Skin in the Game by Nassim Nicholas Taleb
BOOK REVIEWS BY BINOD
BINOD’S RATING: 6/10Taleb explores the idea of disincentivizing undesirable behavior. His solution is to enable decision-makers who currently have only upside (asymmetry) to be more accountable by exposing them to the negative consequences of their actions as well (symmetry). Hence, he asks for asymmetry to be replaced with symmetry.
Skin in the Game is his fifth book. The Black Swan, a smashing success praised for its prophetic theme and huge relevance, looked – just before the financial crash of 2007 – at low probability, high-impact events.
“If you do not take risks for your opinion, you are nothing.”
Key points
The argument is attractive: if you have no skin in the game, you shouldn’t be in the game. If you give an opinion, and someone follows it, you are morally obligated to be, yourself, exposed to its consequences.
This is needed to ensure they think well, so that they learn from their mistakes, and because systems learn, and species evolve by weeding out failure. Those who don’t succeed must face ruin or something equally bad or worse.
Nonperishable things such as ideas, lifestyle, dietary habits, religions have survived for a long time, being sufficiently stressed by time, will survive for much longer as long as the agents espousing these ideas, etc. have skin in the game.
The contrast is the abominable rent seekers, or bureaucrats who only get the upside of their actions (bonuses), but are blissfully insulated from the downside which is passed on to others citing uncertainty. Thus, these peoples make or influence decisions for a long time without being affected by the ill-effects of those decisions. People also gamble bigger (and often make worse decisions) when they do not face the consequences of their actions.
Taleb has no time for people in authority who don't get this and consequently promote dangerous ideas which lead to ignorant policy or business decisions. Thus, he detests government and corporate bureaucrats, bankers, macro-economists, socialists, Pentagon generals and anyone else he sees as dodging personal risk while creating situations and structures that create risk for the society around them.
The people he admires are entrepreneurs, experimental scientists, front-line soldiers and anyone who lives by putting his ideas or body into harm's way every day and using the results as his guide for survival the following day. These are the people with "skin in the game" who drive human evolution.
But he is not an evangelist for Equality but for Symmetry. Once incentives are aligned with actions and the downside is inescapable, economic systems will become more robust.
Taleb further extends the 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”, he points that it is the same principle that has been mellowed down through the ages. The symmetrical application of laws, (and metaphorical rather than the 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.
An example of symmetry is that in the past, war mongers have existed, but those who advocated war were bound to be most affected by it. Kings and Emperors often led a battle from the front and were killed, injured or kidnapped, as opposed to modern politicians, bureaucrats, journalists et al in the West who face no consequences whether they advocate invasion in Vietnam, Iraq or Afghanistan.
“What matters isn't what a person has or doesn't have; it is what he or she is afraid of losing
In Commerce, 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 becomes restrictive in terms of jurisdiction or in terms of practice. Taleb says that one can either give advice or sell but cannot do both at the same time.
His approach is to preserve the marketplace and to not kill it with regulations but instead to make sure the rules are the same for everyone.
An interesting side concept covered in the book is the Minority Rule where intransigent minorities determine the preference of the majority. For example, if you have an evenly distributed population who cannot tolerate something (smoking, GMOs, non-kosher food), you can often have a situation where it is cheaper to just satisfy an intolerant minority rather than worry about having two production lines. 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. Hence, Taleb argues against being tolerant of intolerant forces.
What I liked
·Taleb looks at issues from different perspectives. While most modern thinkers look at an issue from one point of view, say economic, political, or ethical, Taleb always goes back to history to synthesize a system of thinking which brings together different ways in which one can view risk and related systems of symmetry. Thus, he captures ethical, political, economic and practical arguments to build the system of thinking.
His writing can be extremely good fun. The combination of fearlessness, self-belief and immodesty adds up to a lot of charisma.
In one way he is bold, and he isn’t a hypocrite. The way he takes on the mainstream media, bankers, bureaucrats and professors shows his skin in the game. He is willing to take the risk of alienating himself from these powerful forces by calling out their BS.
Taleb writes about some of the most original, thought-provoking, and profound ideas. And even when you find yourself disagreeing with him, he makes you think
This book is a far easier read than some of the author's previous writings. Which is good because (as an example) Fooled by Randomness (2001) was practically unreadable.
What I disliked
His big ideas are mostly straightforward and inadequate to fill a book. So instead of further insights, there are large amounts of other irrelevant and unsubstantiated content. As a result, the first 20% of this book is interesting and insightful. The balance 80% adds little to the thesis propounded at the beginning and, to some extent distracts from it.
Taleb is unable or unwilling to organize his thoughts into a coherent body of work. This 236-page book has 19 chapters, each of which has many sub-parts, many of which are less than a single page. His ideas appear to be unrelated and presented in a random fashion. It was interesting, but not very worthwhile.
Some of his statements are contradictory and sometimes he goes too far in his arguments.
The bizarre 'Technical Appendix' seems to be included simply to show off the author's mathematical acumen. No-one reading this book would need these arcane formulae. So, this final section, like the last 80% of the book, seems to have been included just to make up the word count.
Taleb's style of 'speaking truth to power' can often come across as unnecessary, uncomfortable and unsubstantiated. He takes pot shots at Steven Pinker, Nobel laureate Richard Thaler, Richard Dawkins, Sam Harris et al without bothering to explain to the mystified reader why he finds their ideas loathsome.
I found it odd that a man who calls himself as a “flaneur, meditating in cafes across the planet, [who] is currently Distinguished Professor at New York University” would heap so much scorn upon the “educated idiots” of academia. Talk of the pot calling the kettle black.
He’s particularly distrustful of those who give advice for a living. Here’s Taleb: “Avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice.” So, should we then ignore THIS advice?
Overall, poor research and facile explanations all packaged together beautifully and seductively to deliver an altogether empty experience.
“Courage (risk taking) is the highest virtue. We need entrepreneurs.”
Conclusion
Taleb is like a brilliant friend who deliberately makes controversial remarks that lack empirical validity, occasionally has some insightful points, can be scathing and funny at the same time (thanks to a rich fund of catch phrases) but can also be confusing and mind-numbingly boring.