Skin In The Game by Nassim Nicholas Taleb


Skin in the Game is about four topics in one: a) uncertainty and the reliability of knowledge (both practical and scientific, assuming there is a difference), or in less polite words bullshit detection, b) symmetry in human affairs, that is, fairness, justice, responsibility, and reciprocity, c) information sharing in transactions, and d) rationality in complex systems and in the real world. That these four cannot be disentangled is something that is obvious when one has . . . skin in the game.

To figure out why ethics, moral obligations, and skill cannot be easily separable in real life, consider the following. When you tell someone in a position of responsibility, say your bookkeeper, “I trust you,” do you mean that 1) you trust his ethics (he will not divert money to Panama), 2) you trust his accounting precision, or 3) both? The entire points of the book is that in the real world it is hard to disentangle ethics on one hand from knowledge and competence on the other. 

If you have the rewards, you must also get some of the risks, not let others pay the price of your mistakes. If you inflict risk on others, and they are harmed, you need to pay some price for it. 

If you give an opinion, and someone follows it, you are morally obligated to be, yourself, exposed to its consequences. 

Don’t tell me what you “think,” just tell me what’s in your portfolio. 

Never engage in detailed overexplanations of why something important is important: one debases a principle by endlessly justifying it.

Pathemata mathemata (“guide your learning through pain”).

One should not mess with a system if the results are fraught with uncertainty, or, more generally, should avoid engaging in an action with a big downside if one has no idea of the outcomes. 

Those who don’t take risks should never be involved in making decisions. 

Societies were run by risk takers, not risk transferors.

Noblesse oblige; the very status of a lord has been traditionally derived from protecting others, trading personal risk for prominence. 

Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions.

Government interference in general tends to remove skin in the game. 

You will never fully convince someone that he is wrong; only reality can.

Systems learn by removing parts, via negativa.

Via negativa: the principle that we know what is wrong with more clarity than what is right, and that knowledge grows by subtraction. Also, it is easier to know that something is wrong that to find the fix. Actions that remove are more robust than those that add because addition may have unseen, complicated feedback loops.

Start by being nice to every person you meet. But if someone tries to exercise power over you, exercise power over him. 

Avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice.

You do not want to win an argument. You want to win. 

We are much better at doing than understanding. 

You may not know in your mind where you are going, but you know it by doing. 

What matters in life isn’t how frequently one is “right” about outcomes, but how much one makes when one is right.

Ideas have, indirectly, skin in the game, and populations that harbor them do as well.

By definition, what works cannot be irrational; about every single person I know who has chronically failed in business shares that mental block, the failure to realize that if something stupid works (and makes money), it cannot be stupid. 

What is rational is what allows the collective — entities meant to live for a long time — to survive. 

Those who talk should do and only those who do should talk.

Skin in the game brings simplicity — the disarming simplicity of things properly done. People who see complicated solutions do not have an incentive to implement simplified ones. 

Things designed by people without skin in the game tend to grow in complication (before their final collapse).

Skin in the game can make boring things less boring. 

Finally and centrally, skin in the game is about honor as an existential commitment, and risk taking (a certain class of risks) as a separation between man and machine and (some may hate it) a ranking of humans.

If you do not take risks for your opinion, you are nothing.

I have no other definition of success than leading an honorable life.

Honor implies that there are some actions you would categorically never do, regardless of the material rewards. Honor means that there are things you would do unconditionally, regardless of the consequences. 

As a Spartan mother tells her departing son: “With it or on it,” meaning either return with your shield or don’t come back alive (the custom was to carry the dead body flat on it); only cowards throw away their shields to run faster.

People who are not morally independent tend to fit ethics to their profession (with a minimum of spinning), rather than find a profession that fits their ethics. 

There is actually an argument in favor of duels: they prevent conflicts from engaging broader sets of people, that is, wars, by confining the problem to those with direct skin in the game.

Artisans have their soul in the game.

Artists do things for existential reasons first, financial and commercial ones later.

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.

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

I am, at the Federal level, libertarian; at the state level, Republican; at the local level, Democratic; and at the family and friends level, a socialist.

“Never doubt that a small group of thoughtful citizens can change the world. Indeed, it is the only thing that ever has,” wrote Margaret Mead. Revolutions are unarguably driven by an obsessive minority. And the entire growth of society, whether economic or moral, comes from a small number of people.

Perhaps, by definition, an employable person is the one you will never find in a history book, because these people are designed to never leave their mark on the course of events. They are, by design, uninteresting to historians. 

An employee is—by design—more valuable inside a firm than outside of it; that is, more valuable to the employer than the marketplace.

Risk takers can be socially unpredictable people. Freedom is always associated with risk taking, whether it lets to it or comes from it. You take risks, you feel part of history. And risk takers take risks because it is their nature to be wild animals. 

You don’t signal competence if you don’t take risks for it—there are few such low-risk strategies. So cursing today is a status symbol, just as oligarchs in Moscow wear blue jeans as special events to signal their power.

Ironically the highest status, that of a free man, is usually indicated by voluntarily adopting the mores of the lowest class.

What matters isn’t what a person has or doesn’t have; it is what he or she is afraid of losing.

The more you have to lose, the more fragile you are.

Watching Putin made me realize that domesticated (and sterilized) animals don’t stand a chance against a wild predator.

People whose survival depends on quantitative “job assessments” by someone of a higher rank in an organization cannot be trusted for critical decisions.

Although employees are reliable by design, it remains the case that they cannot be trusted i making decisions, hard decisions, anything that entails serious tradeoffs. Nor can they face emergencies unless they are in the emergency business, say, firefighters. The employee has a very simple objective function: fulfill the tasks that his or her supervisor deems necessary, or satisfy some gamble metrics.

Society likes saints and moral heroes to be celibate so they do not have family pressures that may force them into the dilemma of needing to comprise their sense of ethics to feed their children. The entire human race, something rather abstract, becomes their family.

To make ethical choices you cannot have dilemmas between the particular (friends, family) and the general.

Celibacy has been  a way to fore men to implement such heroism: for instance, the rebellious ancient sect the Essenes were celibate. 

The current narrative is that terrorists thing they are going to heaven and will let virgins that look like their next-door neighbors. Not quite true: many just seek a perceived heroic death, or to impress their friends, The desire to be a hero can be quite blinding. 

Real life is risk taking.

Scars signal skin in the game.

Always do more than you talk. And precede talk with action. For it will always remain that action without talk supersedes talk without action.

People mistake empiricism for a flood of data. Just a little bit of significant data is needed when one is right, particularly when it is disconfirmatory empiricism, or counterexamples: only one data point (a single extreme deviation) is sufficient to show that Black Swans exist.

Statistics isn’t about data but distillation, rigor, and avoiding being fooled by randomness.

Success may come from randomness, of course, but we are least have a hint of some skill in the real world, some evidence that the person has dealt with reality. This is of course conditional on the person having had skin in the game—and it is better if the person felt a blowup, has experienced at least once the loss of part of his or her fortune and the angst associated with it.

It is downright unethical to use public office for enrichment.

That which is “Lindy” is what ages in reverse, i.e., its life expectancy lengthens with time, conditional on survival. 

Only the nonperishable can be Lindy. When it comes to ideas, books, technologies, procedures, institutions, and political systems under Lindy, there is no intrinsic aging and perishability. A physical copy of War and Peace can age; the book itself as an idea doesn’t.

Burn old logs. Drink old wine. Read old books. Keep old friends.

The insightful and luckily nonacademic historian Tom Holland once commented: “The thing I most admire about the Romans was the utter contempt they were capable of showing the cult of youth.” He also write: “The Romans judged their political system by asking not whether it made sense but whether it worked.”

You can define a free person precisely as someone whose fate is not centrally or directly dependent on peer assessment.

Someone with a high public presence who is controversial and takes risks for his opinion is less likely to be a bullshit vendor.

Ideas need to have skin in the game. You know an idea will fail if it is not useful, and can be therefore vulnerable to the falsification of time (and not that of naive falsificationism, that is, according to some government-printed black-and-white guideline). The longer an idea has been around without being falsified, the longer its future life expectancy.

For things to survive, they necessarily need to fare well in the risk dimension, that is, be good at not dying. By the Lindy effect, if an idea has skin in the game, it is not in the truth game, but in the harm game. An idea survives if it is a good risk manager, that is, not only doesn’t harm its holders, but favors their survival—this also applies to superstitions that have crossed centuries because they led to some protective actions. More technically, an idea needs to be convex (antifragile), or at least bring about a beneficial reduction of fragility somewhere.

If you hear advice from a grandmother or elders, odds are that it works 90 percent of the time.

The fallacy is that what one may need to know in the real world does not necessarily match what one can perceive through intellect: it doesn’t mean that details are not relevant, only that those we tend to believe are important can distract us from more central attributes of the price mechanism.

What can be phrased and expressed in a clear narrative that convinces suckers will be a sucker trap.

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

We have evidence that collectively society doesn’t advance with organized education, rather the reverse: the level of (formal) education in a country is the result of wealth.

The best enemy is the one you own by putting skin in his game and letting him know the exact rules that come with it. You keep him alive, with the knowledge that he owes his life to your benevolence. The notion that an enemy you own is better than a dead one was perfected by the order of the Assassins. 

The most interesting thing about the Assassins is that actual assassinations was low on their agenda. They understood non-cheap messaging. They preferred to own their enemies. And the only enemy you cannot manipulate is a dead one. 

They convinced him that his life was in their hands and that, crucially, he didn’t have to worry if he did the right thing. 

Verbal threats reveal nothing beyond weakness and unreliability. Remember, once again, no verbal threats.

It is much more immoral to claim virtue without fully living with its direct consequences.

If your private life conflicts with your intellectual opinion, it cancels your intellectual ideas, not your private life. If your private actions do not generalize, then you cannot have general ideas.

Be careful not to practice your righteousness in front of others to be seen by them. If you do, you will have no reward from your Father in heaven. So when you give to the needy, do not announce it with trumpets, as the hypocrites do in the synagogues and on the streets, to be honored by others. Truly I tell you, they have received their reward in full. But when you give to the needy, do not let your left hand know what your right hand is doing, so that your giving may be in secret. Then your Father, who sees what is done in secret, will reward you.

Videri quam esse, “show rather than be.”

Courage is the only virtue you cannot fake. Courage (risk taking) is the highest virtue.

If you want peace, make people trade, as they have done for millennia. They will eventually be forced to work something out. 

We are largely collaborative—except when institutions get in the way.

To those of us on the ground, the objective was to make things work and have a life, not sacrifice our existence for the sake of geopolitics. Real people are interested in commonalities and peace, not conflicts and wars.

Beware labels when it comes to matters associated with beliefs.

Harboring superstitions is not irrational by any metric: nobody has managed to build a criterion for rationality based on actions that bear no cost. But actions that harm you are detectable, if not observable. 

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

You will not have an idea about what people really think, what predicts people’s actions, merely by asking them—they themselves don’t necessarily know. What matters, in the end, is what they pay for goods, not what they say they “think” about them, or the various possible reasons they give you or themselves for that.

How much you truly “believe” in something can be manifested only through what you are willing to risk for it.

What is rational is that which allows for survival.

When you consider beliefs in evolutionary terms, do not look at how they compete with each other, but consider the survival of the populations that have them.

Rationality does not depend on explicit verbalistic explanatory factors: it is only what aids survival, what avoids ruin.

Not everything that happens for a reason, but everything that strives survives for a reason.

No individual can get the same returns as the market unless he has infinite pockets and no uncle points

The flaw in psychology papers is to believe that the subject doesn’t take any other tail risks anywhere outside the experiment and, crucially, will never again take any risk at all. All these risks add up, and the attitude of the subject reflects them all. Ruin is indivisible and invariant to the source of randomness that may cause it.

Unless you are perfectly narcissistic and psychopathic—even then—your worse-case scenario is never limited to the loss of only your life.

I have a finite shelf life, humanity should have an infinite duration. I am renewable, not humanity or the ecosystem.

Courage is when you sacrifice your own well-being for the sake of the survival of a layer higher than yours.

“The difference between successful people and really successful people is that really successful people say no to almost everything.”

Every single risk you take adds up to reduce your life expectancy. 

Rationality is avoidance of systemic ruin.

When the beard (or hair) is black, heed the reasoning, but ignore the conclusion. When the beard is gray, consider both reasoning and conclusion. When the beard is white, swipe the reasoning, but mind the conclusion.