“Skin in the Game”

Taleb’s latest book Skin in the Game is about asymmetries in life. Let me describe the book via negative:

• Skin in the Game is not about incentives. Because incentives can be one sided. For example, an executive at a big company has the incentive to make the company more profitable but she does not have skin in the game because she only takes a cut from the profit but not the losses. Take two scenarios, in first the company makes 50 million profit in the first year and then in the next year they loose 60 million, second scenario, company makes steady profit of 5 million dollars in both the years. In the first case but company will make a net loss of 10 million and in the second case it will be in 10 million net profit but the executive will earn more money if she takes the first route instead of second route.
• Skin in the Game is not about individual but about the environment. Restaurants have an incentive to provide good food because they’ll earn money if they do and loose money if they don’t. But out of stupidity or incompetence or arrogance the restaurant may still choose to provide horrible food, but if the system forces skin in the game the restaurant won’t survive for long and soon go bust. Skin in the game doesn’t necessarily change the individual to make their actions align, but it makes sure that those who don’t, don’t remain in the game. Remember, the system might not force skin in the game, for example, usually restaurants near railway stations are horrible, because there money from new customers will keep coming in irrespective of weather previous customer found the food to be awful or not.