Understanding Skin In The Game | Nassim Taleb

Table of content

What Does Skin In The Game Mean?

The Pope is functionally atheist. Does he have Skin In The Game?

If the Pope was shot tomorrow whilst strolling the streets of Rome, both an ambulance and the clergy would quickly run to his side.

What would happen?

The ambulance wants to take him to the hospital to treat his badly injured body, but the clergy, however, might want to bring him to their most sacred Chapel for prayer in order to be healed by the grace of God.


What option does the Pope choose?

What does it mean for the Pope to have Skin In The Game? His entire life purpose is in devotion to God, but when he’s made directly accountable for his life-threatening predicament, whose hands will decide his destiny?

This is a wonderful example of Nassim Taleb at his most provocative. In the book, ‘Skin In The Game’, Nassim’s 5th instalment of his masterful ‘Incerto‘ series, Taleb almost suggests that il Papi is in fact an atheist because when it comes down to putting your money where your mouth is, you’d find the Pope occupying a private suite at Roma Medico rather a bloody pew in St Peters.

After all, the Pope’s role on Earth is to be a mouthpiece of sorts for God. If he cannot put his faith in a miraculous healing then how much does Skin In The Game does he really have?

What Is Skin In The Game?

It’s a euphemism for accountability.

It is the ultimate BS detector. Skin In The Game is an action taken whose burden of risk wholly rests on the shoulders of the action taker. This is the opposite of course, to having marginal or no, Skin In The Game, an action taken whose burden of risk is liquidated and deferred onto others and society.

The action taker in this case is not accountable.

To have Skin In The Game is to be accountable.

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Think Of The Following Two Acts - A Test Of Skin In The Game

Actions are taken every day whose risk is liquidated and deferred elsewhere. Think of the following two scenarios.

  1. Tweeting something abusive at someone behind your Twitter account’s shielded anonymity.
  2. Failing to report a mechanical flaw you noticed on your rental car as it’s being returned.

To have Skin In The Game, you must take responsibility for your actions. There is a piece of you exposed. And should you fail, your exposure will experience the downside. Accountability.

These two actions listed above are actions taken without having Skin In The Game.

The Tweeter will receive a completely disproportional downside compared to the damage his actions caused. He is not accountable for the emotional damage he’s inflicted.

Back in the day when people bullied one another, the face to face nature of attacks exposed the bully to more significant Skin In The Game. He could be caught more easily, given detention more readily, and punished more accurately according to his harm. To bully via the anonymous Twitter profile isn’t exposed to any of the comparable downside.

The rental car driver will not be harmed at all when his failure to report a flawed car returns to the road and crashes with a new driver. His decision to not report the mechanical flaw carries risk. And rather than owning the risk, and paying the cost for the repair, he deferred his risk to the next driver… who didn’t fare so well.

The inherent risk written into those decisions has been liquidated and deferred elsewhere. The action takers experience all of the upside while managing to defer all of the downside.

There Is No Symmetry - Unlike A Well Calibrated Investment Portfolio - Skin In The Game Requires Symmetry

Taleb writes that Skin In The Game is all about symmetry. Here he breaks away from his central thesis to risk management, an overwhelming effort towards asymmetry, but that is for another article.

Skin In The Game is best measured through symmetry.

"Reaping the benefits of a positive outcome must also be associated with paying the negative outcomes".
- Nassim Taleb

Why Does Having Skin In The Game Matter?

Credibility is gained through having Skin In The Game. You signal by taking risk. It is fundamental to society that people own their risk.

An individuals inaction to be accountable for his/her actions distorts the natural mechanism of promotion and demotion across society. A society without Skin In The Game would not take understand individual responsibility. A society without Skin In The Game would not be able to enact rule of law. And a society without Skin In The Game would not know how to allocate resources according to a tedious balance of accountable incentives.

All of these societal functions are only possible because of peoples understanding of, and expectations that, one should be accountable for their decisions.

It was not so long ago that our leaders had an equal trade off. Risk more or less equalled reward. Lords, generals and politicians of centuries past had significantly more Skin In The Game than todays equivalent.

To experience the upside of being a general in the army of Genghis Khan… Women, money, fame, food, respect, purpose, prestige, and all the rest. He had to incur the symmetrical risk. To be a general in the army of Genghis Khan meant risking your life every day for the privileged upside.

By the way, as an aside – if you are interested in Genghis Khan at all, check out my interview with the author of Genghis Khan & The Making Of The Modern World, Jack Weatherford.

Accountability & Skin In The Game

The general makes battle decisions. He must be visible during a fight, he must signal to his subordinates his ability to kill. He takes significant risk.

He takes on the responsibility and the risk of his decisions and for this, society rewards him with the upside. For his risk is so sharp, that few dare burden his responsibility, and most who do, fail in their pursuit. Not all can experience the tail-end of a distribution.

The general is perilously perched atop a high-risk domain for which he reaps – in his interpretation – a symmetrical upside.

Compare Genghis Khan’s General To A Modern Day Politician.

Politicians are constantly signalling without any exposure to risk.

Go to war! Raise the minimum wageGo carbon neutral no matter the cost!

What risk do these acts of signalling expose the politicians to? Will they join the front lines and fight? Will they pay out of their pocket subsidies?

Of course not.

Modern-day politicians can afford to reap enormous upside totally inconsistent with their exposed downside. That is why they get away with failed ‘promises’ again and again.

They are not equally accountable for their downside measured against their upside. They are the are without credibility.

And their upside is significant.

Modern-day politicians are among the wealthiest, most powerful, most well-connected people on the planet.

A relatively well-known politician. Say, your local mayor. Can be completely ineffectual in his/her political career, make hundreds of failed promises, lose multiple elections, create zero upsides for their constituents – and still walk away from politics in their 50’s to be offered an open door to a myriad of high paying ‘consultancy’ jobs.

An entire industry, according to Taleb, equally devoid of Skin In The Game.

The natural mechanism that promotes and demotes through Skin In The Game is no longer functioning in the political system.

You signal by taking risk. Politicians are signalling, without the risk. Credibility is gained through Skin In The Game. Signalling risk is a virtue. People who take risks command respect. Politics is a poisonous bureaucracy. Bureaucracy does not understand Skin In The Game.

“Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions.”

It is precisely because of politicians acting without appropriate Skin In The Game, that Taleb argues, is what got Donald Trump elected as President of the United States in 2016. Whether it be the truth or not, when Trump signals, people inherently respect his message more because he is clearly not a bureaucrat and appears to have Skin In The Game.

Personally, I am not exactly sure where I come down at that particular commentary, but it’s leaning more against than with. The Donald Trump phenomenon had more to do with the psychology of populism than his ability to signal. But since those two phenomena are closely related perhaps there is more truth to it than I can realise

Hammurabi’s Law | Ancient Skin In The Game

People have known for a long time how fundamental individual responsibility is for the well-functioning of society.

In Babylonian Mesopotamia, around 1750BC – almost 4,000 years ago. A steel pillar stood in the town square, engraved on it the laws of society.

On this steel pillar was marked in excess of 200 laws and maxims including the popularised:

“An eye for an eye, a tooth for a tooth“
-Hammurabi’s Law, 1754BC
“Do unto others as you would have them do to you“
Luke 6:31, The Golden Rule

In the earliest memory of our species, we idealised Skin In The Game. Taleb recounts a rule specific to the architect taken from Hammurabi’s Law.

If an architect builds a home that later goes onto collapse killing the inhabitants of the house, then the architect is accountable for those deaths. Tooth for tooth. However, if the firstborn dies in the event of the property collapsing, then, in symmetrical fashion, the architect’s first son should be put to death as well.

Skin In The Game. No one was incentivised more than the architect to build a stable home.

Real Word Applications Of Skin In The Game

What are some professions that occupy copious Skin In The Game?

  • Pilot.
  • Surgeon.
  • Author.
  • F1 Driver.
  • Freelancer.
  • Scienctist.

The downside of these professions are equal too, if not greater than, the upside they receive.

A pilot is well paid, he is compensated all the way to the highest echelons of society (although not as much these days). Society respects him and rewards him. A pilot has Skin In The Game, because, what happens to bad pilots?

An F1 driver has teams of 100 people that contribute to the functioning of their car, but on the track, there is only one person that decides how that care is going to perform on that day. Should the driver take a wrong turn and crash, they are exposed to the risk, no one else.

A freelancer cannot hide behind an accountability dodging bureaucracy. They are only as successful as their work is. They don’t have an infrastructure of people to defer risk onto. They absorb it all, and so consequently can potentially be rewarded far better than any bureaucrat will ever be.

What Happens To Bad Pilots?

A pilot who must ride the bus from point A through to point B is going to do a far better job of ensuring the cockpit is functional than the pilot who just calibrates the system and checks out.

That might be more efficient. Having someone other than the pilot get the plane into shape. But, the pilot making the trip has more Skin In The Game, and therefore, that pilot is going to do a better job at calibrating his own system.

Think about the production line at Boeing, or think about the 737-Max head engineer. You can bet that they might have done that 1% extra of the job required, if they were to board their creations maiden flight.

Skin In The Game identifies incentives.

That is not to say Boeing and the head engineer of the 737-Max don’t have Skin In The Game.

They do.

As of writing this, Boeing is trading at an all-time low and there are legitimate fears for the future of the company. They have reaped a downside in the aftermath of planes falling out of the sky according to their exposed risk.

Although, Hammurabi would argue not enough.

Skin In The Game should not be absolute. It should not be the case that you are exactly accountable for all the downside, it should only be significant enough to incentivise. We do not follow Hammurabi’s Law of ancient Mesopotamia. A tooth for a tooth will no longer do. But there is no evolution without Skin In The Game, and for this reason, Boeing might fall.

You wouldn’t expect a construction firm to be contracted a second bridge after their first collapsed.

They are out of the game.

But such is the mal aligned incentives of corruption, this sort of chicanery happens again and again.

What are some professions devoid of Skin In The Game?

  • Noise Journalism.
  • Consultancy.
  • Politics.
  • Professional Bureaucrats – Mid-High Level Managers.
  • Economists.
“If you don’t take risks for your opinion, you are nothing“
-Nassim Taleb

In the ancient Mediterranean, Spartan mothers would tell their departing sons, referring to the warrior’s shield.


“You return with it, or on it”


A Spartan mother would rather her son be dead, then bare the shame of retreat.

Spartan mothers understood Skin In The Game.

Critics can determine the success of a new restaurant, new film, new music. With great power comes great responsibility.

A critic might slate a restaurant for any number of reasons, but does that make them correct? Unless a critic is exposed to the downside risk of being proven wrong by a restaurants subsequent success, then that piece of critics journalism is absent of Skin In The Game. They can get away with all the upside of having a popular read, without incurring any of the downside should their opinion be proven wrong.

An economist’s model put in practice could create or uncreate thousands of jobs. Proof that an economist does not have Skin In The Game, is when the same economist is consulted again and again, despite the ineptly theoretical basis of their claims. Fundamental to these economic models is rational behaviour.

No one behaves like an economists version of ‘rational’.

To identify whether an action has Skin In The Game or not. Simply measure the persons exposure relevant to the upside.

Did the bankers selling faulty loans that caused the GFC have Skin In The Game?

Would they have behaved differently if they had

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Robert Rubin, a former Secretary of the United States Treasury, collected more than $120 million from Citibank in the decade preceding the 2008 GFC. He collected this money as direct consequence of the privatised upside his financial actions earned.

Not a problem. Assuming you also are willing to bare the risk of the downside of your financial decisions. Bob Rubin did not.

When the taxpayer emptied their pockets in the billions, bailing out the dysfunctional banks, Bob Rubin did not have to return all of his $120 million and then some to compensate. Bob Rubin did not lose his job, and Bob Rubin did not go broke. If Bob Rubin had Skin In The Game, then all the subsequent would have been realised.

Bob Rubin represents thousands of financial decision-makers who contributed to the GFC. It is not clear why Taleb decided to call out Rubin specifically, but expect to be exposed to Taleb’s wrath should you be dodging your Skin In The Game.

The bankers privatised the upside and socialised the downside.

They liquidated and deferred their high-risk actions onto the taxpayer, while they alone reaped all the financial upside. Totally asymmetrical.

The essence of having NO Skin In The Game.

There are many more lessons and anecdotes rife throughout this book. It is a pleasure to read and Taleb brings his contrarianism front and centre making for a lot of humorous interactions.

I will conclude this piece with some additional quotations taken from the book that further surmise what it is, to have Skin In The Game.

“Always do more than you talk, and precede talk with action. For it will always remain that action without talk supersedes talk without action”
-Fat Tony
“People resent those at the top with no Skin In The Game”
-Nassim Taleb
Act your virtue, do more than signal it, “Show rather than be”

There are many more lessons and anecdotes rife throughout this book. It is a pleasure to read and Taleb brings his contrarianism front and centre making for a lot of humorous interactions.

I will conclude this piece with some additional quotations taken from the book that further surmise what it is, to have Skin In The Game.

“No muscles without strength,

friendship without trust,

opinion without consequence,

change without aesthetics,

age without values,

life without effort,

water without thirst,

food without nourishment,

love without sacrifice,

power without fairness,

facts without rigor,

statistics without logic,

mathematics without proof,

teaching without experience,

politeness without warmth,

values without embodiment,

degrees without erudition,

militarism without fortitude,

progress without civilisation,

friendship without investment,

virtue without risk,

probability without ergodicity,

wealth without exposure,

complication without depth,

fluency without content,

decision without asymmetry,

science without skepticism,

religion without tolerance,

and most of all: nothing without skin in the game“.

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