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ValueTalks With Nassim Taleb On Skin In The Game

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Today is a very special episode with Nassim Nicholas Taleb, author of The INCERTO. The INCERTO is a multivolume essay that includes The Black Swan, Fooled by Randomness, Antifragile and most recently Skin in the Game. He spent 21 years as a quantitative trader and risk taker. Today is a very short episode about his most recent book, “Skin in the Game”. Below is an excerpt from our conversation.

Raul: What is the main premise of the book?


Nassim: You cannot look at my books anymore as body parts because they are a continuation of a project called Incerto and that would be volume 5 of the Incerto. A lot of people know Black Swan, Antifragile, and some like Fooled by Randomness. So its part of a project, the idea, and Antifragile is about the symmetry and there was some mental asymmetry at the end of Antifragile. The symmetry means someone has an option, I make money if I am right and lose very little if I am wrong, so volatility would benefit me. And of course, some people abuse that option by inflicting losses onto others, transferring losses unto others. So you make the upside and you transfer the downside unto others. So I thought about it at length and it hits me that there is something beyond the unfairness of the asymmetry. So let me present the idea of skin in the game in general. Skin in the game for a lot of economists is seen as incentives. So if you are incentivized you work harder. That is level one. That is not it. There has to be level 2 which actually presides this notion of incentives. The Hammurabi’s Law, if you cause harm to others, you ought to be penalized and compensate your victims. That is the idea. In others words I shall not hide risk. There is the story of the architect who built a house and of course can cut corners with something weak in the foundation and you immediately make your money. One day the house collapses. Well in the Hammurabi’s Law finds the architect punished. Of course there is various punishment depends on who is injured. So that level two means there is disincentive in the idea of skin in the game. But that is not enough…”

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