Skin in the Game: Hidden Asymmetries in Daily Life
Author: Nassim Nicholas Taleb
Publisher: Random House (304 pages)
“Skin in the game” was first coined by Warren Buffet. It means having incurred risk in the pursuit of some goal or achievement. To give an example in a layman’s term, business leaders should not enjoy big profits unless they suffer the consequences of bad judgment. Thus, the corporate and political leaders should have skin in the game. It is a great notion especially what we see happening around us today. We all know that we don’t put our leaders, business magnets and religious pontiffs responsible for the damages done to society by their decisions or decrees. As a matter of fact, they are rewarded for their bad decisions with perks and secured life after leaving their positions.
The book in review, “Skin in the Game: Hidden Asymmetries in Daily Life” by Nassim Nicholas Taleb emphasizes that if someone inflicts risk on others and the consequences become damaging, the person responsible needs to pay some price for it.
To use an example: George W. Bush made horrendous mistakes that brought great suffering to peoples of the Middle East and the United States, but won a second term and, having retired, enjoys a new avocation—oil painting.
America’s large banks have been run and coddled by leaders with no skin in the game. If their bets paid off, they won big; if the banks teetered, the public bailed them out—what Taleb calls the “Bob Rubin trade.” Transferring the pain of risk in this way impedes learning.
In contrast to the present time, in ancient times most leaders were warlords—warriors who risked death in battle. Societies were run by risk takers, not risk transferors. We must have cause-and-effect mechanisms. People should face consequences for their actions.
Hammurabi (the ancient law giver of Babylon) got it right: “If a builder builds a house and the house collapses and causes the death of its owner, the builder shall be put to death.” Thus, we come to understand “skin in the game.”
Taleb sums up as: There is no love without sacrifice, no power without fairness, no facts without rigor, no statistics without logic, no teaching without experience, no complication without depth, no science without skepticism, and nothing without skin in the game.
As Aesop noted, dogs enjoy greater security than wolves, but lack freedom. Wolves have more freedom than dogs but may be eaten by even stronger denizens of the wild. That brings to my mind what should be the consequences for the recent government shutdown? Should Ms. (Plastic Faced) Pelosi and Mr. (Rubber Faced) Trump be rewarded by their admirers for making us suffer? Where is the skin in the game for them?