and accept the risks, or don’t do them at all. It’s not “paranoid” to avoid playing Russian roulette for any amount of money, nor is it paranoid to avoid swimming in shark infested waters or sky diving. As long as it’s a calculated risk.
The first two concepts are not terribly new, but they are applied in new and refreshing ways. It was totally worth reading the book just for those nuggets.

Now I want to rip Taleb a new one.
Taleb has a cynical view of the world. By cynical, I mean the classical sense, named after Diogenes the Cynic. Technology and civilization is awful and we’d all be better off living as nature prescribed. Diogenes lambasted his peers because they were charlatans and he wanted to wake them up. Henry David Thoreau lambasted his peers because they were living lives of quiet desperation, dead by 30 and buried by 60, and he wanted to wake them up. Taleb takes down anybody who stands still for too long. If Diogenes and Thoreau were fencing swords, Taleb would be a chainsaw attached to a mechanical bull.

According to Taleb, anyone in academia is an idiot (even though Taleb himself is a part time professor).

Taleb claims that doctors have a conflict of interest. On one hand they care about the patient outcomes; on the other they care about hospital metrics. Since their employment depends on hospital metrics (skin in the game) that’s where their loyalties lie. I would agree, with the caveat: who’s to say the metrics are bad? And, is there really an alternative? How do you improve without metrics?

His most controversial and outrageous idea is, “The ‘average’ behaviour of the market participant will not allow us to understand the general behavior of the market.” Excuse me? That flies in the face of all behavioral economics that’s ever been written. Then he says, “Understanding how the subparts of the brain (say, neurons) work will never allow us to understand how the brain works… Understanding the genetic makeup of a unit will never allow us to understand the behavior of the unit itself. A reminder that what I am writing here isn’t an opinion. It is a straightforward mathematical property.” Oh really? Let’s see the proof! He has nothing to back it up. Unbelievable. Litterally. *ptooie* For shame.

I was severely disappointed to hear him equate salary earners to slavery. What’s next, should the proletariat rise up and seize the means of production? Entrepreneurship isn’t for everybody. There’s more to life than money. Starting a family can be one of the most rewarding things you do in life. Certainly it can be more rewarding than negotiating contracts with unions. Believe me, I dream of the day when everybody owns their own business. One day maybe. For now, having a steady cash flow is beneficial for both established businesses and individuals. Depending on who you ask, 33% of businesses don’t survive the first year, and 80% don’t survive 10 years. That would be a very chaotic world to live in if everyone started a new business every 10 years.

What’s more deplorable than an employee? An “expat” (someone who works for the company abroad). This expat is someone who “…you over pay and who knows it…” Supposedly expats get comfortable living abroad and don’t want to come back, thus they work indefinitely for this company. Which seems like a stretch. I can imagine many families who would enjoy living abroad for 5-10 years and then wanting to come back; even if it means working for a different company. This is one of those chainsaw moments that doesn’t pass the gut check.

Taleb says, “Historically, the autocrat was both freer and -as in the special case of traditional monarchs in small principalities- in some cases had skin in the game in improving the place, more so than an elected official whose objective functions is to show paper gains.” Huh? In what world could an autocrat have more skin in the game than a politician? Autocrats live in castles and have catered food. Politicians at best live in mansions, but still drive the same streets as us and still eat at restaurants.

He has a quote, supposedly from Donald Trump, “The facts are true, the news is fake.” which I cannot find anywhere on the Internet. According to PolitiFact.com, Trump said “Fake News” 153 times, so maybe I just missed it, or maybe Taleb made it up to make a point? Seems sketchy to me.

What’s the big deal, right? Why can’t I read it and move on? Because Taleb insulted Steven Pinker and Sam Harris, two upstanding deep thinkers, by calling them charlatans. As we say in the Nuclear Command Center, “That is not okeydokey.” Harris is one of the most treasured contemporary philosophers. I am deeply offended on their behalf. Taleb has besmirched their reputation. If you have something to say, say it to their face, that way they can adequately respond. Try to act, you know, like you have skin in the game.