Podcast #395: Skin in the Game

In a world where some people have certain advantages that others do not, how do you navigate the landscape while still acting ethically? My guest today argues that we all need to put some more skin in the game.

His name is Nassim Nicholas Taleb. If you read the AoM site, youâ€™ve likely seen our articles about his antifragility concept. In his latest book, Skin in the Game: Hidden Asymmetries in Daily Life, he explores the ethics of living in a complex and uneven world. We begin our conversation discussing what Taleb means by skin in the game and how itâ€™s similar to traditional notions of honor. Nassim then explains what he means by asymmetries, how people exploit them unethically, and how skin in the game can reduce that exploitation. Taleb then explains why ethics are hard to scale, why minorities end up ruling, and what it means to put not only skin, but soul in the game.

Show Highlights

The big picture problem Taleb has been tackling with his life’s work
Why “skin in the game” isn’t related to incentives, but rather risk
The role honor plays in Taleb’s work
How rank equaled risk in ancient times, and how that’s changed in modern society
The new class of charlatans in our world
Virtue signaling
Incentivizing people to accept risks, even when it’s possible not to (and why that’s actually faulty thinking itself)
What courage really is
What Taleb believes it means to be human
Scaling our ethics, and the point at which our code can encompass too many people
What having “soul” in the game means?
The Lindy effect, and writing for posterity
How religion makes people and communities antifragile
How minorities often end up ruling

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Read the Transcript

Brett McKay: Welcome to another edition of the Art of Manliness podcast. In a world where some people have certain advantages that others do not, how do you navigate the landscape while still acting ethically? Our guest today argues that we all need to put some more skin in the game. His name is Nassim Nicholas Taleb. If you read the AoM site, you’ve likely seen our articles about his anti-fragility concept and his latest book, Skin in the Game: Hidden Asymmetries in Daily Life, explores the ethics in living a complex and uneven world.

We begin our conversation discussing what Taleb means by skin in the game, and how it’s similar to traditional notions of honor. Nassim then explains what he means by asymmetries, how people exploit them unethically, and how skin in the game can reduce that exploitation. Taleb then explains why ethics is hard to scale, why minorities end up ruling, and what it means not only to put skin in the game, but soul in the game. After the show’s over, check out the show notes at AoM.is/skininthegame, all one word.

Nassim Nicholas Taleb, welcome to the show.

Nassim Nicholas Taleb: Thank you for inviting me. As a visitor to your site, I’m very honored.

Brett McKay: Well, we’ve been a longtime fan of your work. In fact, your books have inspired several articles on our site, and I know a lot of our listeners are familiar with your work, but for those who aren’t, what’s the big picture problem that you’ve been tackling with your life’s work and writing?

Nassim Nicholas Taleb: Okay, the end circle is so far a five volume investigation of luck, randomness and decision making under opacity. You don’t understand the world. How can you be rigorous about things because science doesn’t cover, and doesn’t claim to cover, many areas of decision making. See, science is about certainties, and sometimes statistical significance, but a lot of stuff is not covered by science, maybe 99% of what we do.

So, I’m addressing these points in sort of like as rigorous as one can be, and Skin in the Game is the last volume, and Skin in the Game is sort of like … The idea culminated from statistical significance into ethics and honor somehow in a weird way.

Brett McKay: Yeah, so you introduced this concept of skin in the game in Anti-Fragile. This book fleshes it out even more.

Nassim Nicholas Taleb: Yes. In Anti-Fragile, I was surprised. I say every book grows out of the ribs of the previous book.

Brett McKay: Right.

Nassim Nicholas Taleb: So, Anti-Fragile was about asymmetry in a sense that you can make money without having losses, or you have more upside than downside, whether it’s emotional, financial or more generally like economic, but the point at the end of the book … I realized there was a class of people who have the upside and transfer the downside to others. So, in other words, they are anti-fragile. They benefit from uncertainty because heads, they win, tails, someone else loses. So, you want variance. You want uncertainty.

So, that class of people I discovered, I absolutely had to talk about them at the end of Anti-Fragile. Progressively, I realized that the discussion was not about asymmetry and economic incentives, or disincentives. It was beyond, and that’s two levels. The first one, it was about what life was about, what being human meant, what risks one had to take to become real, and it went into a much, unpredictably, much more fundamental territory. What is it that we need to do to be humans, and also what’s the boundary? For example, my unit is not me. My unit is a collective. What can I do for the collective because that’s me continuing?

So, these things, of course, I covered in areas like group selection, by scale, multi-scale and stuff like that, but then I merged all these ideas into one book by having a very simple structure. The first 50, 60 pages are about asymmetry in a sense that if you have more upside than downside, you make sure that you’re not transferring it to others like, for example, what I call the Babuban trade. A fellow who made a lot of money stuffing Citibank with risks, but when Citibank went bust, of course, it was you, myself, the Uber driver, everybody collectively was funding them, but you don’t see it in the flow. So, that’s a hidden risk, and the transfer of hidden risk, and of course, I went into other notions, an essential one being selection.

I cannot take long to talk about selection and evolution except when it comes to themselves. So, anything that is not subjective to selection pressures basically will rot. So, academics are judged by other academics, not by some mechanism of survival so that field will rot. Restaurants, when they’re judged by other restaurants, they, of course, develop horrible food, but when they’re judged by their clients, they’re going to be judged by survival, and subjected to that survival mechanism, and so this is the first 50, 60 pages, I explain the asymmetry that traditionally, when people think of skin in the game, they think of incentives. Sometimes, the more interesting people think of disincentive like thou shall not make money without bearing your own risks, and then the third level of that asymmetry is effectively a mechanism of removing risky people from society because if warmongers didn’t die in battle, then you’d have a very dangerously built society.

So, that’s the first idea, but most of the book, then, is about ramification that are very counterintuitive, that flow from that asymmetry. From theology to honor to risks, everything together, bottled up together.

Brett McKay: And so, what it sounds like you’re saying is Skin in the Game became more of a work of ethics in how we interact with each other, and how those asymmetries that show up in life happen on the personal, societal level.

Nassim Nicholas Taleb: Exactly, but there is one thing where you cannot separate ethics from competence, and it’s in a footnote. I think it’s the first page, and if you say to your accountant, “I trust you,” are you trusting his or her skills, or are you trusting that she will not transfer money to Panama? You see, to her own checking account in Panama? What do you mean by trusting?

So, this idea actually is rather theological, that perfection is like offending God by not doing a perfect action yourself, but that idea that you cannot separate competence from ethics is not part of this course. These boundaries between epistemology, ethics, decision making and all these things are not well known.

Brett McKay: As I was reading how you were describing skin in the game in the first couple pages of the book, it made me think about traditional notions of honor. It’s something we’re written extensively about on our site. Do you feel like this traditional sense of honor really kind of captures what you’re trying to get at with Skin in the Game?

Nassim Nicholas Taleb: Exactly. For example, I think it’s dishonorable for me to talk about things if I don’t bear my own risk. I explain how, traditionally, in societies, the person who rose, with very few exceptions and the exceptions are quite compelling and quite revealing, the person who rose to the top was the person who took the maximum amount of risks.

So, I show only a third of Roman emperors died in their bed, and that even then, we don’t even know if they died from poisoning, and of course, to become an emperor … First of all, to become consul, you had to have had a military career, and to have a military career, you have to take more risks than soldiers, and you see in England, there was a lord. A lord is simply someone who protects you like a mafia don in return for rank. That’s it. So, you cannot have rank without respect. So, that is in traditional societies.

In modern society, I discovered there’s a class of people, what I call the BS vendors, and the rest of this is a rant against BS vendors, and not only they don’t understand the world because they have no contact, no skin in the game so they can’t figure out what’s going on, but, on top of that, they don’t take personal risks. So, you have a class of people who are cowards in positions of power, in bureaucracies and government and academia, in a lot of places, and I despise these people, and I say it.

Whenever I see a public figure, I have a trick to figure out if the person is a charlatan or not. What’s a trick? Well, the trick is if that person taking risks or not for his or her opinion. Every time I open my mouth to reflect anything, like virtue signaling, that does not entail risk taking has no virtue in it. If you don’t take risks, you’re nothing.

Brett McKay: What’s an example of virtue signaling without risk taking?

Nassim Nicholas Taleb: Like you walk into a hotel and they tell you, “Well, save the environment,” and they’re ripping you off by saving on washing your towels, for example, or someone who stands up and starts delivering … Like university officials. “Oh, this is diversity. This is fairness. This is this, this is that.” That’s virtue signaling because they’re not taking risks for the statement, but someone who stands up and says, for example, “It is not true that the Syrian government is fighting Mother Teresa. The Syrian government is fighting head cutters.” Someone who goes against moral culture, for example, and reveals things are not held to be true, but are effectively true, or think in academia. If you come up with an idea, that’s not in the discourse, then automatically in academia, they can really destroy your life by labeling you as a crank. So, having an unpopular position within academia is very rare, and those who do that usually are the big people.

Brett McKay: So, skin in the game isn’t just about incentives. It’s about getting the upside without, I guess, exporting the downside to others, but to me, when you look at that, people are like, “Well, of course. Why would I … I would take the upside and not … Why wouldn’t I just export the downside?” How do you incentivize people to not export-

Nassim Nicholas Taleb: Well, you don’t want to … So, the whole idea of honor is you don’t do it for any incentive, and that’s fundamental to humans. If you don’t have humans like that, you won’t have the world. You’re helping others not because you’re going to be paid back, but you’re helping others to help others because they’re a part of you.

You see, this modernity brought this artificial boundary between humans. Like, you think your death is the end of the world. No, your death is not the end of the world. The death of you plus whatever family members you have plus descendants if you have plus your pets plus humanity plus your tribe plus humanity plus, of course, the environment, planet Earth, other living organisms on planet Earth … This is the worst case scenario, not just your death. So, if you look at it with a death perspective, then you have an obligation to protect these things outside of you that have longer life expectancy than you, and that’s my idea of scaling and scalability of skin in the game.

Brett McKay: Right, and that sounds like a traditional notion of honor because it’s not just about you. It’s about your group as well, family, tribe.

Nassim Nicholas Taleb: It’s especially about your group, and actually, we solve the problem in classics. The virtues of the Greeks, the two main virtues are prudence, and you would think that that’s a good virtue, prudence, but courage at the same time, and how can you solve that contradiction, that both are virtues, and, on top of that, you cannot have one virtue … If you have one virtue and not all of them, then you got a problem.

So, how can you solve? Well, effectively, courage isn’t going gambling in the casino for selfish reasons. Courage is about taking risks for something bigger than you like saving kids from drowning, you see? That is you have your transfer of risks from you to the collective as a positive, not like Babuban trade in a negative direction.

Brett McKay: So, it sounds like this is an ethical code. So, I got while I was reading it that you don’t think that, correct me if I’m wrong, that laws and regulations can reduce asymmetries. We need to rely more on this traditional notion of honor to do so.

Nassim Nicholas Taleb: Yeah, tort laws. Tort laws can do that. Tort laws can reduce some asymmetry, but there are things you can’t of course address with torts. Plus, my whole idea about being human is to do things beyond you, but I have no problem with incentive and rewards. My point is if you’re not taking any risks, you’re nothing, but people detect that.

I mean, I wrote early on. I wrote about the Christ, okay? Why is it that Christian theology kept insisting that the Christ was not God, he was man? And of course you had a lot of debate, and a lot of people died in riots over that, okay? Why is it that the Christ has to be man? Well, think about it. Skin in the game. A god who doesn’t suffer, you see, doesn’t have skin in the game, and the whole idea is to create a bridge between you and God with the Christ in between. He suffered, you see, and then it invites you to become what we Greek Orthodox call theosis, to become closer to God by doing some actions.

Now, that idea of skin in the game, the fact that he has skin in the game, is not just unique to Christianity. I mean, if you go to the circus, and you have acrobats walking on these tight ropes, if they have a parachute and protection and all these things, it wouldn’t be as appealing. So, I noticed that, effectively, people of rank depended on how many scars they have, and having scars was a big thing although scars would be considered by economists or modernists as a sign of failure. No, scars meant skin in the game.

So, when I was watching this in some of my early chapters, Donald Trump. He was running against a collection, at the time, it was the primaries, a collection of people who looked lifeless, and he looked like he was full of life, and I was wondering what was the difference. Well, the difference is that, and that’s a huge difference, that it had been reported that Trump lost a billion dollars of his own money. Now, someone who loses a billion dollars is real. It’s not a video game.

Brett McKay: And people are attracted to that so that’s why-

Nassim Nicholas Taleb: Exactly.

Brett McKay: So, this idea of scaling ethics, scaling skin in the game where you start with yourself, but you also think beyond yourself-

Nassim Nicholas Taleb: Okay, but the scaling is not trivial. We know, and I invoke a lot of the ideas of Eleanor Austin, who shows how fishermen, they work as a group. It works very well when the group is not very large, but when the group becomes large, the dynamics change, and it becomes a fierce competition, and to deplete resources whereas, before that, they protect resources.

So, a lot of that scaling is, effectively, you got to think at level of a scale, that you are a scale, your family is another scale, and that behavior within and behavior between that group and the outside, and so on, and that goes against universalism.

Brett McKay: Right, so we can’t … It’s pretty much impossible to have a coherent ethical code that everyone is on board with after a certain point. The group gets too large.

Nassim Nicholas Taleb: Exactly. Think about it. You can’t say you’re discriminating against strangers because you don’t have your door open for Thanksgiving. You want to limit it to your family. So, I use the concept, the Jewish ethics. It’s called thick blood versus thin blood. You’re obligated to be ethical towards everyone, but you got to be … Some are more equal than others to you in that sense.

For example, if you see children drowning, your obligation is to, in that sense, to save your kids, provided, of course, you’re not endangering others. Save your kids first. Now you wonder why would that be so? Because the other parents also have to save their kids first.

Brett McKay: So, how do you interact … So, we’re a homogeneous society. In America, there’s over 350 million people, I think. How do different groups that have different ethical codes-

Nassim Nicholas Taleb: It’s a multi-scale. In other words, you behave within your whatever community, your local community, you can define your community however you want, in a certain way, and of course, you can behave a little differently with the outside, and progressively.

To give you an example, in the book, I explain why it’s perfectly compatible with this logic to be libertarian at the national level, which is the federation level, to be a Republican at the state level, to be a Democrat at the county level or at the town level, and to be socialist at the family and friends level, you see? Or maybe even a communist at the nuclear family level.

So, it is not … I mean, the dynamics can vary with the scale, and the scale matters a lot. That was already in Anti-Fragile, but here I put some additional dimension to it, but let’s think about it. I don’t want to hurt animals, okay, so I’m very nice to dogs and cats and other mammals, but at some point, there’s a preferential treatment, okay? I favor dogs over cockroaches. A pure universalist would have no boundaries. You would have to go all the way to microbes so it becomes absurd. Unless you put some gradation, it becomes completely absurd.

Brett McKay: That makes sense. It’s the idea of if you say you love everybody, it means you love no one.

Nassim Nicholas Taleb: That’s exactly the one. That’s Nietzsche who said it. It becomes too promiscuous, but you have to be ethical with everybody. Treat everybody fairly.

Brett McKay: Right. You also highlight in the book, even in these ancient cultures where tribe was one of the most important things, even amongst different tribes, there was a very stringent code of hospitality where you treated strangers a certain way.

Nassim Nicholas Taleb: Yes. I mean, that’s based on reciprocal altruism like, for example, if you have a desert, desert conditions like Arab tribes would be very hostile to one another in war, but if a wandering person shows up, they treat him like a king because they’d also like to be treated like that in harsh desert conditions, and so the person is fed and treated very nicely, but when it’s tribe versus tribe, then you have war, warfare.

Brett McKay: You also talk about there’s not just skin in the game. There’s also soul in the game. What does that mean?

Nassim Nicholas Taleb: Well, so what I’m saying is that the caveat of people … 99% of Americans are very well calibrated, you see? You take and you give. You don’t take more than you give. That’s 99% of the population. Then you have the remaining 1%, these bureaucrats, all these university administrators, all these people, okay? I treat them like the evil of modern society, those who want to ruin your life. They’re not just people like Sailor, this guy Cass Sunstein, all these people who are most clueless and evil at the same time.

So, you have that category of people. They take more than they give, you see? They draw a salary and stuff like that, and then you have a category of people, the saints, who give more than they take, and because they feel it is their mission to do that. Like, people who die for the sake of a collective. Revolutionaries, saints, Joan of Arc, and people like that. That’s their mission, and they feel that’s their sense of honor. There’s something about them that makes them derive … In other words, they don’t care about … They’re selfless, and of course, they take risks for the collective, for the improvement of life on Earth.

And now these people are very, very rare, and you would expect to see them in among people who claim to be a revolutionary. It’s not true. You don’t find them there.

Brett McKay: Where do you usually find them at?

Nassim Nicholas Taleb: You find them in all walks of life. You find them … Whether you have an aunt who is completely selfless. She cares about … She doesn’t have children, and she cares about everyone in the community, or whether you have … You can have prophets. You have authors. People who basically expose some risks and end up in jail.

Brett McKay: One concept you also talk in Anti-Fragile, and you flesh out even more in Skin in the Game, and a concept that I’ve been thinking about a lot since I learned about it was the Lindy Effect. What is that, and how does that reduce asymmetries in life?

Nassim Nicholas Taleb: That’s interesting. I discuss that effectively even in the Black Swan when I started discovering the process. There are some things … Humans have life expectancy decreasing with time. So, if you’re 100, you have a couple of years to go in life expectancy. If you’re at zero, you have 80 years to go, you see, and if you’re at 80, you have five years to go, or no. No, you have 12 years to go or maybe more.

So, the life expectancy decreases with age, but for technology, for a class of things objected to some kind of survival pressures, you have the opposite effect. Like, technology that’s 100 years old has another 100 years to go, but it’s statistical. It’s not certain so like life expectancy. You see, you have children dying yet life expectancy is 80, you see, and the idea came from a restaurant that went bust between the delivery of the manuscript to the publisher, and the day of publication. Sometimes, in between.

Particularly, it was very interesting with the publisher because I’m in two blocks of my publisher, and usually, when I go there, I walk by Lindy. That’s where actors used to meet, and they discovered that Broadway shows that had 500 days under the belt had at least 500 days more to go so they would pick shows that had a longer track record.

Now, how does that link to skin in the game? Without skin in the game, you don’t get Lindy, and it’s also very important. It tells you how time judges things. See, so people fail to realize that the only expert around is time. People think should be someone who went to Harvard. No, the expert is time.

Brett McKay: So, the way you put skin in the game is, I guess, one way to take advantage of the Lindy Effect. You don’t write for now. You write for posterity, for example.

Nassim Nicholas Taleb: Oh, okay. No, actually the trick is you don’t have to think about posterity until the posterity. That’s why Vienna got . . . is to predict the future, remove from today anything that is 20 years old or younger, and whatever’s left will be there in the future because technology displace technologies. Like, the laptop displaced the desktop, and the tablet is displacing the laptop.

So, you have to think in terms of what has survived the test of time, and effectively we’re converging. If anything, technology is converging to want we have used for a long time since the tablet is 6000 years old or maybe more.

So, when I write, I write something that is valid today, understandable today. Then I’m lucky to be old enough to project it in the past. Would that have made sense to someone 30 years ago? Would it have been as interesting 30 year ago? Ah, therefore, this is more likely to survive an extra 20 or 30 years, and interestingly, I started doing that 20 years ago with my first book, and 20 years later, it’s still selling.

Brett McKay: I thought it was an interesting point you raised about … You mentioned earlier in our conversation how some of the stuff you’re talking about in Skin in the Game is theological, and towards the end of the book, you talk about how religion makes people or communities of people anti-fragile. How so?

Nassim Nicholas Taleb: Okay. Now, one thing about the idea of rationality. I spend a lot of time in the book and outside the book studying, examining and trying to figure out what rationality means, and they have a lot academic representation in rationality, but they all sort of make sense and they don’t make sense. The central one is the idea of rationality in surviving, you see? You don’t know ex ante what is rational. It’s not by reasoning, and the world is too complex. Soon, you’ll understand more than you do, and it’s highly unscientific.

So, what is rational for me is what has survived, and, as a statistician, I’ll tell you something that has survived, or an instinct we have like paranoia that has survived millions of years before even we were humans … So, it has to have some kind of rationality to it otherwise it wouldn’t be here.

So, if you judge things based on this argument of rationality, you should not … Then there are a lot of things that make sense. Like, religion makes sense if it allows people to survive, and, odds are, it has allowed many people to survive, and that’s the idea. So, it’s not examining the cash root, the dietary habits of Hebraic people, and I noticed that they have some attributes that probably help them survive. Who am I to judge something I don’t understand well enough?

So, that’s the idea of rules that don’t seem to make sense to me, but may make sense from a ruin standpoint, and the notion of ruin is lack of extinction. It’s very different.

Brett McKay: Okay, you said something interesting there. So, earlier, we talked about laws and regulations, besides tort laws, aren’t an effective way to reduce asymmetries. An overarching ethical code, but in the book, you also talk about there are rules, if they stem from an ethical code, that can help guide people to make rational, or decisions that will help them survive.

Nassim Nicholas Taleb: Yeah, but there’s another thing here about ethics that I mention in the second chapter about minority law, that we have the illusion, and that’s understating the complexity, that society is the arithmetic sum of the preferences of its members, and then therefore, a collective ethic would emerge because each one of us is quite ethical. That’s not true.

It comes from the intolerance of a very small number of people who are monstrously ethical, and impose sort of the virtue on society because the other people chicken out. That’s the minority rule, and I showed it. Let’s say an example. Minority rule is a dietary law so someone coming from Mars and observing the Earth population would think that there are orthodox rules because almost all soft drinks in US are kosher. Why is it so? Because a kosher person will never drink non-kosher, but a non-kosher will drink kosher.

Well, it’s the same thing with ethics. An ethical person would never buy an unethical, stolen merchandise, but a less ethical person doesn’t mind having ethical behaviors, you see, so the asymmetry is where the term is ethics in society.

Brett McKay: But with this asymmetry, this minority rule, I was reading that. What do you do if there’s a minority group who are trying to impose their ethics, but you don’t like them, right? For example, I thought of like Islamic terrorists.

Nassim Nicholas Taleb: Yeah, okay. That’s a big problem, but in the past, people didn’t understand the reason for the growth of Salafi Islam, and Salafi Islam is something to be treated from within Islam, forget about in the West, you see? There are people … If you put one Salafi Muslim with ten Sunnis, non-Salafis, the 11 will behave like a Salafi, you see, because of their asymmetry in rules. So, the idea is to fight Salafi Islam where it was born, and also stop funding Saudi Barbaria because they’re the one who have created this Salafi nonsense.

Brett McKay: Well, Nassim, this has been a good conversation, a great intro to the book. Where can people go to learn more about your work?

Nassim Nicholas Taleb: I think from within the book. The book … Let me tell you one thing as an author. If I can explain my book, then I shouldn’t be writing books.

Brett McKay: Shouldn’t have written the book, huh?

Nassim Nicholas Taleb: No, no. I could be writing newspaper articles of the idea. So, a book has to be something bigger than my explanations of it.

Brett McKay: Oh, that’s true. I think we literally just scratched the surface of what’s there. Nassim, thank you so much for your time. It’s been an absolute pleasure.

Nassim Nicholas Taleb: Thank you. A huge honor, particularly. You’re one of the very, very few sites on the web that I visit.

Brett McKay: Well, thank you so much. That means a lot.

Nassim Nicholas Taleb: Thank you. Thanks.

Brett McKay: My guest today was Nassim Nicholas Taleb. His latest book is called Skin in the Game. It’s available on Amazon.com and bookstores everywhere. You can find out more information about his work at fooledbyrandomness.com. Also check out our show notes at AoM.is/skininthegame where you can find links to resources where you can delve deeper into this topic.

Well, that wraps up another edition of the Art of Manliness podcast. For more manly tips and advice, make sure to check out the Art of Manliness website at artofmanliness.com. If you enjoy the podcast or got something out of it, I’d appreciate it if you’d give us a review on iTunes or Stitcher. It helps a lot, and if you’ve done that already, thank you. Please consider sharing the show with a friend or family member who you think could get something out of it. As always, thank you for continued support, and until next time, this is Brett McKay telling you to stay manly.

Alex Lewis

Submitted by: Alex Lewis in London, KY