Philosophy Business Big Ideas

Skin in the Game: Hidden Asymmetries in Daily Life (Summary)

by Nassim Nicholas Taleb

In the lead-up to the 2008 financial crisis, bankers and executives at institutions like Citigroup made hundreds of millions in bonuses by taking on hidden risks. When those risks blew up and destroyed the global economy, they kept their bonuses. The taxpayers got the bill. This is the ultimate violation of a principle as old as civilization: you must have your own skin on the line. As the ancient Code of Hammurabi dictated, if a builder builds a house and it collapses and kills the owner, the builder is put to death.

Beware the Intellectual Yet Idiot (IYI)

Taleb skewers a class of educated elites who are experts in theory but have no contact with real-world consequences. They propose complex solutions from a sterile distance without any personal risk, often making things much worse.

Prominent pundits and policymakers who championed the 2003 Iraq invasion from comfortable offices, predicting it would be a 'cakewalk,' are classic IYIs. They faced no personal or professional repercussions for their catastrophic misjudgment, while soldiers and civilians paid the ultimate price.

The Most Intolerant Minority Wins

An uncompromising and intolerant minority can impose its preferences on a much larger, more flexible majority. This 'minority rule' explains why many social norms and market standards are not driven by the majority.

Why are so many drinks in the US sweetened with high-fructose corn syrup instead of sugar? A small, intransigent lobby for corn producers was able to impose its preference on the entire food system, even if the majority of consumers would be indifferent or prefer sugar.

Symmetry Is the Soul of Justice

True fairness and accountability require symmetry. You cannot claim the rewards of a decision (the upside) without also being fully exposed to its potential negative consequences (the downside).

Ancient Roman engineers had to stand under the arches of the bridges they built as the scaffolding was removed. This ultimate form of skin in the game ensured they had a powerful, personal incentive to build structures that were safe and reliable, aligning their interests perfectly with the public's.

The Silver Rule Trumps the Golden Rule

The Golden Rule ('Do unto others as you would have them do unto you') can be problematic because it imposes your own preferences on others. The 'Silver Rule' ('Do not do unto others as you would not have them do unto you') is a more robust ethical principle because it prevents harm without forcing your tastes on the world.

A person who loves spicy food might, following the Golden Rule, cook an intensely hot meal for a guest, making them miserable. The Silver Rule simply requires you not to serve them something you know they dislike or that would make them sick, creating a better foundation for co-existence.

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