Skin in the Game

Skin in the Game: Hidden Asymmetries in Daily Life (Random House, 279 pp., $30) is the latest book by mathematician and philosopher Nassim Nicholas Taleb. It hit the market on Feb. 27. This marks the fifth installment in a collection of books by Taleb that’s called the “Incerto.” I think that fancy term means “uncertainty,” well, more or less, but, uh, I’m not really sure.

But that’s OK, because it just emphasizes the point: Taleb writes about uncertainty.

Life is, after all, an uncertain proposition. We face risks, ranging from the trivial to the profound, when making decisions. Handing these decisions to someone else doesn’t eliminate the risks. It just hides the risks and allows other parties to skew things to their ultimate advantage.

With this in mind, Skin in the Game ponders the practical and ethical consequences of risk allocation, particularly the lopsided outcomes when one party can reap the rewards of an arrangement while another one suffers the losses.

There are, for example, plenty of “advisors” who will still cash your check after they’ve led you off a cliff.

On that note we pretty much run across the old distinction between the sidelines and the playing field, between the talkers and the doers, between the critics and the performers, and between theory and reality.

If that seems a bit abstract, then I’ll poke my finger straight into the pie and come up with this: The entire Incerto collection, including Skin in the Game, is about how not to be a sucker.

Chapter 19 of Skin in the Game, “The Logic of Risk Taking,” has some of the book’s best material. It neatly cleaves a distinction between theoretical risks and real-life consequences. And here we’ll note that risk’s asymmetries aren’t limited to the sucker vs. non-sucker distinction.

That’s because even outside of that distinction, the tyranny of the timeline presents its own asymmetry. As fragile mortals, we’re susceptible to getting derailed at any time. Once that happens, the conceptual track in front of us is moot; we won’t be around to travel the path as the odds bend back to the greener pastures of their theoretical mean.

If, for example, you die young from some rare and random tragedy, there’s no magic actuary standing by your grave to refund the years between your actual life span and your theoretical life span. An unlikely death makes you every bit as dead as a likely one does. Dead is dead.

Taleb writes: “The central problem is that if there is a possibility of ruin, cost-benefit analyses are no longer possible.”

In a lot of cases, then, it’s better to be safe than sorry, if safe means you’ll be able to keep playing the game, and sorry means you won’t.

In Taleb’s words, “Anyone who has survived in the risk-taking business more than a few years has some version of our by now familiar principle that ‘in order to succeed, you must first survive.’”

This might seem obvious, but the world of theory doesn’t always see things that way. In the theoretical world, being “loss averse” can be regarded as unoptimal, even irrational, because it puts you on a frontier that might miss out on some potential gains.

The bottom line with all of this stuff is that if your skin is in the game, you can’t just assume that somebody’s thick stack of calculations, glossy brochures, trendy buzzwords, fancy job titles, or technical double-talk are an acceptable replacement for your own sound judgment.

In one of his other books, Antifragile (my favorite of his works), Taleb goes into some detail about “heuristics,” which are simple rules of thumb that have evolved to give us just that kind of judgment when we need to make fast decisions.

As for the ethical arguments in Skin in the Game, many of them address contemporary events and situations. I can venture no comments here because I’m the last one to ask about the world of current events. It’s not my department. On the other hand, if you’re looking for a cheeseburger expert, well, I’m your man. We all have our stations in life.

I’ll close with a broad take on the book, this from its introduction: “It is not just that skin in the game is necessary for fairness, commercial efficiency, and risk management: skin in the game is necessary to understand the world.”

True enough. And when it comes to understanding the world, or at least that wide swath of it that holds risk and uncertainly, Taleb has proven to be an insightful guide.