Skin in the Game by Nassim Nicholas Taleb: Summary & Notes

Front cover of Skin in the Game by Nassim Nicholas Taleb.

In short

Skin in the Game: Hidden Asymmetries in Daily Life is the fifth and latest instalment in Taleb’s Incerto series that deals with uncertainty and randomness in the real world.

Having skin in the game is a common enough phrase, and yet not many people – nor society itself – take this to heart. That is: in the modern world many people enjoy the benefits of their actions, but are not exposed to the downsides and consequences of those actions. This is the case, for example, with people making policy or business decisions who are not affected by the outcomes, or people who give advice without having a stake in the advice they’re giving.

All in all, Skin in the Game has a lot of interesting concepts and heuristics (e.g. minority rule, ergodicity, intellectual-yet-idiots), but I personally didn’t find it as engaging as Antifragile. It’s still a good read though, and if you enjoyed Taleb’s previous books then you will enjoy this one as well.

For more details and reviews go to Amazon.

Book Summary & Notes

All text between quotation marks is taken directly from the book.

What does Skin in the Game cover? “a) uncertainty and the reliability of knowledge”, “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.”

The three flaws of educated fools: 1) they don’t think in second (or nth) steps/order and don’t understand the need for them, 2) they are not able to differentiate single-dimensional representations and multidimensional problems (e.g. cholesterol levels vs. Multidimensional health) – meaning that complex systems don’t have one-dimensional causes, and 3) they are unable to forecast “the evolution of those one helps by attacking, or the magnification one gets from feedback”.

Perhaps even worse, but these educated fools also don’t tend to learn from their actions, because “they are not the victims of their mistakes” – they don’t have skin in the game.

“The curse of modernity is that we are increasingly populated by a class of people who are better at explaining than understanding.”

Golden Rule & Silver Rule

The Golden Rule states that we should treat others the way we would like them to treat us. But Taleb argues that the Silver Rule (or Negative Golden Rule) is more robust: “do not treat others the way you would not like them to treat you”. It avoids the assumption that we know what is good for others and dictates that we primarily should mind our own business.

The Silver Rule in intellectual debates: you can either criticize what someone said, or what someone meant. The former is easier because it doesn’t require an understanding of the full argument. And, anyone, who writes or speaks will say things that – when taken out of context – can appear crazy, and that can be used for sensationalism. “Give me a few lines written by any man and I will find enough to get him hung” is the saying attributed to Richelieu, Voltaire or Tallyrand.

Skin in the game

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

“Skin in the game helps to solve the Black Swan problem and other matters of uncertainty at the level of both the individual and the collective: what has survived has revealed its robustness to Black Swan events and removing skin in the game disrupts such selection mechanisms. Without skin in the game, we fail to get the Intelligence of Time ([…] and by which 1) time removes the fragile and keeps the robust, and 2) the life expectancy of the nonfragile lengthens over time). Ideas have, indirectly, skin in the game, and populations that harbor them do as well.”

This doesn’t mean we need to have skin in the game all the time (e.g. normal conversations, opinions), but Taleb’s message is mainly from those professionally involved who can cause harm without accountability.

Without having skin in the game there is no need for simplicity. Rather, more complex solutions will be invented because they are rewarded in the end by how their solution is perceived – and that often requires sophistication.

“By some mysterious mental mechanism, people fail to realize that the principal thing you can learn from a professor is how to be a professor – and the chief thing you can learn from, say, a life coach or inspirational speaker is how to become a life coach or inspirational speaker.”


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

Is it possible to both be ethical and universalist? Taleb argues that while this might be possible in theory, it’s not in practice. “We” will always be a limited club, and people will pursue their own best interests. This is why political systems that start from the municipality (or ‘tribe’) up are more robust. There is an issue of scale when it comes from the particular to the general.

Without skin in the game, people (especially journalists) will imitate other people’s opinions to be safe, which creates a monoculture. With skin in the game, there might be a tendency for conflict of interest, but this is preferable to giving bad advice based on the opinion of others.

Minority rule & intolerance

“The main idea behind complex systems is that the ensemble behaves in ways not predicted by its components. The interactions matter more than the nature of the units. Studying individual ants will almost never give us a clear indication of how the ant colony operates. For that, one needs to understand an ant colony as an ant colony, no less, no more, not a collection of ants. This is called an “emergent” property of the whole, by which parts and whole differ because what matters are the interactions between such parts. And interactions can obey very simple rules.”

Minority rule: when a minority reaches a certain threshold, and if they have skin in the game, it’s preferences will be forced upon the majority. For example, kosher drinks – it doesn’t cost the producer much extra, and since it can serve a larger market the drink is made kosher. An example of forcing the dietary preferences of a small minority onto everyone.

Veto effect: when a single person in a group can steer choices. Ends up in the situation where the final choice will be what is the least offensive to all. E.g. McDonald’s or pizza.

These minority rules also apply to morality in society. Setting moral values of society is not due to consensus but due to a vocal minority (Prohibition for example). “It is the most intolerant person who imposes virtue on others precisely because of that intolerance.”

This all is a threat to democracy: because if freedom of speech allows for political parties that are in favour of banning freedom of speech, then an intolerant minority can overturn democratic values. Taleb states that we need to be intolerant with intolerant minorities.

“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.”

“Society doesn’t evolve by consensus, voting, majority, committees, verbose meetings, academic conferences, tea and cucumber sandwiches, or polling; only a few people suffice to disproportionately move the needle. All one needs is an asymmetrical rule somewhere – and someone with soul in the game. And asymmetry is present in about everything.”

Employees and contractors

The difference between contractors and employees is skin in the game. Employees are expensive to hire, but they come with dependability. Contractors can of course have incentives to do certain things at certain times, but the downside risks of employees are always higher (losing your job vs. losing a single client).

While the traditional company man may be gone, there is now such a thing as a companies person: not employed by a single firm, but always concerned with the idea of being employable.

Coase’s theory of why firms exist: because contract negotiations take too long and are too costly for every interaction, hence hiring employees with job descriptions is a lot easier.

Why did Roman families use slaves to manage their finances and estates? Because the downside for them was much higher than for a contractor-type hire; you can inflict more severe punishments on slaves. The same is true when you compare employees vs. contractors in the modern world.

“People whose survival depends on qualitative “job assessments” by someone of higher rank in an organization cannot be trusted for critical decisions.” Employees are reliable, but they cannot make decisions independently due to the distribution of responsibility in a firm.

“It is no secret that large corporations prefer people with families; those with downside risk are easier to own, particularly when they are choking under a large mortgage.”

Intellectual yet idiot

What Taleb calls the IYI (intellectual yet idiot) is a modern phenomenon. They are usually found in think tanks, media, and universities and even though they are small in number they are highly influential. The IYI argues that people should follow their best interests and that he or she knows exactly what those interests are.

“What we generally call participation in the political process, he calls by two distinct designations: “democracy” when it fits the IYI, and “populism” when plebeians dare to vote in a way that contradicts IYI preferences. While rich people believe in one tax dollar one vote, more humanistic ones in one man one vote, Monsanto in one lobbyist one vote, the IYI believes in one Ivy league degree one vote

Inequality and skin in the game

The public will despise high salaried people, but not have the same feeling for rich entrepreneurs. Taleb argues that what people really resent is people at the top who don’t have skin in the game, who earn a lot of income but are not liable for any downsides.

Inequality is not just the same considering the time frame. Static inequality is a snapshot of a certain moment and does not take into account the future. Dynamic, or ergodic, inequality looks at the future as well – and to decrease inequality it’s not so much about raising the standard of the lowest, but by having the top rotate or exit from the 1%.

What is ergodicity? Taleb gives an example related to wealth brackets: “Perfect ergodicity means that each one of us, should he live forever would spend a proportion of time in the economic conditions of the entire cross-section: out of, say, a century, an average of sixty years in the lower middle class, ten years in the upper middle class, twenty years in the blue-collar class, and perhaps one single year in the one percent.”

The opposite of ergodicity is an absorbing state, where, once you reach a certain level, you stick to it. I.e. if you are born middle class you stay middle class, and if you’re born in the 1% you will stay in the 1%.

Envy does not travel very far: Taleb states that working-class people mostly want to improve their condition, and it is usually the clerical class (people with stability of income) who buy into arguments to dispose of the rich. Revolutionary theories usually get adopted first by the clerical classes and the bourgeois.

“I have yet to see a bien pensant Cambridge don hanging out with Pakistani cab drivers or lifting weights with cockney speakers. The intelligentsia therefore feels entitled to deal with the poor as a construct; one they created. Thus they become convinced that they know what is best for them.”

“Traders, when they make profits, have short communications; when they lose they drown you in details, theories, and charts.” From this you can create a simple heuristic: if a big book is filled with charts and tables it probably means the message couldn’t be distilled, and you should be suspicious of the arguments and conclusions.

Lindy Effect

Something is “Lindy” when it ages in reverse, i.e. when the live expectancy lengthens over time. If something existed for a week, we can assume it will exist for another week. If something exists for a hundred years, we can expect it to exist for another hundred, et cetera.

“Academia has a tendency, when unchecked (from lack of skin in the game), to evolve into a ritualistic self-referential publishing game.”

Taleb argues that a better way to organize science and research is to it on your own time. As he discussed in Antifragile, historically the tinkerers and nonprofessionals have made major contributions to scientific fields. So for “genuine” research, he states that people should have had a number of years (>10) experience in practice and develop their ideas and research on the side. (As Taleb did himself.)

The Lindy effect is also visible with wisdom, many of your grandparents’ advice has been reconfirmed by modern research. Some examples: cognitive dissonance, loss aversion, negative advice (via negativa), skin in the game, antifragility, time discounting, madness of the crowds, less is more, overconfidence, the paradox of progress and paradox of choice.

Looks can be deceiving

People who don’t look like their profession, but have made at least some sort of name for themselves, had to overcome the perception of people and are thus more likely to be skilled than people who look exactly like their profession.

When you are judged on things other than reality, things will get warped. Taleb gives the example of evaluation forms in HR departments – usually they are based on criteria that have no relation to reality.

Bullshit detection heuristic: if you have two people with an equal skillset, hire the one from the less label-oriented education. They probably had to work harder to get where they are. Taleb also argues that you can tell if education or a discipline is bullshit by looking at how much it depends on prestige. An MBA is very label-oriented, a degree in mathematics is not. A physics paper can be published anywhere, but an academic finance paper is judged mostly by the prestige of the journal.

Virtue (signalling)

“If you manage to convince yourself that you are right in theory, you don’t really care how your ideas affect others. Your ideas give you a virtuous status that makes you impervious to how they affect others.”

“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.”

Telling the truth when it’s not popular to do so is a virtue, since it can harm your reputation. Others can only say their opinion when backed by a mob, when they are safe – this is not a virtue, but a vice.

Taleb advises that people who want to help humanity a) don’t engage in virtue signalling, b) don’t engage in rent-seeking, and c) take risks and start a business. After taking a risk, which in itself is good for the economy and society, and winning you can then spend your money on others. If you end up working for a big institution you’re most likely not making a difference (and potentially even harming those you are trying to help).

Peace, war and history

“No peace proceeds from bureaucratic ink. If you want peace, make people trade, as they have done for millennia. They will be eventually forced to work something out.”

Looking at history it might seem that wars were more prevalent than peace, but this is false and due to the availability heuristic: “by which the salient is mistaken for the statistical, and the conspicuous and emotional effect of an event makes us think it is occurring more regularly than in reality.” History is written by historians, who necessarily research it through books and texts – material that would describe the extraordinary events, but not the everyday mundane lives of people.

Why is an empirical approach to history rare? Taleb argues that this is due to overfitting (too much narration, a focus on via positiva), confusing intensity and frequency (most wars were fought by professional armies, and so the majority of the population was not affected to a large extent), the problem over representativeness (conflict is more interesting than collaboration), and past wars are usually overestimated.


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

“Rationality does not depend on explicit verbalistic explanatory factors; it is only what aids survival, what avoids ruin.” Why? Because “not everything that happens happens for a reason, but everything that survives survives for a reason.” So dietary customs of, for example, not eating pork could be due to various reasons (pigs’ behaviour, heat in the Middle East, ecological competition – pigs eat what humans also eat, in contrast to cows), but since the population that have followed this rule have survived it is rational in the risk management sense.

Probability, ergodicity and risk-taking

There is a difference between ensemble probability and time probability and, in many cases, they are conflated. The difference is between 100 people going to the casino, and one person going 100 times. If on average 1 out of a 100 players goes bust, then this has no impact in the first scenario – each player plays individually. In the second scenario, the player will only reach a certain number of times before going bust and then cannot play anymore. So anytime people talk about average returns they generally don’t take into account that people play or invest individually and that the sequence matters.

This is why Taleb states that you should “never cross a river if it is on average four feet deep.” Because to succeed at something you first need to manage to survive, and to do that you need to be protected from the downside risk of ruin.

“A situation is deemed non-ergodic when observed past probabilities do not apply to future processes.” Meaning that there is a ‘barrier’ from which people do not emerge. This is what Taleb calls ‘ruin,’ and as long as there is a possibility of ruin then traditional cost-benefit analyses don’t make any sense. Take a game of Russian Roulette for a million dollars: the average return would be $833,333, but few people would take this bet since the risk of ruin of massive.

Repetition of repeated exposure to low-probability events matters a great deal; smoking a single cigarette has no impact, but doing it every day for many years kills. So even if something is not “rational” at a first look, repetition of exposures can make paranoia about something quite rational.

Random events can either happen in Mediocristan, with thin-tails, or in Extremistan, with fat tails and affecting many people. Events happening in Extremistan have a systemic effect and are multiplicative, so things like epidemics will always come from Extremistan. Taleb compares deaths by drowning in bathtubs to people killed by terrorism. For the first case, it’s extremely unlikely that it will double in a year, for the latter it is easily imaginable.

Interested in Skin In The Game? Get the book on Amazon.

Or, browse all book notes here.