Skin in the Game: Hidden Asymmetries in Daily Life (Incerto) Paperback – January 7, 2020

This is the fourth book by Nassim Taleb that I've read. Even when I don't agree with him, I find his views to be a useful antidote to sloppy thinking, which is much of what passes for public discourse now. Taleb calls out public intellectuals, Paul Krugman for one, and challenges their intellectual credibility. He does this with much of academia as well. He calls out Bob Rubin, former Treasury Secretary, for what I believe is fundamentally an integrity issue. I point this out because if you, as a prospective reader, might find this troubling, then brace yourself. On another front, he invokes a wide range of scholarship involving not only classical Greek and Roman sources, but also sources from the mid-East both Christian and Islamic. He's from Lebanon so his exposure to this culture arises from personal experience. I find the breadth of his source material to be unusual and worthy of careful consideration.What do I take as the basic idea of the book? One has to be at risk of personal loss to understand and responsibly respond to the world's challenges. Telling others what they should do when you are not exposed to the consequences is fundamentally corrupt. Ethics runs throughout the book.What are some of the topics? Why the most intolerant minorities can impose their will on the majority. How to legally own another person. Why some legal systems seek to impose equality of uncertainty in commercial transactions,. How to ethically disagree with another. How today's merchandising of virtue compares to simony in the Middle Ages. Religion, belief and the necessity for skin in the game - for, as Taleb puts it, the gods don't like cheap signaling.These are only some of the topics that the book delves into. I think you can agree that the topics listed above, and many others in the book, are not light reading. If, like me, you find these topics worthwhile for consideration, I encourage you to read the book. I think that it will repay your time.

Nassim Taleb is the author who has influenced my thinking more than any other that I have read. His approach, grounded in statistical rigor, is contrarian but also intuitive. I first encountered his work when I read the Black Swan in 2006 while working a summer in Geneva. I remember being struck by the truth in his descriptions of how Wall Street forecasting is done and how misleading and often incorrect it is. Reading The Black Swan led me to read Fooled By Randomness, the Bed of Procrustes, and Antifragile. Each one further reinforcing and refining his ideas. Not only are the books insightful, they are also entertaining and I relished each opportunity to read his work. Following him on twitter is one of my guilty pleasures.His latest book, Skin in The Game, is more of a work of moral philosophy than one of probability and statistics. In my opinion, its most valuable aspect is that it provides a framework though which to judge the arguments, assertions, and most importantly the actions of others. That framework is skin in the game. To have skin in the game is to have a stake in the outcome of any given circumstance (upside and downside). This framework only ascribes value to the opinions of people who have skin in the game and makes judgements based on other people’s actions and not their words. In the end the determination of right and wrong is left up to the passage of time, with survival being the highest badge of success. This has applications not just in investing but also in politics, religion, medicine, and may other arenas.My only gripe about the book is that there is no update on the life and times of Nero Tulip. One of Taleb’s most interesting characters and a mainstay in all of his other books.

The author delves into many difficult thought processes and situations. I definitely had to take my time reading it. It was helpful to have my smart phone handy to look up subjects and definitions. Not an easy read, but thought provoking.

[TLDR] This practical and provocative book is mostly about:1) Uncertainty and the reliability of knowledge (b/s detection, theory vs practice, cosmetic vs true expertise, etc).2) Symmetry in human affairs (fairness, justice, responsibility, reciprocity). e.g.: to get the rewards you must also get some of the risks; not let others pay for your mistakes.3) Information in transactions4) Rationality in complex systems.The main aspect of "Skin in the game" (SITG) - a phrase probably made popular by Warren Buffet - is, in Taleb's view, about matching disincentives to incentives. For Taleb, SITG isn’t purely incentives (e.g.: just having a share of some benefits). It is SYMMETRY in both UPSIDE and DOWNSIDE. Taleb makes this important aspect extremely explicit since the very beginning of the book (page-4).If some actors pocket rewards from a policy they enact or support (without accepting risks/downside), various economists consider it to be a problem of "missing incentives". In contrast, for Taleb, the problem is more fundamentally one of asymmetry: one actor gets the rewards, others are stuck with the risks. Forcing SITG corrects this asymmetry (you cannot make profits and transfer the risks to others as some large corporations do; bankers being bailed out by the public are the antithesis of SITG). Actors, per Taleb, must always bear a symmetric cost when they fail the public (this is SITG!). A fund manager that gets a percentage on wins, but no penalty for losing is incentivised to gamble with his clients funds. Bearing no downside for one's actions, means that one has no "Skin In The Game"A few insights from the book:- Having exposure to the real world, with upside and downside, is the best (often the only) way to learn.- EXPOSURE TO REAL WORLD CONSEQUENCES beats Intellectualizing. Employed intellectuals, professional academics, or bureaucrats are rarely in love with thoughts & ideas. They are primarily in love with orthodoxies in their respective fields.- There are some risks we just cannot afford to take (e.g.: systemic risks). There are some risks we cannot afford to NOT take.- Intelligentsia have no downside for their actions (no SITG).- There is no evolution without skin in the game. Note how most academics (Economists, Psychologists, Sociologists, Social Scientists, etc) can be wrong for so long, while MOST businesses cannot (except the likes of Goldman Sachs and others, provided the Government bails them out when they mess up)- Government intervention, in general, tends to remove SITG, to weaken robustness in complex (economic, social, financial) systems.- Interventionists don't suffer the consequences of their bad actions, policies, etc- About the real world: think in dynamics, not statics. Think in high, not low dimensions. Think in terms of interactions as well as actions.- SITG doesn’t literally mean an eye for an eye. It just means there is a downside large enough (for individuals) to protect the overall system.- We know far more what is bad than what is good. Therefore, when treating others: no bad actions > good actions as a rule.- Universal behavior is great on paper, disastrous in practice. Why? We are local and practical animals, sensitive to scale. The small is not the large; the tangible is not the abstract; the emotional is not the logical. Most behaviors do not scale. Family members are not friends and random people on the street are not friends. What's worse: the general and abstract tend to attract self-righteous psychopaths.- Avoid taking advice from someone who gives advice for a living, unless there are also penalties for their bad advice.- The doer wins by doing, not convincing. e.g. if someone is trying to convince you how cool their life is then it is not cool- How often you forecast correctly is not so important. What matters more is which outcomes you can forecast correctly. The payoffs matter more.- SITG can help with solving black swan problems. That which has survived over time, with SITG, has proven its robustness.- People with SITG bring simplicity. People with SITG have no benefit for added complexity. Therefore be careful of people without SITG proposing complex solutions for a problem. They have incentive to seem sophisticated instead of just solving the actual problem- The average behavior of the market participant will not allow us to understand the general behavior of the market.- Careful of people who want more regulations as they have incentive to complexify it, so they are more needed.- People can be largely collaborative except when institutions get in the way.- Whenever there is a mismatch with "bonus period" (e.g.:1 year) and "statistical blowup" (e.g.:10 years) people will transfer as much risk as possible to the future (get the bonus in 1yr, worry about blowing up much later)- Learning is rooted in repetition and convexity, reading one book twice is often more useful than two books once.- Professional reviewers tend to want to impress other reviewers while normal people just say their opinions, so be careful of professional reviewers as they have a lack of SITG- Freedom entails risks, real skin in the game. Freedom is never free- Data does not imply rigor- Never pay for complexity of presentation when all you need is results.- Change for the sake of change is frequently the enemy of progress (inverse of the Lindy effect)- You can criticize what a person said or what a person meant. One is honorable, the other is embarrassing- Virtue is what you do when nobody is looking. Virtue is not something you advertise.- Survival comes first, truth, understanding, and science later.