Skin in The Game

Nassim Nicholas Taleb

In Antifragile, I mentioned that the book is part of Nassim Nicholas Taleb’s Incerto series. In 2018, Taleb added Skin in the Game to this series. I hopped onto the audiobook over the past week and was happy to find that while sticking to his fuck-you writing style, Taleb did a great job expanding on the ideas introduced over his last 3 books. Listening to this book felt like a quick summary, or rather, a re-read of his last three books and although no radically new ideas were presented here, it was still totally worth it.

I’ll keep this one short and pick only five of my favorite ideas from the book:

The minority often rules the majority

The society adapts itself to what an inflexible minority wants, rather than what the majority prefer. This is called the minority rule, and is one of the many asymmeteries that Taleb talks about in this book. For example, even though only a small percentage of the population in the UK is Muslim (about 4%), around 70% of the meat imports are processed according to the Halal standards — minority rule results whenever the majority is indifferent or flexible, and the minority gets to drive the consumption for everyone.

Modern Slavery

Employees are more reliable than contractors. They cost more, but they come with dependability. Employees know how to fulfill a task which his master deems necessary or satisfy a gameable metric but cannot be trusted to do decision making which entails serious trade-offs. A free person is someone whose fate is not dependent on peer assessment. An author cares about what his readers think and subsequent sales of her books. An academician, on the other hand, cares about the judgment of his peers.

Judging the experts

An award, a recognition, an acceptance of a paper are not usually indicative of the quality of the work — it just indicates that a certain section of currently influential people are happy with it. Time, on the other hand, is the only true judge of ideas. Things which have stood the test of time are expected to last longer. A year-old book is expected to last another year; a century-old another century. This is called the Lindy Effect.

Virtue Signaling

If your private life conflicts with your intellectual opinion, it cancels your intellectual ideas, not your private life. The practice of publicly expressing opinions or sentiments intended to demonstrate one’s good character or the moral correctness of one’s position on a particular issue has become all too common — but this is usually done without any real skin in the game. Courage is the only virtue you cannot fake. For example, standing up for an unpopular truth — it’s immoral to claim a virtue without living for its direct consequences.

Skin in the Game

When evaluating any piece of advice, financial or otherwise, make sure the advice giver has skin in the game. Do not ask them what they think, ask them what they have in their portfolio.

Before I wrap up this review, I wanted to mention the brutal Twitter war going on between Nate Silver of FiveThirtyEight and Nassim Nicholas Taleb. This tweet brought it to my attention:

FiveThirtyEight predicts probabilities in elections and sports, but they do not technically take an absolute stand on an outcome. However, the public judges them on whether something that was expected to happen with more than 50% probability (like Obama’s 2008, 2012 victories, or Clinton’s 2016) did actually happen or not. Sure, this may seem unfair to FiveThirtyEight, but they’re all too happy to accept the accolades when this works in their favor. For example, their claim to fame is ‘calling 49 of 50 states in the 2008 presidential race correctly’ — if they only compute probablities and never take an absolute stand, why do they not denounce that claim? After all, whenever they are wrong (like 2016!), they fall back to a simple quip: you just don’t know how math works!

You should really read the whole back and forth on Twitter, but at the end of the day, it boils down to this: Nate Silver has little to no real skin in the game. FiveThirtyEight is a media outlet that makes money via ad impressions, and not by forecasting correct outcomes of elections.

This is #50 in a series of book reviews published weekly on this site. You can read the rest of them here.