Skin in the game in a borad context talks about risk management. In general, is about if you have the rewards you must also get some of the risk. In such a case, you shouldn’t have an option to let others pay the price of your mistakes. For instance, bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions. The worst casualty has been a free market as the public already prone to hating finances conflating free market and higher order forms of corruption and cronyism when in fact it is the exact opposite. It is government, not markets that makes these issues possible by the mechanisms of bailouts.
As Nassim Nicholas Taleb, the author of the book, writes “People who are bred, selected, and compensated to find complicated solutions, do not have an incentive to implement simplified ones.” Or “Never pay for the complexity of presentation, when all you need is results.”
By reading the book “Skin in the game” you become a lot more pragmatic, sceptical about naive and generalised statements. It makes you more aware in the risk management process. The curse of modernity is that we are increasingly populated by a class of people who are better at explaining than understanding, or better at explaining than doing. The book says that we should avoid taking advice from someone who gives advice for a living unless there is a penalty for their advice. “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.”
Let me give you some further example on risk management. If you had a business and asked some of your friends or a business partners to create a marketing brochure, arrange the price which will have some variable part in it and will be directly dependent on the conversion rate. So let’s say you will pay one thousand dollars plus ten per cent of every sale over a thousand converting from the material. So the reason why you should do that was that you want him to have skin in the game. If you just pay him one thousand dollars straight, he doesn’t have any skin in the game. He will just get his money whether he does a good job, a bad job or whatever. Whereas, if you pay him a bonus based on how much money you make over one thousand dollars, he will get some serious skin in the game.
I also have to say that the book is a kind of ranty. I’ve heard some opinions saying that his obsession with the superiority of practice over academics and theory is totally wrong. He reviles “intellectuals”, and thinkers while praising “doers” and men of practice. his skills in persuasion are also severely lacking. I think that in most situations first, we have an idea, a concept to be proven. The next step is execution. However, sometimes we don’t have tools to check the thesis as the risk is too great. We don’t have resources or we have some gaps in the whole equation to run it. Like in theoretical and experimental physicist. Theoretical physicists develop mathematical models while experimental physicists perform tests.
He also uses a multitude of subterfuge and polemic to dismiss potential criticism. Yet, I think in many examples he fails to realise that this doesn’t make many of his arguments more right or less complete than they actually are.
When I was reading the book I couldn’t agree with his polemics with Steven Pinker and his books. Especially “The Better Angels of Our Nature: Why Violence Has Declined” which I’ve reviewed some time ago. For me, the book was absolutely phenomenal. Hundreds of graphs included in the book really helped me to understand how our society has moved forward. I would recommend the book to anyone who thinks our world is decaying. Adversely, the truth, statistically presented, is that it has never been better to be a human being.
On the other hand, I’ve also read a lot of opinions telling that people would like to reread the book at some points, expecially chapters related to business and risk management. They’s liked to really rethink what Taleb was saying. In my case, I would go back to it in order to refresh my pragmatism and scepticism. Predominantly, about naive and generalised statements which he tries to ceaselessly refute.
Skin in the Game: Hidden Asymmetries in Daily Life
by Nassim Nicholas Taleb
In the article I made use of a few authors’ interviews.
Size: 272 pages
Other information and reviews of this book on Goodreads: https://www.goodreads.com/book/show/36064445-skin-in-the-game
Other useful links:
Nassim Nicholas Taleb talks at Google: https://www.youtube.com/watch?v=uv6KLbkvua8&t=738s
Taleb’s home page: http://www.fooledbyrandomness.com