Skin in the Game is the fifth book in Taleb’s Incerto series. The main idea of the Incerto is that the world is fundamentally unpredictable, and Skin in the Game is about the ethics of living in that uncertain world.
Someone who has “skin in the game” has a vested interest in the outcome of an event—and, more importantly, has something to lose. At a rodeo, the rider on the bucking bronco has skin in the game, while the audience member eating popcorn in the bleachers does not. Essentially, Taleb equates skin in the game to risk. The more you have to lose, the more skin you have in the game.
Taleb argues that the foundation of ethics is that everyone involved has equal skin in the game. In other words, your actions that benefit you should benefit others, and, more importantly, your actions that harm others should harm you.
According to Taleb, our first impressions of how the world works are often not just wrong, but dangerously contradictory to reality. Institutions that ignore the need for skin in the game are doomed to fail, and they’ll likely cause widespread harm along the way.
In this guide, we’ll:
Origins of “Skin in the Game”
Taleb originally formalized his view of “skin in the game” in his 2012 book Antifragile. The main idea of Antifragile is that a certain amount of stress and chaos makes some “antifragile” things stronger, like how breaking down muscle during a workout triggers growth. “Skin in the Game” was the name of a chapter near the end of that book, in which Taleb applies the idea of antifragility to ethics.
People who don’t have skin in the game are essentially stealing antifragility, which is unethical. For example, if a popular finance pundit offered bad investment advice that drove up sales of his book, he would become more antifragile, profiting from uncertainty. It doesn’t matter if the advice works or not—he comes out ahead either way. However, the investors taking the bad advice would become more fragile, as they’re at greater risk of losing money.
Taleb believes that an ideal system—whether it’s a country, a company, or even a religion—is made up of as many people with as much skin in the game as possible. Why?
First off, skin in the game allows us to learn from our mistakes. Taleb is adamant that knowledge gained through direct experience is far more reliable than knowledge sussed out through abstract reasoning. Individuals improve by learning from painful failure. An actress could read a million books on acting theory, but if she doesn’t go out and risk falling flat in auditions or on stage, she’ll never improve.
Likewise, systems improve by eliminating components that don’t work. If every failing business were given bailouts in order to continue running—if they carried no risk and didn’t have skin in the game—we would be surrounded by suboptimal businesses.
Secondly, skin in the game inspires better work. People are more engaged when their skin is in the game. They’re less likely to get bored, more likely to put in effort, they’ll make better decisions, and they generally feel more fulfilled. A teenager would be much more engaged during her driver’s license test than during the drive to a friend’s house. This is because she has something to lose if she fails her driving test—skin in the game. Ideally, all jobs would incorporate an element of skin in the game, creating something to lose by tying rewards to results.
Lastly, people behave more ethically with skin in the game. People are less likely to give in to temptation if they know they’ll be punished if they get caught. Telling your four-year-old that he’ll get a time-out if he hits his brother is putting his skin in the game.
An organization whose members lack skin in the game will be unable to learn from its mistakes, will care less about accomplishing its goals, and will foster corruption. This is because without skin in the game, individual agents are separated from the consequences of their actions.
Nassim Nicholas Taleb’s Personal Politics
Taken together, Taleb’s three reasons for prioritizing skin in the game may be the foundation of his personal politics.
Most of the time, Taleb is deliberately evasive about his political affiliation. He’s often presumed to be a libertarian, as he is strongly opposed to governmental intervention except when it is absolutely necessary.
However, Taleb has stated online and in interviews that libertarian isn’t the most accurate label to describe him, as he doesn’t see personal liberty as the highest virtue. He isn’t fundamentally opposed to government.
Instead, Taleb describes himself as primarily “not a libertarian, but a localist.” The foundation of Taleb’s political belief is skin in the game. The bigger an organization gets, the less skin in the game each individual has, as they’re distanced from the consequences of their actions. As a result, Taleb is a strong advocate for decentralized, local government.
In Taleb’s eyes, centralized government in which a few decision-makers dictate policy for people thousands of miles away prevents those in power from learning from their mistakes, causes them to care less about their jobs, and enables political corruption to go undetected.
As political units get smaller, Taleb becomes more supportive of governmental power, as the direct effects of their decisions are more easily observed. In Antifragile, he identifies Switzerland as the best government in the world, as it’s controlled by a stable collection of tiny powerful states called cantons.
Taleb argues that employment, the source of most of the wealth in our modern society, is only possible through a very specific kind of skin in the game.
Companies that produce massive amounts of wealth require reliable employees, as any failure in the assembly line comes at enormous cost. Employers ensure reliability by giving employees something valuable that they don’t want to lose—a secure income, benefits and perks, and a sense of personal identity. This is the skin employees have in the game.
Using this example, Taleb establishes the broader principle that freedom comes from bearing one’s own risks. By binding themselves to the company’s “Game,” employees sacrifice their personal freedom, and they can only get it back by embracing personal risk—quitting and finding a new way to provide for themselves.
Freedom Through Discipline
In Discipline Equals Freedom, former Navy SEAL Jocko Willink (Extreme Ownership) makes the same connection between freedom and personal sacrifice as Taleb. Willink explains his philosophy in an interview for Forbes: Discipline means saying “no” to easy things that you don’t really want, whether that be time spent on Twitter, a second helping of ice cream, or even a comfortable but unfulfilling job. True freedom—the ability to do what you want to do—is only achievable through the discipline to deny yourself and delay gratification.
Taleb argues that wealth earned through skin in the game contributes to society in a healthy way. What most people resent is not economic inequality, but economic unfairness—that is, earning money without producing value, giving without taking, having no skin in the game.
Taleb states that this economic unfairness can be measured with a metric he calls “dynamic inequality,” or two-way income mobility—how easy it is to earn more wealth or lose the wealth you have. A perfectly Dynamically Equal society would be one in which no individual spends more time in any one income bracket than anyone else. Taleb asserts that, when analyzed dynamically, the United States is far more economically fair than most assume—for instance, more than half of all Americans will eventually spend at least a year in the top 10% of income earners.
Taleb argues that the free market already rewards those who take risks to create value, so the way to reduce inequality is to force top earners to risk their wealth in order to keep it. He asserts that dynamic inequality is worst in places with a large centralized government such as France, where officials actively protect the salaried executives of large corporations without skin in the game.
Controversies of Social Mobility
Social mobility is a difficult statistic to track, and various interpretations of data result in contradictory conclusions.
The social mobility statistics that Taleb cites are from Cornell’s Dr. Thomas Hirschl, who concludes that high rates of income mobility in the United States make the nation far less segregated by class than it initially appears. “54% of Americans will experience poverty or near-poverty at least once between the ages of 25 and 60,” indicating that hardship isn’t limited to a single downtrodden group.
On the other hand, the Brookings Institution has concluded that growth in inequality is putting an abrupt halt to social mobility. By comparing individuals’ income to their parents’, these researchers have determined that children born in the bottom 20% of income are ten times more likely to stay in the bottom 20% than to rise to the top 20%. Being born into a wealthy family appears to have a sizable impact on a child’s future opportunity. This statistic is only somewhat “dynamic” by Taleb’s definition—it tracks income across generations, but still only measures individuals at one static point in their life.
Another way skin in the game makes the world better is by empowering small groups. Taleb argues that the state of the world is largely the result of minorities passionately fighting for what they want rather than a majority’s consensus. These small groups forcibly put as much skin in the game as possible, making more sacrifices than anyone else is willing to make in order to get what they want.
For example, Taleb credits the original spread of Islam to specific “stubborn” religious rules—anyone who married a Muslim had to permanently convert to Islam, along with any future children. Across many generations, these uncompromising rules overpowered many religions with more lax requirements.
You can be part of a “passionate few” yourself! History shows that no matter what change you want to make in the world, if you’re persistent enough, people less committed than you will bend to your passion.
The 3.5% Rule
You’re likely underestimating what it takes to change the world. History shows us that in order for your passionate few to succeed, you only need 3.5% of the population on your side. In a study of hundreds of political movements from the last century, from the Philippines' 1986 People Power campaign to Georgia’s 2003 Rose Revolution, one researcher has found that events in which 3.5% of the population actively participates have never failed, at least in recent history. Additionally, nonviolent campaigns are twice as likely to achieve their aims than violent ones—all you need to do to make a change is get the people on your side.
Finally, Taleb argues that any action that makes the world better by definition involves some skin in the game. He defines courage as the tendency to put skin in the game—in other words, the willingness to bear risk and make sacrifices. In Taleb’s eyes, this is the highest virtue because anything done to benefit others requires some amount of risk that you must be prepared to bear.
For this reason, the only way for seemingly virtuous action to lack skin in the game is if it also benefits the one doing the virtuous action. The return benefit takes your skin out of the game by offering you a reward independent of the well-being of the person you’re trying to help. If a man only volunteers at soup kitchens as a means of picking up women, it obviously makes his work less virtuous.
Taleb argues that people who make a living in “altruistic careers” outside of the free market—whose income comes from donations or taxes—don’t have skin in the game. As a result, they’re far more likely to inadvertently cause harm than entrepreneurs who are paid directly by those they’re serving.
Skin in the Game Problems in Foreign Aid
Taleb points to the aid industry as an example of the detrimental effects of nonprofits without skin in the game. Zambia-born economist Dambisa Moyo agrees, noting several unintended consequences of foreign aid, including increasing poverty and stunted economic growth across Africa.
Often, foreign aid supports corrupt and inefficient governments—in 2004, one expert asserted to a U.S. Senate committee that the aid-minded World Bank abetted the corruption of $100 billion of its funds intended for African development. Additionally, aid takes away the incentive for governments to improve the local economy—it takes 426 days to get a business license in Cameroon, making local enterprise much more difficult and foreign enterprise more attractive. Finally, donated goods can put local Africans out of business. American food sent to Africa earns money for American farmers, not African farmers.
Foreign aid is certainly a noble cause, but if it’s not executed well, it can cause more harm than good. Taleb’s point is that, without skin in the game, nonprofits are unlikely to learn from their mistakes.
Systems that involve skin in the game naturally improve over time. When people with skin in the game make efforts to minimize risk and loss, they eliminate whatever doesn’t work, leaving behind only what is useful and effective. Salespeople eliminate strategies that fail, managers fire salespeople that don’t sell, and the competitive market eliminates firms that don’t turn a profit. Given enough time and skin in the game, everything effective will survive and everything ineffective will die out. Taleb asserts that this process is the only inerrant judge of quality.
Taleb wrote Skin in the Game in explicit opposition to an ideology he calls “Intellectualism.” Intellectualism states that rational humans have the capacity to replace skin in the game as judges and reliably distinguish good from bad. Consequently, intellectualists believe that systems should be designed by a select few instead of being allowed to evolve over time. In Taleb’s view, Intellectualism overestimates the reliability of human intellect and underestimates the world’s complexity and unpredictability.
Taleb repeatedly uses the book Nudge as an example of Intellectualism. Economist Richard Thaler argues that those offering choices—for example, a company offering multiple retirement plans—should “nudge” people to make better, more “rational” decisions, without limiting their options. In Taleb’s eyes, any “nudge” that directs behavior is an unwarranted intervention in a complex system that will likely cause harmful side effects.
Intellectualism fails because human judges are fallible. It’s far more likely that humans will make bad decisions than good ones. If fallible human judges within a system lack skin in the game and can’t be eliminated for their mistakes, flaws will pile up, undetected, until the system crumbles. Next, we’re going to look at specific industries and institutions where this is happening.
The Curse of Learning
According to Taleb, Intellectualists suffer from what he calls the “curse of learning,” as described in his 2007 book The Black Swan. Because the world is so complex, even the most experienced experts are often unable to accurately learn from it—yet because of their education, they vastly overestimate their own understanding, resulting in bigger mistakes than individuals with less education would make.
The book Superforecasting documents this same phenomenon. Researchers found that the vast majority of experts are no better at predicting significant world events than someone randomly guessing. Additionally, despite being wrong as often as anyone else, experts were far more likely to make extreme predictions within their field—they frequently declared events either impossible or 100% certain to occur.
Experts’ blindness of their own inadequacies supports Taleb’s argument against Intellectualism. When experts are so frequently and extremely mistaken, systems need to be built around skin in the game so that errors can be corrected.
Taleb argues that the world suffers from a lack of skin in the game in science and academia. Ideally, scientific fields would be dominated by skeptical experimenters who are rewarded for devising a more accurate understanding of how the world works by disproving the theories that come before them. Unfortunately, modern science has strayed from this ideal because researchers lack skin in the game.
Instead of judging research by how well it stands up to skeptical experimentation, peer review has become the ultimate judge of quality science. Since peer approval is a reciprocal process, as long as a group of academics reaches consensus, the validity of their ideas doesn’t matter. They can create a feedback loop of approving each others’ research, earning themselves funding and tenure with no penalty for being wrong. Additionally, Taleb argues that misinterpreted data often leads to invalid conclusions—academics don’t verify their knowledge in the real world nearly enough.
Taleb argues that these flaws yield inaccurate conclusions and misguided theories that can cause major harm if applied at a large scale in the real world.
Taleb asserts that the only way to ensure effective scholarship is to stop paying scientists to conduct research. Instead, we should require working professionals to conduct research on their own time. This puts the skin of researchers back in the game—they have to sacrifice time, money, and effort in the name of science if they want the rewards of discovering something valuable.
Why Do Researchers Lack Skin in the Game?
Taleb argues under the assumption that academia lacks skin in the game, but he doesn’t explain how or why this came to be.
Only a small fraction of scientific research ends up providing practical benefits to society, and it’s difficult to predict how valuable any given line of research will be until after these discoveries are made. If valuable discoveries were predictable, they would have already been discovered.
For example, Alexander Fleming, the scientist who discovered penicillin, initially failed to recognize the practical value of his discovery. It was more than ten years before it was used as a revolutionary antiseptic. Since it’s difficult to predict the value of scientific exploration, the majority of researchers get paid salaries for research that in the end generates little value.
Researchers don’t bear the financial risks of their research, and this imbalance between risk and reward is a lack of skin in the game. Thus, fallible human judges are the ones evaluating research instead of the inerrant judge of time, which, as we’ve discussed, causes problems.
Centralized government is another system that harms the world due to a lack of skin in the game, according to Taleb. In his eyes, centralized government invariably results in mismanagement and corruption at a large scale. Instead, Taleb is a strong advocate of the decentralization of power, as mentioned earlier.
Taleb identifies one common misconception that he believes contributes to many of the world’s biggest problems: Those who support centralization mistakenly assume that the logic and ethics they use to make decisions on a small scale will have the same effects at a large scale. In reality, when those in power make decisions at a large enough scale, the intellect and morals they use on the individual level fail to effectively do good.
(Shortform example: The European Union’s “Common Agricultural Policy” launched in 1962 instituted extreme farming subsidies across the continent. Maintaining a stable food supply for the collective is a rational, moral goal. However, in practice, the policy has failed to do good. It has increased the price of food (which hurts those in poverty the most) and funneled millions of dollars to corrupt government leaders like the Prime Minister of the Czech Republic.)
Human intellect is fundamentally limited. Large governments manage such large, complex systems that their intervention and attempts at restructuring are far more likely to be harmful than beneficial. Ensuring that decision-makers have as much skin in the game as possible protects us from leaders with too much faith in their own intellect and morals.
Scaling Is the Heart of Taleb’s Politics
The cornerstone of Taleb’s political perspective is that groups of different sizes behave in extremely different ways—as stated in Skin in the Game, it’s possible to be “at the Fed level, libertarian; at the state level, Republican; at the local level, Democrat; and at the family and friends level, a socialist.” Since the rules change as groups grow bigger, you need to adopt different philosophies for groups of different sizes.
In the Scala Politica, Taleb’s book-length political manifesto published as an academic paper, Taleb argues that borderless globalism is impossible—people naturally care about their own families and sometimes their own nations, but they wouldn’t find the same sense of meaning if they could only relate to humanity as a whole. Additionally, there is no one way of life that will satisfy everyone on earth. This requires a system that allows “tribes'' of different sizes (families, nations, religious communities) to coexist and set their own rules.
Another area in which the absence of skin in the game makes the world worse is the news industry. Taleb argues that because journalists lack skin in the game, news institutions become dominated by a single point of view. They often misrepresent the facts in pursuit of their own interests because there is no penalty for doing so. Errors in the news go undetected by most, and they typically aren’t extreme enough to provoke a libel suit.
Ideally, news flows in two directions—everyone is equally able to send and receive news. This way, those who spread news have skin in the game, as unreliable reporting costs them their reputation. This arrangement was commonplace in the era of village gossip but disappeared when newspapers and radio took over. Now, Taleb asserts that social media has reborn two-way news and is destroying unreliable news sources in the process.
Internet News Takes Skin Out of the Game
In Trust Me, I’m Lying, the Daily Stoic’s Ryan Holiday recounts his experience as a marketing director exploiting flaws in the Internet-based news media. Holiday explains that advertising-driven blogs—which comprise the majority of online news sources—earn income based solely on pageviews, and as a result, they put greater emphasis on sensational, attention-grabbing news and less on balanced perspective and reliable fact-checking. As Taleb points out, journalists’ skin is not in the public’s game.
Lastly, leaders and institutions that perpetuate war without skin in the game cause the world great harm. Taleb argues that populations with skin in the game tend to fight shorter, relatively non-destructive wars, and that all the bloodiest conflicts in history were driven by third parties.
War puts mass skin in the game, not only for the people doing the fighting, but everyone who bears the risks of war—all civilians who suffer domestic turmoil and a stressed economy. The mutual drain of resources required by war puts constant pressure for peace on both sides. But if the ones ordering the war aren’t personally suffering its dire consequences, it’s more likely to continue.
For Taleb, this is another reason why decentralized states are better than a large unified nation—centralized governments are more likely to participate in deadlier wars because the decision-makers are farther away from the people making the sacrifices.
Additionally, foreign efforts to implement peace by powers without skin in the game cause more problems than they solve. Even if a war is settled on paper among dignitaries, if the people themselves aren’t the ones to reconcile, the underlying conflict won’t go away.
The War of Peace
Taleb has engaged in a lengthy feud with psychologist Steven Pinker on the topic of whether or not violence has declined over the course of history. Taleb’s chapter on war is partially a response to Pinker’s 2011 book The Better Angels of Our Nature, in which he argues that the world is safer and more peaceful than ever before.
Pinker credits this in part to powerful democratic human institutions such as the United Nations that Taleb disdains. Taleb argues that the seventy or so years of overwhelming peace we’ve had since World War II could simply be a statistically predictable gap between massive wars, and that centralized institutions intended to create peace often cause more conflict than they resolve.
We’ll conclude by discussing the philosophical implications of skin in the game. It’s a fundamental human truth that skin in the game is at the core of everything valuable or meaningful. How much we value something can be measured by how much we’re willing to risk for it.
By examining what humans universally are willing to sacrifice for, Taleb concludes that everything we do is a means toward one end: our survival and the survival of the human race. We build houses to protect us from nature, we build cities to help us collaboratively fulfill our survival needs, and we create technology to help us live longer and easier lives.
With this in mind, Taleb argues that instead of defining “rational” beliefs as those that align with our understanding of the way the world works, we should see any belief that enables survival as rational. It’s impossible to judge the rationality of beliefs using logic and abstraction. The universe is too incomprehensibly complex—there will always be unknown factors that could lead us to faulty conclusions.
Instead, Taleb judges the “rationality” of beliefs by how long the beliefs (and the populations who held them) have survived. For example, the skin in the game-based principle that criminals should be punished for their crimes has lasted for thousands of years because it helps societies survive.
This leads Taleb to conclude that lasting traditional religions are all rational belief systems because they aid humanity’s survival. The validity of their metaphysical claims doesn’t matter—if they encourage action that leads to survival, they should be respected as rational beliefs. Moral commandments that motivate believers to put skin in the game are one example of this kind of “rational” belief.
Critique of Taleb’s Rationality
This definition of rationality is a recurring point of contention among Skin in the Game’s critics. If we were to totally refrain from abstract judgment of beliefs and instead wait for them to play out over years to see if they survive, truly irrational beliefs could cause massive amounts of suffering—as an extreme example, if the Allied Forces had allowed Nazi Germany’s ideas to play out, they could have destroyed the world. It’s necessary to label some beliefs as irrational.
It’s impractical to assume that all new beliefs are inferior to traditional ones. Taleb’s assertion that “everything that survives survives for a reason” doesn’t necessarily prove his more extreme point that every belief that has survived has aided that survival. Sometimes, beliefs survive despite hurting our chances of survival—people believed in medicinal bloodletting for thousands of years.
Skin in the Game is the 2018 addition to Nassim Nicholas Taleb’s bestselling Incerto, a series of philosophical nonfiction works dedicated to exploring how uncertainty defines our world.
The book is a treatise on the necessity of skin in the game—the need for everyone to be held accountable for the consequences of their actions. In this guide, you’ll become familiar with Taleb’s unique way of making sense of the world and in the process discover game-changing insights in wide-ranging areas of life, such as business, science, history, and religion.
Nassim Nicholas Taleb is a Lebanon-born author and statistician. A provocateur in the academic world, Taleb is simultaneously lauded for his revolutionary insights and criticized for his bombastic, combative style.
Taleb draws heavily from his experience as a former options trader, to which he attributes his deep familiarity with risk and uncertainty. Taleb earned a PhD in management science from Paris Dauphine University and has researched and taught risk management and probability at institutions such as University of Massachusetts Amherst, Oxford University, and NYU’s Tandon School of Engineering.
He is the author of the critically acclaimed books Fooled by Randomness (2001), The Black Swan (2007), and Antifragile (2012).
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Publisher: Penguin Random House
Skin in the Game was published in February of 2018, six years after the release of his previous work Antifragile. Several chapters from Skin in the Game were published on Medium over the course of a year and a half preceding its official release.
Skin in the Game is the fifth book in Taleb’s critically acclaimed Incerto series. The book expands upon many of the ideas established in the previous Incerto works, putting greater emphasis on the ethical and political implications of Taleb’s philosophy.
This addition to the Incerto was originally unplanned—in the introduction to Skin in the Game, Taleb states that he considered retiring as an author after finishing Antifragile but soon felt the irresistible need to combat the “well-marketed nonsense” of modern intellectuals. For this reason, he began writing Skin in the Game.
Taleb intended this book as a response to the work of those influential academics who he perceived to be propagating dangerous misinformation and faulty thinking. He argues that because these intellectuals lack “skin in the game,” errors in their thinking are never corrected, and the negative consequences of their ideas can never be directly observed.
Among the books Taleb specifically criticizes are Capital in the Twenty-First Century by Thomas Piketty, Nudge by Richard Thaler and Cass Sunstein, and The Better Angels of Our Nature by Steven Pinker. Taleb poses direct counterarguments to each of these books in chapters dedicated to economics, rationality, and the history of war, respectively, and he disparages their status as risk-exempt intellectuals throughout the book.
In other chapters, this book is a natural progression from the ideas presented in Taleb’s earlier Incerto works. He has previously advised individuals and organizations on how best to operate in a deeply unpredictable world—now, he details his vision of an effective, moral civilization within this uncertain world and points out in greater detail where he sees modern society fall short, addressing new topics such as employment and virtue.
Skin in the Game debuted at #2 on the New York Times Bestseller list, despite Taleb’s choice to refrain from promoting the book or sending out copies to reviewers.
Reviews of Skin in the Game were largely positive. Critics and readers alike praised the book for being Taleb’s most complete view of the world to date, completing the holistic philosophy established throughout the Incerto. Fans of Taleb’s unique voice were satisfied, as he’s brasher and snappier than ever. Overall, nearly all critics were at least somewhat receptive to Taleb’s central thesis of accountability and consequence.
However, critics disliked Taleb’s prideful animosity that dominates much of this book. Phil Coggan of The Economist mourns that the author behind The Black Swan has become “submerged,” overpowered by “a second Mr. Taleb,” a “cantankerous and over-opinionated [cab] driver.” Some critics and readers questioned the validity of Taleb’s more specific sub-arguments, especially since his conclusions are so extreme. For example, Taleb at one point advocates for the total elimination of salaried research positions—an impractical proposal at best.
Interestingly, Taleb posted a direct response to the most popular critical reviews of Skin in the Game, calling out what he sees as critics’ misunderstandings of his work.
Taleb deliberately cultivates an abrasive style in his writing—one that bounces from topic to topic without fully fleshing out many of the points he makes. There are more ideas than justification in this book, but the book becomes somewhat more focused as it progresses.
In the introduction, Taleb claims his book is “organized the way the reader reads, or wants to read, and according to how deep the author wants to go into a topic,” but the intentionally stream-of-consciousness flow of ideas makes it difficult to detect the larger argument that Taleb is driving toward in each chapter.
On the other hand, Taleb’s idea-dense prose gives the book an engaging forward momentum. The twists and turns of his train of thought keep things consistently interesting. And, while the links between ideas can be hazy, the ideas themselves are presented in clear, precise language, making it easy to follow Taleb down his winding path.
Taleb posted many of the chapters in this book separately online before publication, and, consequently, the book reads at times like a collection of loosely connected essays. The sequencing of chapters comes off as somewhat arbitrary. Taleb groups the chapters into “Books” of inconsistent length, stitching together chapters that don’t obviously belong with one another. Some topics are spread out throughout the book when they would be clearer concentrated in a single chapter.
Instead of preserving Taleb’s unique stream of consciousness, we’ve reorganized his ideas into a progression that’s easier to follow. We’ve also synthesized points on topics that are scattered throughout the book, such as science and government, into their own sections in order to get a better sense of how they fit into Taleb’s central argument. Here’s a map showing how Taleb’s chapters are organized within this guide:
Introduction
Part 1: How Skin in the Game Makes the World Better
Part 2: How a Lack of Skin in the Game Makes the World Worse
Part 3: Philosophical Implications of Skin in the Game
In this guide, we’ll begin by establishing what skin in the game is and why it’s important in Part 1 We’ll move on to show the different ways in which skin in the game makes the world better in Part 2, beginning with concrete topics such as employment and economics and working toward more abstract topics such as passion and virtue.
In Part 3, we’ll investigate Taleb’s criticisms of areas in which a lack of Skin in the Game causes problems. We’ll describe how and why this happens in Chapter 6 before applying those principles to specific institutions such as academia and government in Chapters 7-10.
Finally, we’ll conclude with the philosophical implications of Taleb’s worldview in Part 3, summarizing the author’s ideas about the meaning of life and religion.
Along the way, we’ll paint a fuller picture of Taleb’s complex worldview by providing context from other books in the Incerto series, as well as other written work by Taleb such as op-eds and academic papers.
In this book, Nassim Nicholas Taleb deconstructs what we know about life and society with a new ideological framework that’s both unconventional in its insights and fundamentally human. By reinterpreting life in terms of risk and reward, Taleb demonstrates how “skin in the game” is the foundation of an honorable, fulfilling life and why shirking your fair share of risk is the root of all evil.
Someone who has “skin in the game” has a vested interest in the outcome of an event—and, more importantly, has something to lose. At a rodeo, the rider on the bucking bronco has skin in the game, while the audience member eating popcorn in the bleachers does not.
Essentially, Taleb equates skin in the game to risk. The more you have to lose, the more skin you have in the game.
According to Taleb, our first impressions of how the world works are often not just wrong, but dangerously contradictory to reality. Understanding skin in the game is vitally necessary to accurately understand law, morality, politics, science, religion, and many other driving forces of our world.
Origins of “Skin in the Game”
Taleb originally formalized his view of “skin in the game” in his 2012 book Antifragile. The main idea of Antifragile is that a certain amount of stress and chaos makes some “antifragile” things stronger, like how breaking down muscle during a workout triggers growth. “Skin in the Game” was the name of a chapter near the end of that book, in which Taleb applies the idea of antifragility to ethics.
People who don’t have skin in the game are essentially stealing antifragility, which is unethical. For example, if a popular finance pundit offered bad investment advice that drove up sales of his book, he would become more antifragile, profiting from uncertainty. It doesn’t matter if the advice works or not—he comes out ahead either way. However, the investors taking the bad advice would become more fragile, as they’re at greater risk of losing money.
Most of the ideas present in the Skin in the Game chapter of Antifragile are repeated in this book.
In this section, we’ll first more closely define skin in the game and explain why Taleb finds it so important. Next, we’ll cover some basic principles surrounding skin in the game that will remain relevant throughout the book. Finally, we’ll define the key concept of asymmetry of skin in the game, explain why it’s unethical, and show how it applies to unethical transactions.
Taleb believes that an ideal system—whether it’s a country, a company, or even a religion—is made up of as many people with as much skin in the game as possible. Why? Let’s go over the primary benefits of having skin in the game.
Taleb is adamant that knowledge gained through direct experience is vastly superior to knowledge sussed out through abstract reasoning.
In any given situation, the only way to verify if your understanding is correct is direct exposure to the outcome caused by your understanding. Imagine a high school boy who is dying to know if a girl at school likes him or not. He could dissect every conversation they’ve ever had and come up with countless theories of what she was thinking and feeling, but the only way he can know for sure is by putting his skin in the game and asking her.
Individuals improve by learning from failure. The pain of real failure teaches far more than learning in isolation. Having skin in the game allows people to grow from their mistakes. An actress could read as much on acting theory as possible, but if she doesn’t go out and risk cold reception in auditions or on stage, she’ll never improve.
Likewise, systems improve by eliminating what doesn’t work. 90% of startups fail. If every business that wasn’t able to generate enough income to survive were given bailouts in order to continue running—if they carried no risk and didn’t have skin in the game—we would be surrounded by suboptimal businesses. Systems learn through elimination and filtering.
Skin in the Game Gives Systems a Growth Mindset
In her seminal book Mindset, Carol Dweck argues that the #1 predictor of success for a given individual is whether or not you have a “fixed” mindset or a “growth” mindset—that is, whether you believe that your innate abilities are set for life or able to be trained and improved.
Like Taleb, Dweck stresses the importance of learning from failure—direct exposure to your own failure teaches more effective lessons than anything else. The most successful individuals understand that difficult challenges are the path to growth and actively seek them out.
Skin in the game is the way to give systems a growth mindset. A market economy with entrepreneurs’ skin in the game, for instance, embraces difficult challenges in the same way a growth-minded individual would, as firms in competition rush to solve problems like inventing the best portable music player. Difficult challenges mean more elimination, which is a good thing, so we don’t get stuck with the Zune.
Without skin in the game, systems are stuck with a fixed mindset. An office manager who’s too afraid to fire bad workers has created a system without skin in the game—bad workers are no longer at risk. As a result, the office will steer away from any difficult tasks and remain mediocre.
Additionally, skin in the game reveals true character. Skin in the game reveals preferences. A man on a dating app may claim he loves hiking and adventuring, but if he spends his one day off of work watching Netflix, his true preferences have been revealed.
Similarly, skin in the game reveals who can truly do good and who is all talk. If two mayoral candidates both claim they care passionately about the plight of the homeless, but one candidate spends every weekend volunteering at nonprofits for the homeless while the other plays golf, their difference in true character has been revealed.
In his book Story: Style, Structure, Substance, and the Principles of Screenwriting, screenwriting guru Robert McKee presents a view of the world that, interestingly, overlaps significantly with Taleb’s. “Choices made when nothing is at risk mean little,” he writes, “the greater the pressure, the deeper the revelation, the truer the choice to the character’s essential nature.” The more you risk and sacrifice, the more the image you project to others disappears.
McKee asserts that skin in the game’s ability to reveal true character is one of the secrets to interesting, resonant storytelling. In stories, characters have to be under pressure to be interesting because only then do we get to see who they really are.
On an individual level, people are more engaged when their skin is in the game. Specifically, they’re less likely to get bored, more likely to put in effort, they’ll make better decisions, and they generally feel more fulfilled. In fact, as we’ll see a little later, the key to fulfillment is to put as much skin in the game as possible.
A teenager would be much more engaged during her driver’s license test than during the drive to a friend’s house. This is because she has something to lose if she fails her driving test—skin in the game.
Ideally, all jobs would incorporate an element of skin in the game, tying rewards to results. One example of this is the commission earned by real estate agents. This incentive makes the job more exciting and encourages better work.
Without skin in the game, people are more likely to cut corners and put in less effort. Skin in the game is what makes work feel important—without it, you just don’t feel the need to do your best.
Skin in the Game Puts You in the Flow State
In Flow, psychologist Mihaly Csikszentmihalyi introduces the concept of the “flow state,” which has become ubiquitous in modern psychology. The term refers to the feeling of being “in the zone,” when you’re so engaged in what you’re doing that the world around you seems to disappear. Csikszentmihalyi argues that we should strive to be in flow as much as possible—not only is it enjoyable, it establishes “inner order” (a sense of deep life satisfaction) and helps you develop into a more complex individual.
Skin in the game helps you get into the flow state in several ways—it almost always involves clear goals, immediate feedback, and the difficulty necessary to avoid boredom, all of which contribute to feelings of flow. The driver’s test mentioned earlier would check all these boxes.
Additionally, having something to lose motivates you to tackle challenges that are initially uncomfortable, but put you in the flow state, contributing to a satisfying life in the long run. For example, people have skin in the game most often at work, where they report being in the flow state 54% of the time.
People are less likely to give in to temptation if they know they’ll be punished if they get caught. Telling your four-year-old that he’ll get a time-out if he hits his brother is putting his skin in the game.
Another example: Taleb is a proponent of strong tort law as a means of compelling powerful corporations to behave ethically. The ability for wronged parties to sue puts corporations at risk. By making companies financially liable for their mistakes and misdeeds, tort law forces corporations to directly put skin in the game and act more ethically.
Nassim Nicholas Taleb’s Personal Politics
Taken together, Taleb’s three reasons for prioritizing skin in the game may be the foundation of his personal politics.
Most of the time, Taleb is deliberately evasive about his political affiliation. He’s often presumed to be a libertarian for opinions such as this one, that tort liability is the best way to ensure corporate responsibility.
However, Taleb has stated online and in interviews that libertarian isn’t the most accurate label to describe him, as he doesn’t see personal liberty as the highest virtue. Taleb makes it clear in Skin in the Game that whenever tort law is ineffective at curbing harm caused by corporations, government regulation becomes a necessity—he isn’t fundamentally opposed to government.
Instead, Taleb describes himself as “not a libertarian, but a localist.” The foundation of Taleb’s political belief is skin in the game. He believes that it’s unethical and destructive for anyone to obscure the mistakes they make at the expense of others, and as a result prefers local government over centralized government.
Taleb has claimed that he is, in certain ways, both liberal and conservative. He’s liberal in the sense that he’s open to change, but he’s conservative in the sense that he wants change in the form of small incremental changes instead of sweeping reform.
Next, we’ll go over some broad principles that are key to understanding skin in the game.
A central tenet of Taleb’s argument is that people with no skin in the game have no business being involved. Even if people believe they have the knowledge or skills to help someone, if they have no skin in the game, they should mind their own business.
In the book, Taleb criticizes the United States’s 2003 intervention in Iraq. They had no skin in the game, so the negative consequences of their actions had little impact on them.
Iatrogenics in Iraq
This falls within the topic of “iatrogenics”—when well-intentioned intervention causes more harm than good. This is one of Taleb’s major ideas, recurring throughout the Incerto.
Some would argue that the US did have skin in the game. The Iraq War came at devastating cost to the United States, and overturning the government of Saddam Hussein did little to bring peace to Iraq. However, one reason things turned out poorly is the fact that the United States didn’t have their skin in the right game. Despite the fact that the US sacrificed thousands of soldiers’ lives and billions of dollars to fight in Iraq, none of their losses were directly linked to the goal of peace in Iraq, so it didn’t happen.
Taleb compares the situation to a doctor who injects a patient with cancer cells in order to lower his cholesterol. The patient dies, but his cholesterol levels look great. The goals of the war were imperfectly linked to the goals of the Iraqi people. It would be impossible to implement skin in the game in a situation like this, which is why Taleb for the most part opposes foreign intervention altogether.
The farther away someone is from the consequences of their actions, the less skin she has in the game. A grandmother will be more invested in the happiness of her grandchild if she lives in the same house than if she lives in another country.
Likewise, the longer it takes for the consequences of someone’s actions to surface, the less skin she has in the game. As time passes, it becomes more difficult to attribute effects to their causes. A doctor prescribing a drug that causes cancer 20 years down the road will be held less accountable than a doctor who prescribes a drug that kills the patient instantly.
Time and distance reduce the benefits of skin in the game, hindering the ability to learn from mistakes, lessening the pressure to do good work, and encouraging more unethical behavior.
Defensive Medicine: When Doctors Have Skin in the Wrong Game
Another example of a skin-in-the-game misalignment, “defensive medicine” refers to the harmful practice of prescribing treatment with the intention of avoiding liability rather than doing what’s best for the patient. Unethical medical professionals do this by creating time and distance between treatment (or lack thereof) and its results.
Taleb uses the example of a cardiologist prescribing statins to someone who doesn’t need them, which are harmless in the short term but have a chance of causing problems years down the road. This would be an example of “positive” defensive medicine, unnecessary treatment to avoid being blamed for doing nothing. “Negative” defensive medicine is the similarly neglectful practice of avoiding risky treatment that, if unsuccessful, would make doctors liable for malpractice, but overall would result in better chances for the patient. The consequences of skipping surgery are more difficult to pinpoint than a botched surgery because of time and distance between cause and effect.
While people with skin in the game accept responsibility for their own actions, some people accept greater risk and/or reject greater rewards for the sake of helping others. They put their skin in other people’s games. As Taleb phrases it, these people have their “Soul in the Game.” For example, a songwriter breaks off her record deal because the label pressured her to write boring mainstream hits, sacrificing money and publicity to create better art.
These “artists,” as Taleb calls them, put more skin in the game than anyone. People of any profession can be artists. They gain the benefits of skin in the game in spades:
We should all aspire to be artists and take risks for the sake of others.
Putting Yourself on the Hook
Seth Godin’s book The Practice: Shipping Creative Work is all about taking risks in order to help others and, in the process, reinventing yourself as a professional artist, no matter what profession you’re in. He further defines what it means to have your “Soul in the Game.”
“Askıda ekmek” means “bread on the hook” in Turkish. In ancient times, customers at the local bakery would buy an extra loaf and tell the owner to put it “on the hook” for anyone in need to take, free of charge. Godin uses this as a metaphor throughout the book to describe how you should approach creative work—he urges you to put yourself on the hook. By spending your life channeling your attention and effort into work that might not succeed, or that might even embarrass you, you’re paying your entire life forward for those who need what you create.
Taleb argues that the foundation of ethics is that everyone involved has equal skin in the game.
The Golden Rule to “treat others the way you want to be treated” is another way of phrasing this same idea—although Taleb prefers the Silver Rule: “Do not treat others the way you would not like them to treat you.” When in doubt, you shouldn’t presume to know what’s good for others better than they do—Principle #1 from above.
In short, your actions that benefit you should benefit others, and, more importantly, your actions that harm others should harm you. This is the definition of skin in the game and the definition of ethics.
All codified law, since its beginning, has been intended to enforce penalties for actions with negative consequences—implementing a certain degree of ethics into society and forcing people to put skin in the game.
Moral Philosophy: Taleb Versus Kant
Taleb’s moral philosophy fits into a larger set of theories known as “consequentialism”—the idea that the outcome of an action, rather than its intent, determines whether or not it’s moral. The alternative school of thought is known as “deontology,” which holds that the morally right thing to do remains constant, even if the outcome of a specific action turns out poorly.
Taleb acknowledges this divide, and specifically argues against one of deontology’s most influential proponents: the Enlightenment philosopher Immanuel Kant. Both Kant and Taleb attempt to solve the same problem with their moral philosophies: People who believe they’re doing good often inadvertently do harm. Kant solves this problem by formulating universal moral laws that, if everyone followed, would result in a perfect world—taking the guesswork out of ethical dilemmas by providing objective rules.
Taleb, however, argues that such universal laws do not exist. Since groups and systems of varying sizes behave differently, ethical laws that regularly do good on the individual level will regularly do harm at the systemic level. Despite Kant’s argument to the contrary, there is no way to articulate a perfect moral code, so skin in the game, as imperfect and sometimes impractical as it is, is the only solution. We’ll examine this idea in greater detail in Chapter 8 of this guide.
One belief foundational to Taleb’s worldview is that the world is far too complex to ever fully understand or reliably predict. He couches this statement in a mathematical principle called the “curse of dimensionality”: As systems grow, the rate at which they become complex accelerates.
Taleb makes it clear that any adjustment made to a large, complex system will cause an avalanche of unintended side effects. This is another reason skin in the game is so vitally necessary. Without the true knowledge gained from failure, we would never know enough to navigate the infinitely complex world.
The trickiest thing about large, complex systems is that complex systems behave differently than their component parts.
Many theorists and analysts use the “mean-field approach” to study systems—they reduce a system down to one of its simple components, and use it to draw conclusions about the system as a whole. However, in the vast majority of cases, the mean-field approach proves nothing. Systems behave differently than their component parts—sometimes even in ways that appear to contradict them.
For example, as we’ll see in a future section, large populations often adapt to the preferences of small minorities. If we were to use the mean-field approach, we would assume that in a country where 99.7% of people pay no attention to “kosher” dietary restrictions, kosher food would be incredibly difficult to find. Yet in the United States, 41% of all packaged food is kosher.
In almost every chapter of the book, Taleb examines how complex systems work in the exact opposite way from what a surface-level observer would expect.
The Nature of the Unknown
This idea of complex systems being impossible to predict is one of the central themes uniting the books in Taleb’s Incerto series—in fact, Taleb derived the word “Incerto” from the Latin word for “uncertainty.”
In The Black Swan, Taleb argues that the majority of people entirely misunderstand “the unknown.” The unknown isn’t just the absence of knowledge, it’s the opposite of knowledge, a world where knowing more can mislead you. Applying previous knowledge in domains of uncertainty—that is, whenever systems are large enough to become opaque—can cause severely harmful consequences.
In The Black Swan, Taleb illustrates this idea by recounting a misunderstanding between Jews and Romans in the first century. The Romans put a statue of the emperor Caligula in the Jewish temple in exchange for a statue of Yahweh in their Roman temples. To the Jews, Yahweh wasn’t the same kind of god as the ones the Romans knew, and to diminish him to the status of a man like Caligula was disrespectful and profane. The Romans applied their existing understanding of “gods” in the wrong place, provoking the Jews to revolt.
In the same way, a modern intellectual could apply the mean-field approach to a complex field where it doesn’t belong, for example, economics, and come to conclusions that lead to massively harmful economic policy.
A final concept that’s foundational to Taleb’s worldview is the idea that it’s unethical to force someone else to embrace more risk than you—in other words, putting someone else’s skin in your game.
(Shortform note: Throughout this guide, we’ll refer to “skin in the game” and “risk” somewhat synonymously. Having skin in the game means that you’re risking something in your efforts to achieve a desired outcome. If you fail, you suffer the consequences.)
Risk is unavoidable in an inherently uncertain world. Danger occurs when some people, and not others, are aware of specific risks. People frequently use this information to unfairly pass some of their risks onto others.
This is why Taleb emphasizes the idea of asymmetry throughout the book—hidden imbalances in risk are unethical. Intentionally making your desires more likely by making the desires of others less likely—transferring risk—is, in Taleb’s eyes, theft.
(Shortform note: There are examples of unethical imbalances in risk all around us. For instance, some argue that the information collected by the government to calculate appropriate financial aid is helping schools drive up tuition, as they are made aware of exactly how much a family can afford. The school’s risk of losing income is mitigated, while the quality and potential value of the student’s education remain an uncertain risk. Asymmetries of risk that involve the asymmetry of information like this are the most dangerous, as they’re more likely to go undetected.)
We’ll see many more examples of this in later sections, but first, let’s take a look at a simple example: how this happens in unethical transactions.
People often pass on risk by masking it as a gift such as helpful advice, a good deal on a valuable product, or a wise investment. It’s difficult to tell whether gifts like these are helpful or harmful—which is why there should be skin in the game. You shouldn’t accept “gifts” like these unless the giver has something to lose if it ends up being harmful.
For example, if an insurance salesman is giving you the hard sell for a life insurance policy, ask if the salesman himself is on the policy. If it was a bad policy, he would be getting ripped off, too—his skin would be in the game.
Another example: If someone sells you a pressure cooker that malfunctions and explodes, causing you bodily harm, you should be able to sue for massive reparations. This puts their skin in the game.
This also means that, if you’re selling something, you can deliberately use skin in the game to signal honesty and gain the trust of your customers. This is how money-back guarantees work—sellers are staking their profits on the quality of their product, giving their customers peace of mind and making more sales.
Author Tim Ferriss takes this idea one step further with something he calls a “lose-win guarantee.” When he sold athletic supplements, he offered to give customers double their money back if they were unsatisfied. The visible skin in the game hooked customers, and the money he lost fulfilling the guarantee was less than the extra profits it earned.
On the sellers’ side of things, Taleb outlines specific guidelines for honorable, ethical transactions.
Not only is it unethical to actively mislead your customers, it’s also unethical to hold back any information that might dissuade them from agreeing to the transaction. For example, it would be unethical if someone sold you a house without letting you know it’s built on a cracked foundation that will soon require repairs.
This debate dates back to the Stoic philosophers of the second century, with some arguing that the seller’s only obligation is to reveal only what is required by law. Taleb is of the opinion that the ethical thing to do is to ensure total symmetry of information.
In Taleb’s eyes, any marketing or negotiating tactic that involves misrepresenting your intentions is unethical.
To explain, he recounts the story of a third-century Jewish scholar named Rav Safra. A customer approached Safra while he was praying and asked to buy some wine. Misinterpreting Safra’s silence as a refusal, the customer negotiated against himself, offering more and more money for the wine. When he finished praying, Safra insisted on only taking the customer’s lowest offer, since he had initially intended to accept it. He saw any advantage caused by an asymmetry of information as unethical.
Taleb recognizes that these ethical guidelines are rarely followed in practicality and would be difficult to implement in a body of law. Still, we should strive to achieve symmetry of information in any transaction.
Information Asymmetry Is Bad for Everyone
Asymmetry of information is a common talking point whenever the ethics of transactions are discussed. In his 2005 book The Undercover Economist, economist Tim Harford devotes an entire chapter to the problem of information asymmetry.
Harford argues that, in the long run, asymmetry of information benefits no one. For instance, if customers in the market for a used car have no knowledge of which cars are reliable, they would be far less likely to take the gamble of buying one. Everyone loses. For this reason, honest sellers intentionally try to close the information gap by signaling quality—building a trustworthy reputation. For example, a well-decorated storefront signals that the sellers there are unlikely to pack up and skip town after getting away with a bad deal—they’re trustworthy.
If all sellers operated like Rav Safra, the market would operate more effectively. Buyers would happily spend money on the best deals available, and the sellers offering the best deals would have the most success. This is why Taleb considers transparency a moral imperative.
Now that we’ve covered the basics of skin in the game and risk-based ethics, we’re going to take a closer look at the specific ways in which skin in the game helps our civilization operate as effectively as it does.
We’ll start by discussing Taleb’s view on employment—the cornerstone of our modern capitalist society. Taleb argues that employment is a mutually beneficial agreement in which employees give up their freedom to a company that, in exchange, bears some of their personal risk. In other words, employees put their skin in the company’s game.
This highlights one of Taleb’s key ideas that will form the backbone of this section: Freedom comes from bearing one’s own risks.
First, we’ll take a closer look at the risk-freedom trade-off made by employees, detailing the benefits employees receive from employers and the ways in which their freedom is limited. Next, we’ll discuss the exceptions to this rule: employees who manage to keep their freedom by embracing greater risk. Then, we’ll discuss where the employee-employer relationship falls short and identify its inherent inefficiencies. Finally, we’ll show how you can apply this understanding of freedom and risk in your own life.
For businesses, hiring employees is a way to minimize risk. Today’s corporations are so efficient and produce goods at such a massive scale that any obstacle in the assembly line comes at enormous cost. Undependability and errors are more costly than ever before.
Employers do what they can to make sure their employees keep production running and subjugate their desires for the sake of the company. As Taleb puts it, employers want to take away their employees’ freedom.
Employers give employees something to lose—skin in the company’s game—so they’re more likely to reliably fulfill their duty. The ideal employee is scared enough of losing what the company gives him that he makes his duty to the company a central priority of his life. People are far more motivated by fear of losing what they have than the desire for something they don’t—employers use this fact to ensure their employees’ loyalty.
Essentially, employers pay employees to put skin in their game and accept some of the company’s risk for a share of its rewards. This not only benefits the employers, who earn profits from the work of their employees, but also the consumers, who get to buy the things they want.
(Shortform note: While Taleb argues that the employee relationship is driven by fear, this doesn’t mean that the workplace itself needs to be driven by fear. If workers are constantly threatened with being fired or otherwise punished, the miserable work experience will make them less afraid of losing their job, making employees less reliable and defeating the purpose of employment. On top of this, studies have shown that fear-based workplaces hinder productivity, further incentivizing owners to maintain a positive work environment.)
What does this skin in the game look like? What does the employee receive in exchange for their freedom that they’re so afraid to lose?
We’ll discuss each of these in turn.
For employees, the central exchange of employment is trading away freedom to reduce personal risk through job security. Employees are less free than the unemployed—eight hours a day, they’re forced to go to work.
In exchange, though, their personal risk is greatly reduced. As long as an employee fulfills her job description, the employer promises a steady paycheck—a long-term commitment to help the employee get a place to live and food to eat. Compare this to an independent contractor or freelancer, whose future income is never assured.
This security is the first benefit that the employee has to lose—the form that her skin in the company’s game takes. An employee can always be fired, cutting off that steady paycheck, and the fear of losing it ensures that employees are dependable.
Is Job Security Dead?
Some experts have asserted that job security has become a thing of the past. Highly competitive and rapidly changing industries mean that companies no longer need to offer the long-term job security typical for most of the 20th century. As a result, employees are advised to prepare to pivot—attain valuable skills, don’t be shy about promoting yourself, and always keep an eye out for other opportunities.
Taleb mildly disparages the idea of working on yourself in order to appear employable. In his view, the need to maintain an employable image limits your freedom more than simply having a job does—you’re no longer trying to just keep one company happy, but every company happy. He would prefer that you focus on putting your “Soul in the Game” and do good regardless of the incentives.
Taleb’s opinions aside, even if long-term job security is becoming obsolete, employment certainly isn’t. In most cases, even short-term job security is more attractive than freelance work.
Secondly, employers give their employees benefits and perks that make the idea of getting fired even more unattractive. Standard benefits like health insurance are obviously important to employees, but they may also find themselves hooked on luxuries like a company car, expensive business trips, or a workplace fitness center.
(Shortform note: Most of the time, humans tend to normalize to a consistent baseline of happiness regardless of their external circumstances, a phenomenon psychologists have termed “hedonic adaptation.” People with cushy perks at work aren’t significantly happier than those without them, yet they assume they’d be much less happy without them. You should take steps to avoid falling into this trap: pursue time in the flow state, rotate pleasures in your life to keep them feeling new, and spend some time helping others.)
Finally, to many employees, their relationship to the company is a source of fulfillment and a core part of their personal identity. This is another part of their skin in the company’s game—if an employee loses her job, she also loses the identity that gives her life meaning. Imagine a workaholic lawyer who gets disbarred. The idea of being a lawyer gave her life so much direction and meaning that without it, she doesn’t know what to do. Sometimes, employers even encourage this—if an employee defines herself by her work, she is more likely to prioritize good work and be dependable.
Additionally, long-term employees often build their social lives around those they work with—yet another benefit they have to lose if they’re fired.
Diversify Your Identity
How can you avoid investing too much of yourself into your job? Author Mark Manson recommends that you develop a diverse identity: Define yourself according to multiple different values.
We each assess our own self-worth in different ways—some people are proud of being successful at work, while others are more proud of being well-liked by friends, or their faithfulness to a religious code. Manson argues that the healthiest way to live is to invest time and emotion into multiple roles you play in life. Don’t be only a good worker, but also a good parent, a good friend, a good artist. Pursue a greater variety of interests and allow yourself to care deeply about all of them.
This way, if you get fired, you won’t collapse into an identity crisis or depression—your life will still be rich with meaning. You’ll be less afraid of losing your job and retain more of the freedom sacrificed in employment.
Not only are employees expected to fulfill their job descriptions, they are also expected to do so in a certain way, further limiting their freedom.
During long-term employment, employees adapt to a specific corporate culture. They begin to obey a set of manners and customs that are specific to the job—for example, wearing a tie to work, acting respectfully and professionally in meetings. Employees are also motivated to maintain a good reputation among their coworkers. These behavioral limitations are a large part of the freedom given up by employees.
Corporate culture is not always a bad thing—its “limitations'' can sometimes contribute to personal evolution. Hedge fund manager Ray Dalio’s Principles states that this kind of culture is vitally necessary in any ambitious organization. Dalio requires his employees to comply with a specific culture designed to foster productivity and fulfilling working relationships—the cornerstones of which are radical transparency and radical honesty. Anyone who can’t adapt to this tightly optimized work culture is asked to leave the company. As Dalio puts it, it’s “a family business in which family members have to perform excellently or be cut.” While this sounds harsh, it ensures that the remaining team members can be proud that they’re performing at their best.
Taleb highlights a unique group of employees that are able to transcend these limits on their freedom. Those who are able to visibly provide enough value to the company that they are unable to be replaced can regain some of their “freedom” as long as they remain valuable.
This special group of employees—“wolves,” as Taleb calls them—are “freer” than the typical employee, with fewer restrictions on their behavior. This is because they bear more of their own risks.
These employees know that if they produce good enough results, they’ll never be fired, so they don’t care about their image or reputation. They ignore dress codes, curse and swear on the job, and take four-hour lunch breaks, behaving as erratically as they’d like. However, by refusing to mold to the corporate culture, they risk being fired if they ever become less productive. They willingly take on greater risk in order to have more freedom.
When High Performers Need to Be Fired
Entrepreneur Gary Vaynerchuk argues that these high-performing wildcards may need to be fired regardless of how much money they’re making. In Vaynerchuk’s eyes, a positive work culture is priceless in the long run. “Toxic” employees that put their coworkers in a bad mood are slowing down productivity in subtle ways. Time spent worrying about office politics or pacifying a nasty communicator is time that could be spent getting things done.
Likewise, employees with below-average sales numbers or other forms of trackable productivity may be making work a brighter place, paying for themselves by making the most productive employees happier to be at work. An emotionally healthy work culture is a valuable asset, and it’s worth protecting.
We’ve seen how employees limit their freedom in order to maintain productive organizations for their employers, and what they get in return. However, it’s impossible to perfectly merge an employee’s skin into the company’s game.
Employees are hired to follow job descriptions, which are imperfect proxies of the company’s mission. Employees of large organizations, whether they be centralized governments or large businesses, are distanced from the consequences of their actions.
Job descriptions are a way of compensating for this. Jobs are designed so that, in theory, if an employee follows the description well over a long period of time, they will be successfully contributing to the organization’s goals. However, it doesn’t always work this way.
People under long term employment are less efficient, more inclined to game the system, and make worse decisions than fully independent agents.
Salary or hourly pay is doled out independently of productivity. This is an important part of the security of employment—employees trading away their freedom are primarily drawn by the promise of a steady paycheck. But this also means that employees are less efficient across the board. For example, if due to some temporary inefficiency, an employee doesn’t have anything to do, he’ll still get paid.
Ingrained Inefficiency
Inefficiency is an unavoidable weakness of mass employment. However, it can be exacerbated by a weak organizational culture. One example: This Italian hospital worker was paid for 15 years for doing absolutely nothing—a bureaucratic oversight. He told his friends he had retired and spent his days just relaxing at home (until he was caught, and charged with fraud, abuse of power, and extortion). This could only happen to an employee—a freelancer, say, a graphic designer, must be continuously generating value to get paid.
However, the hospital’s lax culture was partially at fault. A degree of truancy was commonplace at the hospital—workers would frequently swipe each others’ time cards to cover for those skipping work. Six hospital supervisors were investigated for allegedly being aware this scam was happening. Even a head physician at the hospital had skipped his afternoon shifts for years without being caught. Moral norms are shaped from within groups—if the guidelines are loosened, transgression spreads.
Employers use quantitative metrics and performance reviews to determine how well employees are fulfilling their job descriptions. However, neither of these mechanisms are perfect.
One idea that Taleb repeats is that when motivated, people can manipulate any metric. If an employee knows her reward is directly linked to a specific quota, she’ll prioritize that one aspect of her job instead of attempting to maximize overall productivity. If a high school teacher is judged by the administration purely based on her students’ standardized test scores, she may teach something closer to a test-prep class rather than something more helpful for everyday life.
Employees can game performance reviews, too. If an employee is judged by more subjective metrics, image becomes more important than true productivity. It’s become an office work cliché to try and look busy without actually doing any work.
The Cobra Effect
The phenomenon of incentives that cause unintended consequences is called the “Cobra Effect,” named after a law from British-ruled India. The British government posted a reward for cobra skins in an attempt to incentivize the extermination of venomous cobras. Instead, people began breeding more cobras in order to collect the reward.
The Cobra Effect is central to Taleb’s view of the world. As we discussed, he believes that opaque, complex systems make Cobra Effects far more likely to occur than successfully implemented incentives. He argues that more skin in the game is the only effective solution to any Cobra Effect—or, barring that possibility, the lack of artificial incentives altogether.
Employees typically make decisions based on the impact to their jobs rather than the impact on the organization. They’re not incentivized to take risks. All employees need to do to receive their rewards is look like they’re fulfilling their job description and maintain the status quo—which is not always the correct decision.
If an unexpected situation occurs and something needs to change, but it’s not in anyone’s job description to do it, employees are likely to keep their heads down, keep doing what they’re getting paid to do, and hope someone else takes care of the problem. In this case, employees take the option that best preserves their jobs, even if it means inadvertently dooming the organization to fail.
For example, workers at the Chernobyl power plant continued to run a compromised safety test against their better judgment because they didn’t want to risk their jobs by disobeying orders. It was easier for them to believe that their supervisor knew what he was doing. This ended up causing one of the largest manmade disasters in history.
The Dangers of Inertia
Business professor Richard Rumelt’s book Good Strategy/Bad Strategy frames inertia, an unwillingness to change, as a constant force that must be battled at all times for an institution to run well. It’s almost always easier to continue what you’re doing than to critically analyze what you need to change, and for this reason, Rumelt labels inertia as one of the greatest challenges any company can face.
Rumelt identifies three types of inertia that can plague your organization: “inertia of routine,” “cultural inertia,” and “inertia by proxy”—that is, your organization’s failure to change procedures, values, and clientele, respectively. In order to conquer entropy, leaders within the organization need to stay on alert for any changing circumstances and be prepared to destroy the old ways of doing things to make way for the new.
Taleb doesn’t frame “freedom” as an absolute good. There are pros and cons to how much “freedom” you have—as we’ve discussed, the more freedom you have, the more risks you embrace. It’s up to each of us to decide for ourselves how much freedom and risk we want and strike an appropriate balance.
The majority of first-world citizens are employees—they have chosen to limit their own freedom for the rewards described above: job security, benefits, and a sense of personal identity. At the same time, there’s nothing stopping us from quitting our job and making a living independent of any existing organization. Many people do—freelancers, entrepreneurs, and even hermits living off the land. A free country enables us to choose how free we want to be.
Regardless of what we decide, Taleb cautions us to be aware of how much freedom we have and what risks we’re taking to have it. If you act too boldly and don’t have the freedom to do so, you will lose what you have. A salesman who overestimates his value to the company (and consequently, his freedom) and keeps skipping meetings will eventually be fired. Alternatively, if you feel like you lack freedom in your life, you could try taking more risks.
Freedom Through Discipline
In Discipline Equals Freedom, former Navy SEAL Jocko Willink (Extreme Ownership) makes the same connection between freedom and personal sacrifice as Taleb. Willink explains his philosophy in an interview for Forbes: Discipline means saying “no” to easy things that you don’t really want, whether that be time spent on Twitter, a second helping of ice cream, or even a comfortable but unfulfilling job. True freedom—the ability to do what you want to do—is only achievable through the discipline to deny yourself and delay gratification.
In his book, Willink makes it clear that externally-imposed discipline—for example, coercion from a brutal drill sergeant—isn’t discipline at all. It falls apart as soon as the external force disappears. Self-imposed discipline, like the kind found in purposeful employees, is the only path to freedom. Willink wakes up at 4:30 every morning, consciously choosing to limit his freedom in this way because of what it gives him in return. You don’t have to be this extreme, but it’s fulfilling to intentionally manage your freedom in this way, choosing your own risks and rewards.
Taleb asserts that each of us trades away a certain amount of freedom for a reduction in personal risk. Reflect on the levels of freedom and risk in your life and determine if something needs to change.
On a scale from one to ten, how much freedom do you have at work?
Are you satisfied with your current level of freedom? (Does the way you spend your time at work make you feel comfortable, or constrained?)
On a scale from one to ten, how much risk do you take at work?
Are you satisfied with your current level of risk? (Do you feel bored or directionless at work? On the other hand, do you feel overwhelmed or anxious?)
If you’d like more freedom at work, what is a risk you can take or a sacrifice you can make that will get you closer to doing what you want to do? If you feel overwhelmed, how can you add more stability to your life?
Now that we’ve discussed how employees’ skin in the game benefits employers, employees, and consumers, we’ll zoom out and take a look at the role skin in the game plays in building a healthy, wealthy economy.
Taleb argues that wealth earned through skin in the game contributes to society in a healthy way, and that the way to create an ethical and productive economic system is to force top earners to risk their wealth in order to keep it.
In this section, we’ll first redefine economic inequality using skin in the game, distinguishing between two types of wealth and two types of inequality. Then, we’ll examine Taleb’s argument that the free market does the most to reduce economic inequality. Finally, we’ll explain why most opponents of the free market are upper class intellectuals instead of the lower class that would be impacted the most.
Taleb uses the concept of skin in the game to distinguish between two categories of wealthy people: those who built and maintain their wealth through skin in the game, and those who built and maintain their wealth with minimal-to-no risk. Taleb argues that we want more of this first type of wealth and less of the second.
First, let’s discuss wealthy people with skin in the game. These are people who earned money through risky ventures and sacrifice—entrepreneurs, artists, anyone who habitually took risks that eventually paid off. Alternatively, these could be people born into money—kings, heirs—who risked their fortunes, reinvested, and were able to create more wealth.
Importantly, Taleb notes that wealth is not necessarily a zero-sum game. If wealth is correctly invested, it can create more wealth than would have otherwise existed, and distribute some of that wealth to others. Think of Adobe, for example, a company that creates industry-grade creative software (Photoshop, After Effects). By investing wealth in the risky prospect of creating software that people might not want to buy, Adobe enabled millions of its users to create value (appealing graphics, movies with special effects) and earn wealth for themselves (a paycheck for creative work). This new wealth wouldn’t exist without Adobe, and wouldn’t have existed without the wealth of its initial investors. In this way, wealthy people with skin in the game generally use their wealth in ways that better society.
This group of wealthy people isn’t necessarily resented by those poorer than them—on the contrary, they are often admired, and perceived as skilled and hardworking. Beloved actors, famous authors, and bootstrap entrepreneurs are often rich—sometimes outrageously rich—yet they attract adoring audiences. Many would say these people “deserve” their wealth.
In contrast, let’s take a look at wealthy people without skin in the game. These are people who created wealth in ways that don’t contribute value to society—often by taking advantage of others. This group consists of anyone whose income is independent of the value of their work, and as such, is being earned without risk.
Taleb specifically calls out employees in salaried positions that don’t provide value for others, such as predatory gossip bloggers, dishonest lawyers, ineffective government bureaucrats, or corrupt CEOs. Recall that employees are paid for fulfilling job descriptions, and that their work is not necessarily linked to its consequences. A guaranteed salary removes a degree of skin in the game, allowing this second group of people to amass wealth without risking much or generating real value. Taleb states that this second group of people are more resented by the general public, and rightfully so.
These two opposing types of wealth are vital to understanding economic inequality—one kind of wealth is relatively healthy for society, while the other is not.
Most People Don’t Want Equality
Studies have confirmed Taleb’s assertion that most people harbor no resentment toward wealthy people with skin in the game. On average, Americans from all political backgrounds and people from around the world believe that some economic inequality is healthy for the world—although they want far less than there currently is. We want to reward people for making the world better. What people resent is not economic inequality, but economic unfairness—that is, earning money without producing value, giving without taking, having no skin in the game.
The question now becomes: what level of inequality is ideal?
How Much Inequality Do We Want?
Unsurprisingly, this is a politically charged issue and a fierce point of contention among theorists. Opponents of wealth distribution object in the name of economic growth. Reducing the potential income of top earners disincentivizes risky investments (for example, funding a start-up), innovation (funding research and development), and specialized training (going to med school) by limiting the rewards available for such socially constructive behavior.
Additionally, as economist Casey Mulligan points out, publicly-funded “safety net” programs discourage those in poverty from working to improve their lives. Income independent of labor takes skin out of the Game.
On the other hand, Harvard’s Thomas Freeman warns that excessive economic inequality hinders economic growth in its own way. Concentrated wealth enables greater political rent-seeking, as top earners are able to wield disproportionate influence among government officials, earning advantages in policy or unnecessary subsidies at the expense of the rest of society.
Economists from the International Monetary Fund argue that when spent on education and healthcare for the underprivileged, redistributed wealth can even accelerate economic growth by subsidizing the creation of valuable workers, offsetting the cost of reduced incentives for productivity. They also argue that there are ways to redistribute wealth that preserve incentives entirely—for example, cleaning up loopholes in the tax code, or implementing a more aggressive inheritance tax.
Are We Focusing Too Much on Inequality?
Notice that this discussion of inequality is tangled up with a number of adjacent issues and debates—the efficacy of social welfare, how to manage political rent-seeking, how to provide effective opportunities for education, and the ideal tax structure are all at play here. It’s possible that economic inequality isn’t the issue to focus on at all.
Columnist David Brooks argues that outrage over economic inequality is predicated on the false assumption that the poor stay poor as a direct result of the rich getting richer. As Taleb notes, wealth is not a zero-sum game. Instead, we are dealing with “two different constellations of problems”—factors that allow the rich to get richer unethically, for example, their undue influence on politicians, and factors that are causing the poor to stay poor, for example, the disappearance of entry-level jobs. All these problems are valid, but Brooks argues that combining them into one issue labeled “inequality” is a fundamental misunderstanding of the situation.
As we’ll see next, Taleb, too, argues that we are looking at economic inequality the wrong way.
In view of these two categories of Good Wealth and Bad Wealth, Taleb distinguishes between two ways of understanding the distribution of wealth: “Static” Inequality and “Dynamic” Inequality.
Static inequality refers to the wealth disparity of a population at any given single point in time. On the other hand, dynamic inequality refers to the inability for a given individual to rise in economic class across a lifetime.
Dynamic equality can be understood as two-way income mobility—how easy it is to earn more wealth, as well as how easy it is to lose the wealth you have. A perfectly Dynamically Equal society would be one in which no individual spends more time in any one income bracket than anyone else. In other words, dynamic equality is skin in the game of wealth—your financial status is always at risk.
Taleb implies that a perfectly Dynamically Equal society would be better off than a perfectly Statically Equal society.
An ideal society is one in which everyone, rich and poor, has skin in the game. If you do good for others, you should be rewarded. If you harm others, you should be punished. As we discussed in Chapter 1 of this guide, this is the definition of skin in the game and the foundation of a healthy society. An ideal market should reward wealthy people who invest their wealth in risky ventures that benefit others. Those who do not should eventually lose their wealth.
Dynamic equality allows those who create value to become richer, while forcing those who don’t to become poorer. For this reason, dynamic inequality is a far more important statistic to measure than static inequality—it measures how well a society rewards those who contribute to the collective and punishes those who do not. It measures skin in the game.
Judgments made based on measurements of static inequality can result in faulty conclusions. Even if you chart the data of static inequality across time, it’s impossible to tell how the income of specific people is changing.
For example, if you’re looking at static inequality, Europe appears to be more egalitarian than the United States—their wealth is more evenly distributed across the population. But Taleb uses some statistics of dynamic inequality that propose America may be fairer than Europe. In Europe, more than a third of the five hundred wealthiest people inherited their wealth from family dynasties that have lasted for centuries. Compare this to the US, where 90% of the wealthiest five hundred people entered that list less than thirty years ago.
Here’s another statistic on dynamic equality in America: 10% of Americans will spend at least one year in the top 1% of income earners, and more than half of all Americans will spend at least a year in the top 10% of income earners. Since what we’re trying to do is allow the market to reward those who contribute to society, greater turnover among the rich in the United States is a sign of fairness.
In Taleb’s opinion, dynamic inequality is something to resent far more than static inequality. In our uncertain world, the only way an individual permanently stays in a high income bracket is if he doesn’t have skin in the game. In this way, dynamic inequality indicates wealth that is unfairly exempt from risk, failing to contribute value to society.
Controversies of Social Mobility
Social mobility is a difficult statistic to track, and various interpretations of data result in contradictory conclusions.
The social mobility statistics that Taleb cites are from Cornell’s Dr. Thomas Hirschl, who concludes that high rates of income mobility in the United States make the nation far less segregated by class than it initially appears. “54% of Americans will experience poverty or near-poverty at least once between the ages of 25 and 60,” indicating that hardship isn’t limited to a single downtrodden group.
On the other hand, the Brookings Institution has concluded that growth in inequality is putting an abrupt halt to social mobility. By comparing individuals’ income to their parents’, these researchers have determined that children born in the bottom 20% of income are ten times more likely to stay in the bottom 20% than to rise to the top 20%. Similarly, children born in the top quintile are five times more likely to stay in the top quintile than drop to the lowest. Being born into a wealthy family appears to have a sizable impact on a child’s future opportunity. This statistic lies somewhere in between Taleb’s categories of “Static” and “Dynamic”—it tracks income across generations, but still only measures individuals at one static point in their life.
Taleb argues that the way to reduce dynamic inequality is to force those with wealth to risk it in order to avoid losing it. In short, to put their skin in the game. For the most part, the free market does this automatically.
Free markets are “Winner-takes-all” in regards to wealth. If a company can offer a significantly higher quality product than its competitors, it receives a dominant market share. For example, when DVDs were invented, VHSs soon became completely extinct. A winning company could stop being a winner at any time, meaning that those collecting its profits are always at risk. The company continues earning only as long as it’s generating more value for society than its competitors.
As elaborated in this article written by Taleb in 2020, the exception to this rule (that the free market puts companies’ skin in the game automatically) is when governments bail out businesses that are “too big to fail”—for example, banks in 2008 after the financial crisis and airlines in 2020 after the Covid-19 pandemic. He argues that if these corporations are truly so vital that their failure would be disastrous, they should be treated as publicly funded utilities. Otherwise, as things stand, bankers and airline shareholders/managers are able to earn profits, yet the taxpayers have to pay for their losses—an immoral asymmetry. This incentivizes irresponsible behavior—these companies should have prepared for disastrous eventualities like this (even if they couldn’t predict them). Bailouts disincentivize wise contingency plans.
Taleb asserts that the intellectual upper class is far more invested in the fight for economic equality than the lower class they claim to be fighting for. To this point, he cites the book The Dignity of Working Men by Harvard professor Michéle Lamont. In it, Lamont extensively interviews low-income workers and discovers that generally, they don’t harbor the same resentment toward the super-rich that the upper class does.
To explain why, Taleb puts forward the principle that people generally envy those close to them, in proximity and social class. Since salaried academics are closer in status to the über-rich, they’re more likely to compare themselves to them. They’re jealous, and deem the concentrated wealth of the richest people to be unfair.
Despite the fact that economics and other academics have no skin in the game of inequality, they assume they know what is best for the lower class and want to dictate economic policy for them. Upper-class intellectuals won’t be the ones to face the consequences if their theories harm the lower class, so Taleb argues that they shouldn’t be involved.
Envy or Outrage?
What Taleb labels envy is seen as justified outrage by those who perceive the current concentration of wealth as unfair. In an op-ed for the New York Times, Arthur C. Brooks mourns the shifting American perception of opportunity—in 2007, surveys showed that 70% of Americans were “satisfied” with their opportunities to succeed through hard work, but just seven years later in 2014, only 54% said the same. To Brooks, this loss of faith in the system is the problem—those surveyed who professed such a skepticism were five times less likely to report being “very happy” about their lives.
Responses to this article strongly protested Brooks’ categorization of their resentment as “envy.” Those who saw today’s society as truly oppressive toward hard workers felt that their anger was justified—in their eyes, being satisfied with the current state of affairs would mean turning a blind eye to those being taken advantage of.
To Taleb’s credit, two of these six letters to the editor were written by university social science professors—the exact group of intellectuals that he argues are far more outraged than the truly impoverished, despite having no direct experience with modern poverty. On the other hand, according to statistics in Brooks’s original op-ed, 43% of Americans hold the opinion that the government should do “a lot” to reduce economic inequality. It seems that, while academics and intellectuals advocate for the redistribution of wealth, the fight is by no means restricted to such a small group.
We’re going to start getting more abstract in our discussion of how skin in the game improves the world with the far-reaching principle of the passionate few (or, as Taleb calls it, the “stubborn minority”).
Taleb argues that the state of the world is largely the result of small groups passionately fighting for what they want rather than a majority’s consensus.
We’re going to further define this idea, then show how the concept applies to Politics, Religion, Language, and Morality. We’ll conclude by explaining how you yourself can be part of a passionate few.
Taleb asserts that civilization is disproportionately impacted by the preferences of strong-willed minorities. These passionate few forcibly put as much skin in the game as possible, making more sacrifices than anyone else is willing to make in order to get what they want.
The passionate few have the capacity to drastically shape society because unless the majority is strongly opposed to the preferences of the minority, the indifferent whole will let the minority have their way.
A simple example: A teenager is obsessed with sci-fi blockbusters. None of the other members of her family are particularly interested in sci-fi, but they often agree to watch them with her simply because they aren’t strongly opposed to the genre. If there’s no reason to deny the preferences of a passionate minority, the majority will appear to adopt these preferences.
In this way, the passionate few are a perfect example of one of Taleb’s main arguments we discussed in the first section of this guide: Complex systems often behave in ways that contradict surface-level impressions.
To a distant observer, the passionate few’s preferences falsely appear to belong to the entire group. In the example above, the entire family bought movie tickets even though most of them didn’t really want to see the movie. A statistical illusion like this could lead analysts to false conclusions—for example, the movie studio could falsely conclude that the lead actor in this sci-fi movie is what made it such a box-office success. This is why Taleb identifies as a “localist,” arguing that decisions should be made by people who are directly involved (i.e. with skin in the game).
Malcolm Gladwell’s Law of The Few
In his book The Tipping Point, Malcolm Gladwell discusses the power the passionate few have in starting a movement. Gladwell attributes the idea-spreading potential of the passionate few to specific personality traits, categorizing them into three types.
“Connectors” have a far larger social circle than average, and are particularly adept at spreading ideas to groups that normally wouldn’t hear about them. To return to our example of the breakout sci-fi movie, connectors would be social butterflies who can’t stop talking about the movie to everyone they run into. “Mavens” are reliable experts whose opinions people are far more likely to respect. A beloved critic who praises the sci-fi movie online would be a Maven. Finally, “Salesmen” are best at convincing people to accept their ideas. They’re charismatic speakers that make people want to share their feelings and opinions—the irresistibly excitable teen who convinced her family to go see the movie in our earlier example is a good Salesman.
Gladwell credits these “passionate” types of people with spreading successful movements, but Taleb expands his idea of the passionate few to include those who are unconsciously “passionate”—who simply have inflexible preferences. It’s possible that Gladwell is overemphasizing the personality traits we can see, and underemphasizing the simple fact that all these people have strong opinions.
Taleb uses the idea of the passionate few to explain why historically some religions spread and others died out.
He credits the spread of Islam throughout the Middle East to specific religious rules: first, anyone who married a Muslim had to convert to Islam, along with any future children. Second, converting to Islam was permanent, and renunciation of Islam was blasphemy. Across many generations, these uncompromising rules overpowered many religions with more lax requirements. Gnostic religions that allowed one spouse to keep their own religion soon nearly vanished entirely—their “indifferent” preferences were overridden.
The passionate few can also help us understand the internal structure of today’s religions. Taleb states that, over time, intolerant sects within religions end up overpowering and absorbing the tolerant ones, resulting in religions with strict rules that renounce unbelievers. For example, Taleb asserts that Sunni Islam is being taken over by its strictest, most intolerant sect: the Salafis.
(Shortform note: The principle of the passionate few can also explain why a unique kind of religion—the “local” kind—has died out. In his book Sapiens, historian Yuval Noah Harari describes the now-extinct religion of animism, followed by most hunter-gatherer tribes. These tribes believed that every animal and object had a soul, and each tribe accrued their own supernatural beliefs and laws based on their experiences with the nature around them. Animists believed that their supernatural truths only applied to them, so they were quickly overpowered when religions based on universal beliefs hit the scene.)
This principle is key to understanding political science. Indifferent voters can be swayed by a number of factors unrelated to what they’re actually voting on, such as party allegiance, or a strong dislike for other candidates. All it takes is a passionate few to convince them.
(Shortform note: Just as in religions, the effect of the passionate few often causes political groups to swing toward extremism. We can see this in today’s politically polarized climate. In the United States, however, we may be seeing a return to moderate compromise. Joe Biden, a relatively moderate candidate, ended up winning the 2020 presidency. This Foreign Policy article suggests that moderates on either side of the political divide are compromising as extreme factions become less and less agreeable—the extreme passionate few are straying too far from the majorities’ modest preferences.)
The passionate few have a counterintuitive effect on the way languages spread. Throughout history, languages spoken by a powerless but “passionate” minority have become the dominant language of a given population. More often than not, this “passion” was simply the result of a lower class’s inability to learn another language. Their preferences were inflexible by nature.
Ironically, this sometimes resulted in conquering nations adopting the language of the people they subjugated. Taleb explains that when the Persians conquered Babylon, the infrastructure of the nation was being run by workers who only spoke Aramaic, so the conquerors were forced to adopt the language.
(Shortform note: Today, there is a different kind of passionate few working to preserve minority languages. Some academics and activists see the preservation of languages as a societal responsibility. Languages like Cherokee and Navajo are drifting toward extinction and will likely disappear unless someone intervenes. Activists argue that languages need to be preserved because they contain a rich cultural history, carry specific knowledge about the world, and even let us think in new ways.)
Culturally embedded moral codes are more likely credited to a passionate few than the consensus of the majority.
Widely accepted ethical rules are typically stricter than the average person would agree with. Most people would agree that some degree of rule-bending in regards to right and wrong is okay. An office worker may believe it’s alright to tell a white lie to spare a coworker’s feelings, while a criminal may find it morally acceptable to rob a bank. In almost every case, cultural ideas of the “right thing to do” are more extreme than an individual’s idea of the “right thing to do,” if only by a slight margin.
This is because those with strong moral convictions are more stubborn than those without them. People with strict personal morals will never intentionally permit themselves to do wrong, but people without strict personal morals can go either way. The latter group isn’t strongly against moral behavior, but the former group is strongly against immoral behavior. This less strict group is morally indifferent—and as we know, the indifferent majority accepts the preferences of the passionate few.
Given Taleb’s premise that people are less moral than the culture around them, you could make the argument that any loosening of morals in a specific culture would be reflected by a parallel shift in the moral code of individuals. Researchers have confirmed this idea, as indicated by a fascinating study observing the link between a country’s level of corruption and the personal ethics of its citizens.
Researchers asked test subjects from 23 countries to roll a die twice and report the first roll. Reporting a number one through five would earn the subject that many dollars, and a six would earn them nothing. However, the researchers couldn’t see the rolls—they were measuring how much the subjects would lie to earn more cash. Forcing the subjects to roll an extra die made the temptation to lie stronger—choosing the higher of the two rolls would be simply bending the truth rather than a total lie.
The researchers found that countries with greater rates of bribery, political fraud, and tax evasion caused their citizens to be more dishonest—the average payout to these countries was $3.53, significantly more than the $3.17 paid in less corrupt nations. The number of fives reported, however, remained constant across all countries—cultural corruption caused rule bending, but not total malleability of the truth.
Taleb highlights a specific moral quandary that can be solved using the theory of the passionate few, which he calls “Popper-Goedel’s Paradox.” Should a society that ensures equal rights permit people to use their rights to infringe on the rights of others? Should we protect the freedom of speech of those advocating for the oppression of a certain group? In other words: Should we tolerate intolerance?
In view of the passionate few, Taleb argues “no.” An intolerant passionate few that pushes hard enough will get their way if the rest of the population remains indifferent. Despite the danger of hypocrisy, fighting back against intolerance is the only way to ensure that our liberties are preserved.
Taleb acknowledges that he is following in the footsteps of the 20th-century philosopher Karl Popper, who was one of the first to pose this paradox. He comes to the same conclusion as Popper—that hypocrisy in this situation is justified.
The other common perspective on this issue was put forward by philosopher John Rawls, a contemporary of Popper’s. Rawls agrees that, at some point, intolerance of the intolerant is necessary for a democracy. However, he cautions that such a tactical oppression of rights should only be considered as a last resort, when it becomes undeniably clear that doing nothing means that the rights of others will be limited. In Rawls’s view, self-preservation is one thing, and a preemptive strike is another.
The fact that a passionate few can have such a meaningful impact on the world should inspire us. You can be part of a passionate few yourself! History shows that no matter what change you want to make in the world, if you’re persistent enough, people less committed than you will bend to your passion.
However, it takes skin in the game to be part of a passionate few. You must be prepared to take risks and make sacrifices for your cause.
Fortunately, though, extra skin in the game for a good cause is the key to a fulfilling life. As we discussed in Chapter 1 of this guide, the potential for massive impact is one of the benefits reserved for artists who put more than skin in the game.
(Shortform note: You’re likely overestimating what it takes to change the world. History shows us that in order for your passionate few to succeed, you only need 3.5% of the population on your side. In a study of hundreds of political movements from the last century, from the Philippines' 1986 People Power campaign to Georgia’s 2003 Rose Revolution, one researcher has found that events in which 3.5% of the population actively participates have never failed, at least in recent history. Additionally, nonviolent campaigns are twice as likely to achieve their aims than violent ones—all you need to do to make a change is get the people on your side.)
The idea of the passionate few reveals that most of us vastly overestimate what it takes to change the way things are done. Consider how to use this knowledge to improve your life.
Think of a current status quo that you’d like to change. This could be an annoying procedure or unnecessary rule at work, or maybe an ingrained habit in your household.
Imagine you knew that nearly everyone involved would gladly let you have your way, as the rule of the passionate few assumes. Are you passionate enough to make the change happen? Why or why not?
What’s a step you can take to make this change happen?
To conclude our discussion of how skin in the game improves the world, we’re going to take a look at the reason why it’s a necessary ingredient in any good deed imaginable. Without skin in the game, behavior that appears virtuous and honorable on the surface is, at best, cheapened and ineffective, and at worst, inauthentic and malicious.
In this section, we’ll also cover some of Taleb’s ideas about another area in which skin in the game is necessary to be authentic: threats and intimidation.
In both cases, Taleb argues that the risks of skin in the game prove that you are what you claim to be.
First, we’re going to discover why skin in the game is the most honorable virtue there is, show how virtue without skin in the game is far less virtuous, and establish a few virtue-related rules to live by. Second, we'll show why skin in the game is a vital component of an effective threat.
Taleb defines courage as the tendency to put skin in the game—It’s the willingness to bear risk and make sacrifices.
In Taleb’s eyes, courage is the highest virtue because it’s required in order to do anything good. Anything done to benefit others requires some amount of risk that you must be prepared to bear.
Without skin in the game—without true courage—virtue is just empty words. Let’s take a closer look at how this happens.
All virtuous behavior requires some degree of risk and sacrifice—for example, the sacrifice of time and effort required to spend your weekends volunteering at soup kitchens.
For this reason, the only way for seemingly virtuous action to lack skin in the game is if it also benefits the one doing the virtuous action.
The return benefit takes your skin out of the Game by offering you a reward independent of the well-being of the person you’re trying to help. If a man only volunteers at soup kitchens as a means of picking up women, it obviously makes his work less virtuous.
Taleb judges the virtue of an action by the lack of reward you receive for doing it. The most virtuous actions are sacrifices made in private with no expectation of return. Publicizing your own virtue cheapens whatever good deed you’ve done. For example, anonymous donations to a good cause are truly virtuous, while widely publicized donations are less so.
The Highest Virtue: Taleb Versus Kant
This is another place where Taleb’s morality converges with that of philosopher Immanuel Kant. Similarly to Taleb, Kant narrows the definition of virtue. Kant asserts that true virtue is that which is done for no other motive than “good will”—it can’t get you anything in return, whether that be a salary from an employer, intrinsic satisfaction, or even reciprocal love from a significant other. Ideally, sacrifices must be made, and impulses must be restricted.
In this sense, what Taleb calls “courage” and what Kant calls “good will” are the same thing—the willingness to sacrifice anything to live according to a moral law.
Still, they don’t totally agree: Kant sees the “moral law” that you should obey as universal, objective, and able to be put into words, while Taleb sees it as unknowable. You could suggest, then, that Taleb sees sacrifice as an even more necessary component of virtue than Kant does, because he sees it as an added pressure to ensure intended positive consequences (skin in the game).
Neither Taleb nor Kant assert that transactional virtue is necessarily a bad thing or immoral. But it’s not the truest, laudable, highest form of virtue, either.
Taleb argues that people who make a living in “altruistic careers” outside of the free market—whose income comes from donations or, in the case of government workers, taxes—don’t have skin in the game. Examples include politicians, lobbyists and activists, and even salaried humanitarian workers. The virtue of these jobs is cheapened somewhat by the salary and other benefits they receive in return.
Additionally, without skin in the game, Taleb insists that activist and nonprofit organizations are more likely to do harm than for-profit businesses, even if their intentions are good. Since these workers’ income isn’t directly tied to how much value they create, it becomes impossible to tell how much good they’re really doing for society.
Skin in the Game Problems in Foreign Aid
Taleb points to the aid industry as an example of the detrimental effects of nonprofits without skin in the game. Zambia-born economist Dambisa Moyo agrees, noting several unintended consequences of foreign aid, including increasing poverty and stunted economic growth across Africa.
Often, foreign aid supports corrupt and inefficient governments—in 2004, one expert asserted to a U.S. Senate committee that the aid-minded World Bank abetted the corruption of $100 billion of its funds intended for African development. Additionally, aid takes away the incentive for governments to improve the local economy—it takes 426 days to get a business license in Cameroon, making local enterprise much more difficult and foreign enterprise more attractive. Finally, donated goods can put local Africans out of business. American food sent to Africa earns money for American farmers, not African farmers.
Foreign aid is certainly a noble cause, but if it’s not executed well, it can cause more harm than good. Taleb’s point is that, without skin in the game, nonprofits are unlikely to learn from their mistakes.
Make it a point not to advertise your own virtuous actions or beliefs—practice virtue in secret. The only way you can be sure that you’re doing good is if you’re receiving nothing in return. Otherwise, you risk taking advantage of those you’re claiming to help.
The highest possible virtue is doing good even when it means you’ll be punished for it. The only virtuous opinions you should broadcast are the ones that oppose the dominant consensus, when you risk harming your reputation, or worse, for standing up for what’s right. Think of Malala, the Pakistani activist who was shot in the head by a Taliban assassin for her advocacy for women’s education.
In this section, Taleb essentially condemns the act of “virtue-signaling”—the act of publicly behaving in a way that makes you look as noble as possible. This criticism has exploded in popularity in recent years, especially online. No one would deny that it’s immoral to pretend to help others for your own gain, but some argue that accusations of virtue-signaling have become increasingly unfounded.
More frequently, anyone who does anything virtuous is accused of virtue-signaling. While Taleb argues that, ideally, all virtue is done in secret, honest virtue isn’t invalidated just because someone was there to see it. And ironically, many of those who accuse others of virtue-signaling are doing so to bolster their own reputations and claim moral superiority themselves.
Don’t advocate for a lifestyle you are unwilling to live. People often proudly support “virtuous” ideologies but are unwilling to make the sacrifices that the ideology logically requires.
To illustrate, Taleb describes the time he met writer and activist Susan Sontag. He recounts how she behaved rudely toward him after learning he used to be a trader, pointedly denouncing the market system.
Taleb asserts that it was immoral for Sontag to live in active opposition to the free market while reaping its benefits—he reports that Sontag fiercely negotiated for large sums of money from publishers and lived in a New York City mansion sold for $28 million. This is a skin in the game imbalance—by advocating for a lifestyle without living it, she was detaching her rewards from the influence she had on others.
If Sontag wanted to pursue her activism morally, she should have put skin in the game by living the lifestyle she advocated for, in a collectivist commune isolated from the free market she fought against. In contrast, Taleb praises progressives Ralph Nader and Simone Weil for living austere lives in accordance with their principles.
Sacrifices Made on Principle
Taleb doesn’t go into too much detail about how Nader and Weil live according to their virtues—let’s take a closer look here.
Ralph Nader is an activist famous for sparking reform in a wide range of industries with the goal of protecting consumers from the abuse of power by corporations and government. In alignment with his environmentalist ethic, he doesn’t own a car and relies on the bare minimum of electricity, preferring to write on a typewriter. Taleb says he “leads the life of a monk”—and he does. Nader has never married, and lives in a tiny apartment off of $25,000 a year.
Simone Weil was a French philosopher and political activist motivated by a need to improve the conditions of the working class. In order to truly understand the impact she wanted to have, Weil quit her job as a high school teacher to spend a year doing grueling work in car factories. She eventually put her life on the line, traveling to Spain to enlist in another country’s civil war, against the authoritarian Nationalist faction. She died of tuberculosis at the age of 34, refusing to eat any more than those in her home country of France were able to under Nazi control.
Though some of this self-denial may seem unnecessary, Nader’s and Weil’s sacrifices served the very real purpose of putting skin in the game. Those who promote change at a massive scale require greater accountability because the potential harm they could do is greater.
Taleb asserts that a good business does more to help the world than anything else. The risk it takes to start a business gives you a large amount of skin in the game, which, as we’ve discussed, is always a good thing.
Starting a business interacts with the economy at a small scale. There is little chance of doing major damage to the general public, unlike the large-scale systemic impact of government intervention.
Additionally, being willingly paid by customers is the most reliable sign of value because it requires them to sacrifice money—it puts their skin in the game. Every sale means that, at that moment, the customer wants your product more than anything else in the world that amount of money could buy.
In Taleb’s eyes, the most altruistic thing you can do is to start a business, ensure you are generating value by making large profits, then spend those profits generously on others.
Ethical Business Practices
While Taleb argues that starting a business is the most ethical thing you can do, as companies grow, so do the opportunities for dishonesty and fraud. When starting a business, it’s important to make sustainable, scalable ethics a top priority. Here are some tips for start-up founders on how to create an ethical business:
Define your company’s mission and core values, and consult them frequently as your company grows.
Be choosy about who to hire—you only want team members that share your values and goals.
Invest in your employees—once you’ve assembled a winning team, generous benefits and a positive workplace will keep them excited about your mission.
Know your limits and foster open dissent. Human fallibility requires mutual accountability—encourage your employees to call you out if they believe you’re straying from the organization’s core values.
Start small when giving back to the community—keep an eye out for any opportunities to be generous. Every good deed counts.
We’re now going to examine another way skin in the game proves that you are what you claim to be. Taleb writes extensively on threats—how people use skin in the game to intimidate and control the behavior of others. He argues that skin in the game is a key component in effective threats because it’s the only way to indisputably show power.
In the sense we’re using it here, a threat is a show of force intended to get someone to do what you want them to do.
Let’s distinguish between two categories of threats: verbal threats and what we’ll call true threats. Verbal threats are when someone tells you how they’ll hurt you if you don’t comply, while true threats are when someone shows you how they’ll hurt you if you don’t comply.
Verbal threats are what most of us imagine when we think of “threats.” If a farmer is on his porch with a rifle and tells a trespasser that if he doesn’t get off his property, he’ll shoot, that’s a verbal threat. In certain situations, verbal threats can actually make you appear weaker. Ironically, someone who tries too hard to appear intimidating can seem weak, like they’re trying too hard to avoid real confrontation.
True threats are far more effective. True threats show your target that your power is real, typically by getting as close as possible to actually going through with the threat, without actually doing it. If our farmer on the porch shoots the hat off of his trespasser’s head, that’s a true threat. It proves that the farmer has the power to carry out his threat. This action always entails risk, putting skin in the game. Our farmer risks accidentally hitting the trespasser, or aggravating the trespasser into pulling a gun on him.
The True Threat of Nuclear Retaliation
Nuclear proliferation has been a hot-button issue for decades, and the debate is centered around true threats—nuclear weapons are necessary, it’s argued, because the very real true threat of retaliation deters all nations from firing at all. If only one side had nukes, there would be nothing to stop them from using it.
Some argue that this train of thought is faulty. People at war act irrationally, and eventually, someone will make the decision to launch. Nuclear weapons are a time bomb in that respect, and the safest course of action is worldwide disarmament. Biological and chemical weapons have already been agreeably done away with (for the most part), and, although it wouldn’t be easy, it’s possible to do the same for nuclear weapons.
Others argue that nuclear weapons are successful deterrents of all kinds of warfare and that, by allowing all nations to wreak relatively equal havoc on one another, nukes allow weaker nations to stand up for themselves. For example, the author of the Forbes piece linked above argues that the fact that Israel hasn’t been invaded since producing a nuclear bomb in 1968 speaks to the efficacy of nuclear deterrence. Theorists in this camp see complete nuclear disarmament as unfeasible, as most nuclear states continue to upgrade their stockpiles instead of moving toward “complete disarmament” as agreed in 1968.
The debate of whether or not nuclear threats are effective at preserving peace rages on—but surprisingly, Taleb doesn’t see it as a huge threat. He has faith in nuclear deterrence and argues that, even in a worst-case scenario, nuclear explosions don’t cause multiplicative damage like a biological weapon would—although it would be disastrous, a nuclear strike wouldn’t be the end of the world.
To illustrate this idea, Taleb spends a significant amount of time talking about assassins—specifically, the original Assassins, an Islamic sect from the Middle Ages from which we get the word “assassin.”
These Assassins dealt in true threats. Their goal was to exert control over those in power in order to advance various religious and political goals. For example, they left a dagger planted in the earth next to where the sultan Ahmad Sanjar was sleeping, showing him that they were capable of killing him if he didn’t submit to their demands. They carried out their threats if they had to, but they preferred to exert control by avoiding bloodshed altogether.
(Shortform note: When they did kill, however, these Assassins did everything in their power to cultivate an image of power and mystery. The more fearful their reputation, the less real killing they had to do. For this reason, Assassins struck in crowded public areas, for example, during prayer at a mosque. Not only did witnesses get to see how effective the Assassins were, they saw that they were willing to do anything to kill their target. Assassins were often immediately caught and eventually put to death, showing their dedication to the job and making the order seem even more intimidating.)
We’ve explored the different ways in which skin in the game helps create a better world: It gets people to form productive organizations, provides economic rewards for those who create value, allows passionate people to change the world, and acts as the definition of virtuous, socially constructive behavior.
Now, let’s explore the other side: We’re going to discuss defective institutions and areas of life in which a lack of skin in the game creates fatal flaws. Before we dive into specifics, however, we have to explain the process by which this occurs. Taleb argues that skin in the game is a necessary component of human progress, and that those who deny the need for skin in the game create systems that are doomed to fail.
First, we’ll define the “Lindy effect,” a principle that explains how systems with skin in the game self-correct and improve as time goes on. Then, we'll take a closer look at the ideology that directly opposes skin in the game, which Taleb refers to as “Intellectualism.” Finally, we’ll show why, in the absence of the Lindy effect, false appearances slowly tear apart systems without skin in the game.
Skin in the game makes the world better by allowing only the most effective ideas, inventions, and institutions to survive. This process is called the “Lindy effect.”
Named after a deli in which actors are said to have casually invented the idea, the Lindy effect states that a nonperishable thing’s longevity is roughly equal to its current age. In other words, truly effective ideas, inventions, and institutions become less likely to die as time goes on.
As Taleb puts it, if something is “Lindy,” it “ages in reverse.” As conceptual, nonperishable things like stories, companies, and religions age, they fall into two categories: they either get weaker or stronger. If a concept is fundamentally flawed, as time passes it is more likely to fail. Think of all the movies that succeed with huge box office numbers at release, but as years pass, no one watches them anymore.
On the other hand, if a concept is useful and/or effective, as time passes, the less likely it is to fail. Think of old classic movies like The Wizard of Oz and It’s a Wonderful Life that are still regularly watched today. As time goes by, the fact that people still value these movies attests to their lasting quality. Their old age actually makes them more likely to survive for even longer. This is the Lindy effect.
Antifragile on the Lindy Effect
Taleb first discusses the Lindy effect by name in Antifragile, where he includes several details about the rule that didn’t make it into this book.
Taleb is generally skeptical about the impact future technology will have on the human race. He asserts that people who try to predict the future assume that much more is going to change than actually does, overestimating the impact of new technology. It’s counterintuitive, but according to the Lindy effect, the newer a technology is, the less likely it is to be truly impactful. Although many new technologies end up changing the world, we ignore the countless new technologies that failed and faded from the public consciousness—a manifestation of the survivorship bias.
People often argue that if you value old ideas, you’re adopting an old or outdated mindset. People who hang on to traditional ideas are sometimes said to be “stuck in the past.” Taleb claims that this is an unfounded criticism. The Lindy effect shows that ideas age in reverse—they get stronger over time.
The Lindy effect functions through skin in the game. When people with skin in the game make efforts to minimize risk and loss, they eliminate whatever is ineffective. But if people are shielded from the consequences of their actions, ineffective or harmful ideas are indistinguishable from beneficial ideas.
Taleb states that the test of time in conjunction with skin in the game is the only inerrant judge of quality. Given enough time and skin in the game, everything effective will survive and everything ineffective will die out. This is the mechanism behind humanity’s advancement. (We’ll expand on this in the next section.)
It takes a long time for the Lindy effect to make things better, and it’s difficult to observe in action. On the other hand, it’s easy to see successful people working to make things better—leaders, entrepreneurs, inventors. Consequently, many people over-attribute human progress to skilled, gifted individuals instead of the systems that filter out failure and reward success. This is the foundation of the philosophy of Intellectualism.
“Intellectualism,” in the sense Taleb uses here, is the school of thought stating that rational humans have the capacity to replace skin in the game as judges and reliably distinguish good from bad. Consequently, intellectualists believe that systems should be designed by a select few instead of being allowed to evolve over time. Intellectualism overestimates the reliability of human intellect and underestimates the world’s complexity and unpredictability.
Intellectualists fail to see the Lindy effect at work and rarely acknowledge its existence. As a result, Taleb insists that institutions based on the Intellectualist ideology are destined to fail.
Intellectualism is associated with top-down decision-making—for example, centralized urban planning. As outlined in Antifragile, Taleb vastly prefers bottom-up decision-making—individuals deciding where and why to construct their own buildings.
Bottom-up decision making works because it involves skin in the game. If the people don’t like something—for example, the layout of an apartment building—it’s reflected in the supply and demand, and the design disappears. As a result, bottom-up planning involves the constant micro-destruction necessary for the Lindy effect to operate.
Top-down decision-making, on the other hand, is protected from destruction. Taleb claims that the 2005 French riots were caused in part by the unnatural, alienating design of the housing projects designated for those in poverty. Top-down decisions are not easily revoked, resulting in mass permanent dissatisfaction.
In the book, Taleb paints a specific portrait of a subsection of his opponents, the epitome of the Intellectualism movement he loathes so much—who we’ll call “Skinless Intellectuals.” Skinless Intellectuals, or the “Intellectual, Yet Idiot,” as Taleb labels them, create flawed systems because they’re averse to risk, and they’re educated, yet ignorant.
The defining characteristic of Skinless Intellectuals is an aversion to skin in the game. Skinless Intellectuals will never take risks if they can help it.
To illustrate, Taleb writes that the Skinless Intellectual “studies grammar before speaking a language.” This sums up the character nicely. Skinless Intellectuals want to avoid the uncomfortable experience of speaking a language poorly. They would much rather spend their time and energy studying rules of grammar in a safe environment free of consequences. This is a far less effective way to learn a language than to go out and risk embarrassment talking to native speakers. However, Skinless Intellectuals fail to acknowledge this.
This is because the concept of skin in the game is totally foreign to a Skinless Intellectual. They would never think to dissect a situation in terms of risk, and as a result, they fundamentally misunderstand many aspects of life.
Risk Aversion as Habit Trigger
Risk aversion and fear are some of the greatest obstacles in our lives, but they also offer a hidden gift. In his book The Art of Impossible: A Peak Performance Primer, Steven Kotler argues that many of the world’s top performers have trained themselves to instinctively move toward discomfort instead of away from it—what he calls the “habit of ferocity.”
To illustrate, Kotler recounts the story of a track coach who trained his runners to snap into perfect form whenever they began running uphill. At times when other competitors would react to discomfort by getting sloppy with their form, bodies instinctively trying to conserve energy, the track team would speed up—an antifragile mindset, one might say. According to Kotler, once this became a habit, the team would eventually lean into discomfort without even realizing it.
Kotler argues that peak performers apply this habit to every aspect of life. Discomfort becomes a compass pointing to success.
Skinless Intellectuals earn degrees from prestigious universities without ever needing to verify their knowledge in real life, then get jobs that similarly fail to require skin in the game. These are jobs that involve theorizing and giving advice, with no penalty inflicted if their theories and advice are wrong—Taleb lists journalists, consultants, and university faculty members.
Skinless Intellectuals assume that they know more than they actually do. Without direct consequences for their misunderstandings, Skinless Intellectuals never have any reason to question their actions and beliefs. For this reason, Taleb asserts that Skinless Intellectuals make worse decisions than the average laborer.
As firm believers in the potential of human rationality, Skinless Intellectuals create systems in which educated decision-makers are able to exert influence and in which accountability is a lesser concern. Since they fail to factor in skin in the game, they see distant educated decision-makers as more effective than less educated decision-makers who are directly involved with the consequences of the decisions made.
The Curse of Learning
According to Taleb, Skinless Intellectuals suffer from what he calls the “curse of learning,” as described in The Black Swan. Because the world is so complex, even the most experienced experts are often unable to accurately learn from it—yet because of their education, they vastly overestimate their own understanding, resulting in bigger mistakes than individuals with less education would make.
The book Superforecasting documents this same phenomenon. Researchers found that the vast majority of experts are no better at predicting significant world events than someone randomly guessing. Additionally, despite being wrong as often as anyone else, experts were far more likely to make extreme predictions within their field—they frequently declared events either impossible or 100% certain to occur.
Experts’ blindness of their own inadequacies supports Taleb’s argument against Intellectualism. When experts are so frequently and extremely mistaken, systems need to be built around skin in the game so that errors can be corrected.
Skinless Intellectuals and their followers aren’t mistaken in believing that systems can be improved by intelligent and experienced decision-makers. However, in the absence of skin in the game, this reliance on human judgment is exactly what causes systems to collapse.
We’re going to discuss two principles that explain why this is:
In systems that incorporate skin in the game, it’s obvious what works and what doesn’t. Your start-up company either succeeds and earns you a profit, or it fails, forcing you to shut down.
Without skin in the game, however, third-party judges and administrators are forced to conduct reviews and decide what is effective. If you’re one of many in the marketing department of a massive corporation, your manager has to judge how much value you individually are creating.
By definition, human judges mean that how you are perceived becomes the determining factor of your success. In the right setting, if you never get any work done, but always seem to be doing work, you could earn a promotion.
Poor Judges of Each Other
Malcolm Gladwell’s 2019 book Talking to Strangers is all about the human inability to see through appearances. People vastly overestimate their ability to read the intentions and emotions of others.
Gladwell cites the example of Amanda Knox to illustrate this point. Knox was a 20-year-old American exchange student convicted of murdering her roommate in Perugia, Italy. Despite the fact that Knox lacked motive or any physical evidence tying her to the crime, she was imprisoned for four years and wasn’t wholly exonerated for another four. Knox was convicted simply because she seemed guilty—she never appeared to grieve for her roommate’s death, instead joking around and cuddling with her boyfriend.
Human judges are notoriously unreliable, making appearance-based performance reviews similarly unreliable, in Taleb’s eyes.
Taleb argues the idea that “things are not always what they seem” to the extreme: appearances often convey the exact opposite of the truth.
For example, business plans and scientific proposals that cleanly explain why you can expect success are more likely to fail. The point of plans and proposals is to create the appearance of competence, typically with the hope of selling the business or securing funding. Counterintuitively, this indicates less personal investment in the project itself.
The best businesses and scientists embrace the fact that it’s impossible to predict everything from the outset, instead hedging their bets and organically growing and adapting as circumstances change. The less you understand why something is successful, the more reliable it probably is.
(Shortform note: While Taleb insists that all business plans are good for is maintaining the false appearance of certain success, many entrepreneurs find them to be valuable tools to clarify their thinking about their business. Author and entrepreneur Ash Maurya is known for creating the Lean Canvas, adapted from the Business Model Canvas to better enhance internal perspective and adapt to changing circumstances. The Lean Canvas fits on one page, limiting the entrepreneur’s ability to over-plan—a minimalist approach Taleb would appreciate.)
Similarly, successful professionals who seem extraordinarily confident, intellectual, or put-together, in many cases, are at times only successful because of their ability to manipulate their image. They’re better at cultivating the appearance of expertise than true expertise.
This principle also works in reverse: successful people who don’t appear successful are usually the most skilled. A professional who succeeds without “looking the part” has to overcome the negative impressions he gives to others—making it more likely that he’s highly competent.
Imagine a pimply teen who looks like he’s never set foot outside who earned $300,000 within a year of starting his own company. His soaring profits are even more indicative of his skill considering that he was likely underestimated by everyone he did business with.
(Shortform note: Studies have shown that attractive people have been given more advantages than you would expect. Employers are willing to pay 10% more to attractive employees, attractive politicians are more likely to be elected, and attractive teachers cause their students to better retain information. Attractive CEOs not only get paid more, they win more negotiations, and result in greater stock prices—when they’re hired and even when they appear on TV. However, this doesn’t always mean that attractive people are less skilled, as Taleb argues. The preferential treatment given to attractive people as they grow, as well as the accompanying boost in confidence, result in a very real boost in skills and achievement.)
Due to false appearances, human judges are unavoidably fallible—thus, It’s the system’s ability to eliminate ineffective judges that drives progress. This is only attained through skin in the game.
Decision-makers who have something to lose for poor judgments either learn from their mistakes or are filtered out by the system. If an entrepreneur is misled by false appearances, their business will go belly-up.
Without skin in the game, entire professions can become dominated by people whose competent-looking public image is nothing but smoke and mirrors, along with ideas that seem smart on paper but crumble when applied in the real world. This is a vicious cycle—as ineffective people and ideas fail to get filtered out, the institution’s image of what success looks like drifts further away from reality.
Eventually, these industries completely fail to recognize how to accomplish anything desirable, and the system collapses. In the next few sections of our guide, we’ll describe how this is happening in several specific industries and institutions.
Skin in the Game of Racial Bias
Racial bias is an extension of Taleb’s “False Appearances” idea—human judges are tragically fallible judges of intent and character. In light of this, many argue that police officers don’t have enough skin in the game. Racial bias is something that happens internally—it’s difficult to prove in a court of law, making it difficult to easily keep officers accountable.
Taleb asserts that the sign of a healthy system is the ability to eliminate ineffective judges. The degree to which this is happening in law enforcement is a point of conflict. For decades, police unions in the United States gave officers some degree of protection against liability—for example, giving officers 48 hours before being required to offer an official statement on a controversial incident, and allowing binding arbitration to supersede the discretion of police department managers. These union laws began to undergo reform in some states following the 2020 George Floyd protests. Taleb would likely agree that third-party arbitrators with no skin in the game should not have the ability to reinstate offending officers.
There are also simpler ways to put more of the police’s skin in the game. When body cameras became required for officers in the Oakland police department in 2011, incidents requiring the use of force dropped by 66%. The number of citizen complaints fell as well, reflecting a drop in distrust of law enforcement.
Now that we’ve explained the Lindy effect and the inadequacy of human judges, we’re going to begin investigating the various areas in which a lack of skin in the game causes systemic damage to society. To begin, we'll take a look at Taleb’s criticism of science and academia.
The ideology of Intellectualism is particularly widespread in universities and other research institutions that are isolated from the real world in which their ideas are implemented. Academia nurtures Skinless Intellectuals. Taleb argues that areas of science and academia that lack skin in the game yield faulty, harmful ideas and theories that would cause major damage if implemented at a large scale.
First, we’re going to describe what good science with skin in the game should look like. Then, we’ll show how and why modern science strays from this ideal, highlighting specific flaws in modern academic practice caused by a lack of skin in the game. Finally, we’ll look at Taleb’s proposed solution to these problems and explain how he would reshape modern research.
The Lindy effect is at the core of good science. This is because science is about disproving ideas until those that can’t be disproved are all that remain. For example, Ptolemy disproved the astronomical model of the Ancient Greeks, then Copernicus disproved Ptolemy’s model by showing that the earth moves around the sun. Progress is made in the areas in which theories fail.
The point of scientific experimentation is to speed up time’s elimination process. Scientists intentionally create observable stakes that determine whether or not a hypothesis is effective at achieving specific results. If it isn’t, it’s discarded.
(Shortform note: This is an example of another one of the major ideas that appears throughout Taleb’s Incerto: “via negativa,” the principle stating that it’s easier to prove that something doesn’t work than that it does, and consequently, taking things away is a more reliable course of action than adding something. Taleb argues that via negativa is a reliable guiding principle in a wide range of situations: politics, markets, medicine. He devotes several chapters in Antifragile to this topic.)
Ideally, scientific fields would be dominated by skeptical experimenters who are rewarded for disproving theories and devising a more accurate understanding of how the world works. Unfortunately, modern science has strayed from this ideal because researchers lack skin in the game.
This lack of academics’ skin in the game results in the growth of systemic flaws, as researchers are not punished for inefficiencies or mistakes.
Taleb argues that these flaws yield inaccurate conclusions and misguided theories that can cause major harm if applied at a large scale in the real world. For example, Taleb particularly scorns economist Richard Thaler’s argument that policymakers and private companies should actively “nudge” people away from making “irrational” choices—“irrational” choices are sometimes safer, for reasons distant third parties didn’t consider. According to Taleb, many of these errors are then taught in universities, cheapening the value of higher education.
Taleb notes that flaws in science are especially severe in social sciences such as economics, psychology, and history (as opposed to hard sciences like chemistry and physics), where definitive evidence is relatively difficult to gather and theories are difficult to disprove.
Why Do Researchers Lack Skin in the Game?
Taleb argues under the assumption that academia lacks skin in the game, but he doesn’t explain how or why this came to be.
Only a small fraction of scientific research ends up providing practical benefits to society, and it’s difficult to predict how valuable any given line of research will be until after these discoveries are made. If valuable discoveries were predictable, they would have already been discovered.
For example, Alexander Fleming, the scientist who discovered penicillin, initially failed to recognize the practical value of his discovery. It was more than ten years before it was used as a revolutionary antiseptic. Since it’s difficult to predict the value of scientific exploration, the majority of researchers get paid salaries for research that in the end generates little value.
Researchers don’t bear the financial risks of their research, and this imbalance between risk and reward is a lack of skin in the game. Thus, fallible human judges are the ones evaluating research instead of the Lindy effect, which, as we’ve discussed, causes problems.
Instead of judging research by how well it stands up to skeptical experimentation, peer review has become the ultimate judge of quality science.
According to Taleb, in peer review-driven academia, reputation is everything. If your peers don’t see value in your theories, it doesn’t matter if they’re correct or not—your research won’t be accepted. Since peer approval is a reciprocal process, as long as a group of academics reaches consensus, the quality of their ideas doesn’t matter. They can create a feedback loop of approving each others’ research, earning themselves funding and tenure with no penalty for being wrong.
In short, Taleb is arguing that peer review rewards science that supports the research of others instead of science that tries to disprove it. But the intent to disprove existing theories is what makes science effective.
Reforming Peer Review
This isn’t just Taleb’s problem—peer review has long been a common target of criticism within academia as well. Institutionalized science existed long before peer review, which only became industry-standard in the years following World War II. Critics argue that peer review is biased against the research that could prove to be the most valuable—that which challenges existing knowledge and comes from less prestigious institutions. A significant number of heavily cited papers were initially rejected by peer review before later earning recognition, including several that eventually won the Nobel Prize.
Some academics are attempting to invent innovative new forms of peer review. One model opens papers up to online public discussion prior to publication, where experts and amateurs could critique and engage in conversation with the authors, which editors took into account before deciding whether or not to publish. Online journal PLOS One is still peer-reviewed, but makes a point to accept a wide range of research—even if it lacks obvious significance to a given field—and allows the paper’s audience to play a part in determining what research has value.
In Taleb’s eyes, academia tends to overlook the role skin in the game plays in the discovery of knowledge. One clear illustration of this: academics divide research into two categories: theoretical and empirical. Theoretical research is abstract, a series of assumptions based on logical reasoning. Empirical research is concrete, based on data gathered from experiments, surveys or other means.
Empirical research is typically seen as reliable, but Taleb makes the argument that it’s still barely more than theoretical. Just because inferences are based on objective data does not mean those inferences are objectively true. If good data is misinterpreted under false assumptions, the data is useless. Humans are poor judges of data. All it takes is one unnoticed variable to render a conclusion invalid.
Additionally, experiments conducted in isolation are a far cry from the real world and could yield false conclusions. Borrowing from the field of medicine, Taleb asserts that clinical research is also necessary—implementing and studying theories in the real world. However, the idea of clinical research is unheard of in most scientific disciplines.
More Data to Misinterpret
In an article for WIRED, Taleb cautions against the dangers of “Big Data.” He argues that as technology has allowed us to measure greater quantities of data from more sources than ever before, it also causes us to make more false conclusions than ever before. As the number of measured variables grows, so does the number of correlations between variables. And where there are more correlations, more researchers purport to show evidence where there is none. In this way, counterintuitively, more data can mean less accurate knowledge.
Taleb offers an example in the WIRED article: a geneticist’s observational study claims to have discovered ten genes that successfully predict the incidence of ALS. When he studied the data, however, Taleb found that the “statistically significant” conclusions reached were the result of random chance—the geneticist was studying so many hundreds of thousands of genes that some correlation to ALS incidence was inevitable.
The last problem Taleb has with academia that we’ll discuss is that academics are rewarded for overcomplicating their own work, to the point of diminishing value.
Here’s why: Academics are praised and rewarded for complex, uncommon insights that have not yet been covered by other members of the field. But without skin in the game to verify which insights are true or useful, complexity becomes the primary way to measure success. This is especially true in fields where it’s difficult or impossible to disprove theories, such as economics or psychology.
Even in the more problem-solving fields of applied science, complexity is often prioritized over effectiveness. When scientists are getting paid regardless of how well they solve the problem—when they lack skin in the game—they are incentivized to appear more valuable by devising the most complex solution possible. Complex solutions increase dependence on those who invented them and often entail financial rewards—for instance, if a scientist is the patent owner of an unnecessarily complex piece of technology.
Taleb is adamant that science intended to needlessly complicate instead of solve problems isn’t science at all—it’s “scientism.”
Obscurantism in Academia
In an article for the magazine Philosophy Now, Siobhan Lyons argues that academia is ridden with obscure language intended to exclude those outside narrow intellectual circles and maintain a sophisticated image among peers. Taleb and Lyons both make ironic comparisons between modern academia and the rituals of the Roman Catholic church, arguing that both groups purposefully withhold knowledge in order to be revered.
Lyons argues that intellectuals have become “isolated,” using obscure language to distance themselves from a public that may challenge their ideas or, through clarification, point out gaps in their thinking. As a result, public conversation has largely been divided into two extremes—meaty but inaccessible academic discourse, and the shallow thought of pop culture. This division hinders the interplay of ideas necessary to make progress.
Lyons asserts that modern academics need to bridge this gap and pursue Aristotle’s Golden Mean, a virtuous position between these two extremes. She points to the work of Slavoj Žižek as a prime example of a philosopher who tackles sophisticated topics without reeling back from the trappings of pop culture. He finds meaning in the obscene and the accessible.
Taleb illustrates what dangerous scientism looks like with an anecdote about genetically engineered rice. When faced with the problem of malnourished people in third-world countries, dangerously deficient in Vitamin A, scientists were quick to develop the solution of genetically engineered, vitamin-enriched rice.
Taleb and his colleagues composed a detailed counterargument, based on the idea that genetic engineering is a relatively new science, and could have disastrous unforeseen side effects if it were implemented on a large scale. Additionally, they saw no reason not to simply give starving people rice and Vitamin A separately.
However, when Taleb and his colleagues argued against the overly complicated solution, they were branded as “anti-science” by those who stood to profit from the creation of genetically modified rice.
Obviously, not all academics and intellectuals intentionally seek to profit by deceiving the public, but a system without skin in the game incentivizes them to appear valuable instead of actually being valuable.
In Defense of “Golden Rice”
Taleb is correct in saying that the general consensus among academics was on the side of “Golden rice.” Most experts, including an organized movement of 107 Nobel Laureates, have shown their support for golden rice. Golden rice was first successfully grown in 1999, but skeptics’ protests and government regulation contributed to an extended stall-out in the production process.
Supporters of the vitamin-enriched rice frame the protest movement as a misguided storm of misinformation—the Foreign Policy article above describes how Greenpeace purported to show that an adult would have to eat 20 pounds of the rice to counteract Vitamin A deficiency, a claim later proven to be false.
It’s also notable that this rice was not sold for the inventors’ profit. Taleb’s argument for a conflict of interest isn’t entirely invalid, in that the inventors were able to fund their research careers and gain prestige based on the viability of Golden Rice, but there was a cap on their prospective financial gains—they weren’t just overcomplicating for profit.
One point that Taleb didn’t address is the fact that golden rice is infinitely renewable, unlike a supply chain of Vitamin A tablets to countries in need.
The United States’ FDA approved golden rice as safe to eat in 2018. Commercial cultivation of golden rice was approved by the government of the Philippines in July of 2021, marking the first opportunity for golden rice to help those it was originally intended to help.
Taleb asserts that the only way to ensure effective scholarship is to stop paying scientists to conduct research. Instead, we should require working professionals to conduct research on their own time.
This puts the skin of researchers back in the game, as they would have to sacrifice time, money, and effort in the name of science if they want to discover something valuable. Their rewards become contingent on their success—the only way they can make money off of a discovery is if it’s valuable enough that someone is willing to pay for it.
(Shortform note: Taleb’s call to abolish research institutions entirely seems far too extreme to be realistic. It also seems to contradict his opinion that incremental change is the best way forward. That being said, in the book, Taleb frames this shift away from salaried research as an inevitable eventuality rather than his own advice: “The deprostitutionalization of research will eventually be done as follows…” He likely believes that the current academic system will collapse without the need for critics to intervene.)
Currently, Taleb asserts that a good way to distinguish good research from bad is to give more credence to academics with more skin in the game. Specifically, you should listen more closely to those who have more to lose if their arguments are faulty—people who contradict the opinions of their peers and risk being ostracized by their community.
(Shortform note: Conversely, researchers who confirm what we assume to be true are less likely to be held accountable for mistakes. Diederik Stapel, a social psychologist, was caught in 2011 having made up experimental data for at least 58 published studies over the course of several years. He remained undetected because he was tweaking data to fit reasonable hypotheses that the scientific community would support—correlations such as: children primed with the idea of someone crying are more likely to share their candy, subjects primed with capitalist ideas will consume more M&Ms.)
The next area we’ll discuss in which the absence of skin in the game causes problems is centralized government. Throughout the book, Taleb criticizes centralized power structures in which a few people make decisions that affect everyone. In his view, large systems, like governments or economies, are far too complex for individuals to effectively manage from the top down.
Instead, Taleb advocates for the decentralization of power—smaller territories are more likely to govern themselves effectively. For example, Taleb credits the success of the United States of America to its federalist nature—the government of each state has more skin in the game than the federal government has in any state.
First, we’re going to examine the benefits of decentralized government: greater accountability and more democratic representation. Then, we’ll take a look at why people believe in the power of centralized government and the one fact they overlook in doing so: Intellect and morality don’t scale.
By nature, the government doesn’t have much skin in the game—it’s a small segment of the population tasked with managing the affairs of the entire nation. As a government grows, decision-makers move farther away from the consequences of their actions, in distance and time, removing skin in the game. And, as we’ve established, a lack of skin in the game prevents workers from learning from their mistakes and causes them to make less ethical decisions.
Since they have no direct exposure to the consequences of their own decisions, government officials are never given the opportunity to learn from their mistakes. Additionally, without skin in the game, public officials are able to transfer their risk unfairly onto others.
Whenever someone in government uses taxpayer money to compensate for their own mismanagement or enacts a policy that benefits their image more than their constituents, they’re creating an immoral asymmetry of risk. Since they’re operating within such a large, complex system, this kind of corruption is difficult to detect.
More specifically, Taleb criticizes corrupt civil servants who make decisions that benefit certain industries, then join those industries after leaving office. Taleb criticizes former Secretary of the Treasury Timothy Geithner for facilitating the bailout of big banks and then accepting a multi-million dollar salary at a private equity firm as a “reward for good behavior.”
Similarly, Taleb condemns instances in which government workers deliberately enact elaborate industry regulations, then get hired by those industries as experts with exclusive knowledge of the way those regulations work.
Regulations Are Easily Abused
Taleb describes his first-hand witness of this kind of corruption in Antifragile. When he worked at a Wall Street investment bank, the managing director notified the traders that they were all expected to donate a percentage of their income to a few specific politicians’ campaigns, politicians who it was well known would treat their industry well. Taleb refused on moral grounds.
Another incident occurred when Alan Blinder, former Vice Chairman of the Federal Reserve Bank, tried to sell Taleb an unethical service: Blinder’s company would split up the funds of someone wealthy like Taleb among several different banks in order to circumvent government regulation that put a cap on deposit insurance. Blinder admitted to having several former regulators on his staff that were profiting from their extensive knowledge of regulation loopholes. It was legal, though extremely unethical.
In 2020, political scientists published a study identifying what they call “Unrules”—exemptions in regulatory law that allow certain individuals and organizations to circumvent regulation. Unrules are extremely prevalent in regulatory law—by scanning a massive regulatory code document for keywords, the researchers found that for every five or six instances of regulatory obligations, there was a way to get around them. While unrules aren’t necessarily a sign of corruption—they allow regulatory bodies to more precisely regulate complex situations—they also allow people like Alan Blinder to deliberately plant loopholes and more profitably wield insider knowledge.
To solve this problem, Taleb proposes that, after they enter office, civil servants should never be allowed to earn more than a set amount from the private sector, even after they leave office. This would help curb bribery and ensure that those running for office do so for honest, selfless reasons.
(Shortform note: The United Kingdom has instated a watchdog committee for this purpose. While the Independent Advisory Committee on Business Appointments (ACOBA) hasn’t capped civil servants’ income, it sets some limits and investigates post-service jobs for corruption. The committee, however, lacks the ability to enforce its rules and has long been a target of criticism.)
Decentralized governments of smaller states with more skin in the game are less tolerant of corruption and mismanagement because public officials are closer to the consequences of their decisions.
The effects of a city council’s policies on a small town (for example, changes to a public school’s budget) are much more tangibly noticeable than the effects of a federal policy across a nation (for example, restructured tax brackets). This adds pressure to serve effectively and ethically.
Additionally, with a more localized government, each decision-maker has less power and responsibility to potentially abuse. In a worst-case scenario, their corruption or mismanagement will harm fewer people.
Taleb’s Favorite Form of Government
Taleb has stated in his other books and online that in his eyes, the ideal size for an autonomous state is the city-state, ideally one that is under control of a greater empire. Antifragile uses the example of the prosperous centuries of Pax Romana for provinces under the control of the Roman empire.
Each province was overseen by a Roman governor, but for the most part, were controlled by local senators. Powerful external control prevented these city-states from destroying one another through war, and having local decision-makers ensured that the effects of government decisions were easily observed and improved.
Taleb also uses the previously discussed theory of the passionate few to reinforce his argument for a more decentralized political system. Given that a vocal minority can dictate policy for an entire population, smaller autonomous states allow for a more accurate reflection of their citizens’ true preferences.
Consider a hypothetical passionate few in the United States rallying in support of a specific policy. The activists, however, are largely concentrated in just three states. If the nation was not divided into states, the passionate few could impose their preferences on the entire country, leaving 47 states with a large population of citizens indifferent or modestly opposed to the policy. But since policies are allowed to go into effect on the state level, those three states are able to enact it for themselves without impacting the other 47. Now, each state has policies that more closely reflect its true preferences.
Reasoning along these lines, Taleb defends Great Britain’s decision to leave the European Union. He implies that as an independent state, Britain’s policies will be more closely aligned to its citizens’ preferences, instead of being unduly influenced by a minority that resides elsewhere in Europe.
Taleb and the European Union
Taleb is a severe critic of the European Union, calling it a “horrible, stupid project” that’s “doomed to fail.” In his eyes, it allows a passionate few of politicians and their supporters to drag down citizens across Europe with misguided top-down decision-making.
One commonly criticized example of the EU’s mismanagement is the Common Agricultural Policy (CAP), which The Guardian in 2013 called “the most blatant transfer of money from the poor to the rich that has occurred in the era of universal suffrage.” The idea behind the CAP is simple: subsidize farming in order to protect farmers’ jobs and increase food supply throughout Europe. In practice, a significant amount of the EU’s $65 billion a year farming payout has gone to the farms on political families’ estates and corrupt government leaders—companies owned by the Prime Minister of the Czech Republic collected $42 million in farming subsidies from European taxpayers in 2018. On top of this, food prices in 2013 were 17% higher in Europe than comparable countries like Australia and New Zealand.
Taleb calls the EU’s unified currency a “terrible idea,” as it “encouraged everyone to borrow to the hilt.” This idea has support from economists.
If decentralized government provides accountability and greater representation, why do people push for more centralization?
Taleb asserts that if you trust in the potential of human design, the skin in the game of a decentralized government can seem unnecessary. Skinless Intellectuals who “hate skin in the game,” as Taleb puts it, hate it because they believe rational, intelligent humans, if given enough power, would be able to create a better society than individuals with skin in the game acting in their own self-interest.
Taleb takes the opposing view: human design is fundamentally limited. Large governments manage such large, complex systems that their intervention and attempts at restructuring are far more likely to be harmful than beneficial. Ensuring that decision-makers have as much skin in the game as possible protects us from leaders with too much faith in their own intellect and morals.
Centralization’s Blurred Lines
Supporters of bigger centralized government point to success in Europe—by percent of GDP, countries such as France, Spain, and Germany have significantly larger governments than the United States, and sport lower poverty rates, longer life spans, and lower rates of teenage pregnancy. Nordic states like Denmark and Finland are even more extreme examples of the same trend. Higher government spending has shown to be effective.
However, although government spending is heavily correlated with centralized power, they’re not the same thing. The United Kingdom, for example, spends less of the nation’s annual GDP on its government than Germany, yet it has a single-payer healthcare system, unlike Germany’s more decentralized multi-payer system. Nordic countries with large governments are propped up by strong decentralized free markets. Most countries have found a unique balance between centralized and decentralized decision-making, showing that some goals may be better accomplished through centralization, and others through decentralization.
Taleb identifies one common misconception that he believes contributes to many of the world’s biggest problems: Those who support centralization mistakenly assume that the logic and ethics they use to make decisions on a small scale will have the same effects at a large scale. In reality, when those in power make decisions at a large enough scale, the intellect and morals used on the individual level fail to effectively do good.
Large nations are far too complex for even the most intelligent, insightful leaders to fully understand and predict. Any given decision could have multiple unforeseen consequences, and without skin in the game, mistakes go undetected, causing permanent, compounding problems that no one knows how to solve.
As for morals: It’s easy to believe that we should make decisions based on absolute morality—that the right thing to do is right no matter what. In practicality, however, in order to achieve the most moral results we must employ different sets of ethics for organizations of different sizes.
You can teach a child to share his toys with his brothers and sisters, hunter-gatherer tribes can learn to pool their resources and divide it according to need, but you can’t teach a nation to work hard and then give away the fruits of their labor. The moral principles fall apart when applied at a large scale. Attempts to implement them cause more harm than good.
Scaling Is the Heart of Taleb’s Politics
The cornerstone of Taleb’s political perspective is that groups of different sizes behave in extremely different ways—as stated in Skin in the Game, it’s possible to be “at the Fed level, libertarian; at the state level, Republican; at the local level, Democrat; and at the family and friends level, a socialist.” Since the rules change as groups grow bigger, you need to allow groups of different sizes to set their own rules.
In the Scala Politica, Taleb’s book-length political manifesto published as an academic paper, Taleb argues that borderless globalism is impossible—people naturally care about their own families and sometimes their own nations, but they wouldn’t find the same sense of meaning if they could only relate to humanity as a whole. Additionally, there is no one way of life that will satisfy everyone on earth. This requires a system that allows “tribes” of different sizes to coexist. Taleb cites Yoram Hazony, an Israeli-born political theorist whose ideas have been gaining recent traction in American conservative circles, although Taleb puts his own caveats on Hazony’s ideas.
Hazony’s main idea is that cultural cohesion within a large nation is the ideal political structure, even when it means excluding outsiders and treating them less favorably. In fact, he argues that nations can only thrive when they’re excluding others—in his eyes, if a nation embraces global ideals and identity, including everyone, it will inevitably seek to assimilate the entire world, becoming a hegemonic “empire.” A nation defined by its differences from surrounding peoples, on the other hand, provides the strength and stability necessary to coexist with them.
Taleb agrees with Hazony on this point but applies his logic to groups of any size. In Taleb’s eyes, “fractal layering” is necessary—in-groups of different sizes (nations, families, religious communities) must be allowed to develop and coexist. Whereas Hazony would argue that a single religious tradition is necessary for a prosperous, unified nation, Taleb holds that Hazony’s “monolithic, absorbing nationalism” that seeks to eliminate factions within itself—one that requires all citizens to adhere to one religion, for instance—is just as ineffective as globalism (and fosters xenophobia).
We’ll continue our exploration of areas in which the absence of skin in the game causes problems with a discussion of the journalism industry.
Taleb argues that because journalists lack skin in the game, news institutions become dominated by a single point of view, causing political polarization and biased misrepresentation of the facts.
First, we’ll describe the flaws caused by a lack of skin in the game that Taleb has identified in the news media. Next, we’ll explain what a healthy news medium looks like by distinguishing between two ways that news spreads. Lastly, we’ll outline the ethical way news outlets—and all of us—should argue against opposing perspectives.
Since the effect the news has on society is so difficult to observe, journalists have been able to avoid putting skin in the game. Their salaries don’t depend on how much useful and accurate information they convey to the public—rather, they depend on how well they fulfill their employers’ expectations.
In theory, journalistic institutions encourage their employees to convey an accurate representation of the facts. In reality, though, they often misrepresent the facts in pursuit of their own interests because there is no penalty for doing so.
Internet News Takes Skin Out of the Game
In Trust Me, I’m Lying, the Daily Stoic’s Ryan Holiday recounts his experience as a marketing director exploiting flaws in the Internet-based news media. Holiday explains that advertising-driven blogs—which comprise the majority of online news sources—earn income based solely on pageviews, and as a result, they put greater emphasis on sensational, attention-grabbing news and less on balanced perspective and reliable fact-checking. As Taleb points out, journalists’ skin is not in the public’s game. We’ll cover this in more detail a little later.
Here, Taleb establishes the principle that skin in the game rewards diversity while the absence of skin in the game rewards conformity.
Recall that, in the absence of skin in the game, rewards are given out based on the appearance of value instead of true value. For this reason, you won’t be rewarded for good ideas that contradict the general consensus. They won’t look like good ideas on the surface.
In Taleb’s view, the field of journalism operates in a very similar way to academia in the sense that one point of view comes to dominate entire organizations. Ideas are judged by editors or other higher-ups in the institution, who reject anything they don’t see value in. This incentivizes conformity, especially in a field as competitive as journalism. Given the choice between two journalists of equal skill, an editor will hire the one who shares her point of view. This contributes to the political polarization we see in our news media.
In contrast, the skin in the game of the business world rewards diverse ideas. If entrepreneurs are able to make money by challenging public opinion, they’ll make even more profit than if they had conformed—because it’s an untapped market.
Dangers of a Disappearing Middle Ground
Conformity of thought and political polarization are real problems with very real consequences, and journalism without skin in the game exacerbates these problems. This article provides some shocking statistics that show just how serious political polarization is—a study conducted before the 2020 US presidential election showed that, 13.8% of Republicans and 18.3% of Democrats agreed that “violence would be justified” if their party lost the election, and 16% of Republicans and 20% of Democrats have thought that “we’d be better off as a country” if “large numbers'' of the opposing party “just died.”
Recent incidents of political violence spring to mind, and statistics show that support for violence is on the rise, even compared to the relatively recent 2017. The American Civil War was preceded by similar incidents of violence—for example, John Brown’s attempted 1859 slave rebellion sparked an intense overreaction from the South, as extremists became convinced that government-supported Northern abolitionists intended to infiltrate their land and start a full-on rebellion. Violence disproportionately escalates polarization. This may be the most direct way that a lack of skin in the game is currently doing harm to society.
Taleb maintains that in the absence of skin in the game, not only are journalists incentivized to conform to one perspective, they are encouraged to interpret and warp the news in the way that best serves the biased perspective of the organization.
Taleb recounts an instance in which the press drastically misrepresented his opinion on climate change during a public discussion with then-candidate for UK Prime Minister, David Cameron. The UK press condensed Taleb’s entire perspective on uncertainty and accountability into an out-of-context sound bite that implied the opposite of what he intended to convey.
The press did this with the intent of weakening Cameron’s public image during the lead-up to the election. It was only after the threat of legal action on Taleb’s part that the papers corrected what they had printed.
The majority of the time, journalistic institutions face no consequences for cases like this, as only rarely does someone resort to legal action. Inaccuracies and distortion like this largely fly under the radar.
Context on the David Cameron Incident
Here’s the statement Taleb made that was allegedly misinterpreted by the English press: “I’m a hyper-conservative ecologically. I don’t want to mess with Mother Nature. I don’t believe that carbon thing is necessarily anthropogenic [i.e. manmade].”
As explained in Taleb’s initial response to the Guardian, by “hyper-conservative ecologically” he meant that we shouldn’t take any risks by interfering with the complex system that is Earth, an aggressive anti-pollution stance. People took it out of context and interpreted “hyper-conservative” to mean “companies should be free to pollute however much they want.” The original Guardian story has since been taken down.
However, Taleb did express skepticism regarding carbon emissions, so accusations of climate skepticism were not entirely unfounded, as Taleb paints them to be.
Taleb’s original response to the Guardian, which was published on his personal website, has since been taken down, but you can read it here, and the more polite updated version here.
To explain what a healthy news source looks like, Taleb makes the distinction between two types of news systems: two-way and one-way.
Two-way mediums are systems in which news is shared by individuals who both give and receive information. For most of human history, news has been spread this way—through word of mouth within communities. Village gossip is a two-way news medium.
Two-way mediums, by nature, incorporate an element of skin in the game. If someone spreads misinformation, everyone else will identify and condemn that misinformation. News sources have the potential to suffer more reputational harm in two-way news systems because audiences have the ability to broadcast their feedback.
One-way mediums are platforms in which a centralized distributor transmits news to a mass audience. Newspapers, radio, and television are all one-way news mediums. One-way news is a fairly recent development, beginning when newspapers became commonplace.
These mediums involve very few opportunities for feedback—the opinions of their audiences have little influence on how they operate. Thus, the rise of one-way news vastly reduced skin in the game. New technology allowed a few news distributors to be heard while the general public no longer had a voice to give feedback. News became centralized, and institutions were able to survive with far less journalistic integrity than a reputable village gossip.
However, Taleb asserts that two-way news is making a comeback in the form of social media. Social media puts news institutions’ skin back in the game, as unreliable sources come under fire from the general public.
The recent rise in suspicion toward the news media is a sign that our one-way news system is in the process of collapsing entirely, due to its chronic lack of skin in the game. Now that the general public has been given a channel to broadcast their criticism of untrustworthy sources, bias and distortion in the news is more likely to be punished. According to Taleb, we’re in the process of evolving toward a more reliable news system, and in the end, only the most trustworthy institutions will survive.
An Alternative View of the Rise and Fall of News Media
In Trust Me, I’m Lying, Holiday categorizes news systems into two types in a slightly different way. He argues that news media are drastically transformed based on whether they generate profits with a subscription model or a headline-driven model, and the shift in prominence from one to the other has delineated the different eras of news.
Holiday starts the news media timeline at the “party press,” editorials run by political parties and supported by a small base of subscribers. In 1833, the New York Sun began the first paper designed to be bought issue by issue, starting a race to see who could report the latest sensational news, regardless of how accurate that news was—the “yellow press,” as they were called. In 1896, Adolph Ochs took over the New York Times, reviving the subscription model and more or less putting quality back into journalism. A reliable reputation was once again needed to turn a profit, as customers were willing to pay regularly for news they could trust.
However, Holiday argues that advertising-driven news on the Internet marked a return to “yellow journalism”—the death of subscriptions meant the death of journalistic integrity. People don’t just read news from one source, they read an aggregate of news from every source—meaning that news sites can constantly chase new readers with salacious headlines and manufactured outrage instead of needing to form a relationship with a stable audience.
Holiday asserts that hope in the modern news media can be found in the return of subscription news, as online paywalls are on the rise. The New York Times and similar institutions are earning more from subscriptions than ad sales. Holiday comes to a similar conclusion as Taleb: sites that habitually mistreat their readers will eventually die out as people re-discover a better way to get their news—Holiday notes that, for one, the massive gossip site Gawker went bankrupt in 2016 after a $140 million invasion of privacy lawsuit.
In contrast with the way one-sided news sources present ideas that oppose their own, Taleb establishes some guidelines for ethical debate.
The primary rule is to advocate for your opponent’s position as strongly as if it were your own. You shouldn’t start a counterargument until you’ve done this. Don’t obscure any facts about the issue, even if they make your position weaker. Doing so shows respect for the other side and turns debate into a collaborative search for ideas that are true and useful. Counterintuitively, it also makes your argument appear stronger since it shows that you have honestly considered the other side.
Taking this to an even further extent, Taleb advises to not only argue against what your opponent said, but against what they meant—the strongest possible argument that aligns with your opponent’s perspective. This is the opposite of a straw man argument, which seeks to present the opposing argument as weakly as possible. This is an ethical imperative—lying by misrepresentation is immoral.
Taleb equates misrepresentation of your opponent’s point of view to theft—you are stealing their credibility and profiting at the expense of both your opponent and your audience.
Rogerian Argument and Rapoport’s Rules
This idea of Taleb’s is a core principle of Rogerian debate, a rhetorical model designed after the theories of psychologist Carl Rogers. Rogers is renowned in the field of psychology as the father of client-centered therapy, in which a positive relationship between therapist and client is prioritized over any specific technique. Researchers Young, Becker, and Pike applied the principles behind Rogers’s clinical practice to debate, understanding that therapy and debate are both attempts to change someone’s beliefs and behavior. In Rogerian argument, the debater makes it a priority to establish a respectful, non-adversarial relationship with the other party, as Taleb advises here.
Modern philosopher Daniel Dennett has rephrased, simplified, and helped popularize the principles of Rogerian argument. He calls them “Rapoport’s rules of debate,” after Anatol Rapoport, whose ideas were involved in the first formulation of Rogerian argument. He phrases these rules are as follows:
You should attempt to re-express your target’s position so clearly, vividly, and fairly that your target says, “Thanks, I wish I’d thought of putting it that way.”
You should list any points of agreement (especially if they are not matters of general or widespread agreement).
You should mention anything you have learned from your target.
Only then are you permitted to say so much as a word of rebuttal or criticism.
These rules are intended to get the other debater on your side, framing the argument as a mutually beneficial discussion instead of a competition.
Ethical disagreement, the way Taleb describes it, benefits everyone. It turns ego-driven competition into a productive brainstorming session. Ethical disagreement is a valuable skill that’s worth practicing.
Think of a fight or debate you’ve had recently. Were you trying to discover the truth, or find a valid solution to a problem? Or were you just trying to prove that you were right?
Temporarily take your opponent’s side of this fight as if it were yours: Write up the argument that they should have made, in a way that would make them say, “Thanks, I wish I’d thought of putting it that way.”
List everything you can think of that both sides of this argument can agree on.
Has this process made you think about the argument differently? How would you feel if your opponent went through this process for you?
We’re going to conclude our exploration of those areas of life that suffer from a lack of skin in the game by discussing the role skin in the game plays in war and peace.
Taleb argues that populations with skin in the game tend to fight shorter, relatively non-destructive wars, and that all the bloodiest conflicts in history were driven by third parties without skin in the game.
In this section, we’ll start by showing why Taleb sees peace as the dominant status of civilization and how, when left to their own devices, people tend to resolve conflict and collaborate. Then, we’ll explain how institutions without skin in the game perpetuate war, even when they intend to create peace. Finally, we’ll explore why so many people falsely assume that the natural state of civilization is ceaseless, destructive conflict, which leads them to believe that institutions without skin in the game need to intervene.
Typically, over time, people find ways to coexist peacefully. Conflict is an inescapable consequence of human interaction, but Taleb frames war as a stepping-stone toward longer eras of peace and collaboration.
War puts mass skin in the game, not only for the people doing the fighting, but everyone who bears the risks of war—all civilians who suffer domestic turmoil and a stressed economy. The mutual drain of resources required by war puts constant pressure for peace on both sides.
According to Taleb, conflict is much more the exception than the rule. In most cases, both sides decide relatively quickly what trades or concessions they are willing to make, and peace is restored. In this way, people with skin in the game tend toward peace and collaboration.
The War of Peace
Taleb has engaged in a lengthy feud with psychologist Steven Pinker on the topic of whether or not violence has declined over the course of history. Taleb’s chapter on war is partially a response to Pinker’s 2011 book The Better Angels of Our Nature, in which he argues that the world is safer and more peaceful than ever before.
Pinker credits this in part to powerful democratic human institutions such as the United Nations that Taleb disdains. Taleb argues that the seventy or so years of overwhelming peace we’ve had since World War II could simply be a statistically predictable gap between massive wars, and that centralized institutions intended to create peace often cause more conflict than they resolve, as we’ll see next.
There is an exception, however. All the longest and most intense conflicts are driven by institutions without skin in the game of the war. If the ones ordering the war aren’t personally suffering its dire consequences, it’s more likely to continue.
For Taleb, this is another reason why decentralized states are better than a large unified nation—centralized governments are more likely to participate in deadlier wars because the decision-makers are farther away from the people making the sacrifices.
This idea can be illustrated by the widespread disillusionment of Americans regarding the Vietnam War. In 1970, two-thirds of Americans believed the war was a mistake, yet it continued until 1975. Since the central decision-makers had power over the entire US population, many people were drafted and suffered as a result of someone else’s beliefs—a skin in the game asymmetry which prolonged the conflict.
In Taleb’s view, once conflict has begun, only those engaged in the conflict have the ability to stop it. Foreign efforts to implement peace by powers without skin in the game cause more problems than they solve.
They often entirely misunderstand the wars’ root causes, due to their lack of direct experience with the conflict.
Even if a war is settled on paper among dignitaries, if the people themselves aren’t the ones to reconcile, the underlying conflict won’t go away.
Institutional Failures in the Israeli-Palistinian Conflict
In the book, Taleb argues this point with the example of the Israeli-Palestine Conflict, which has been raging for more than seventy years—due to foreign intervention, in Taleb’s eyes. Let’s take a quick simplified look at key moments in the history of this conflict through the lens of skin in the game.
Arguably, the first significant foreign intervention spurring this conflict was the 1917 Balfour Declaration, when Britain gave an undefined part of Palestine to Zionists lobbying for the creation of a Jewish homeland there. The Jewish population in Palestine grew, and hostility between them and the Arabs already there intensified to the point of armed conflict. In 1947, in the aftermath of the Holocaust, the United Nations gave Jews their own state, Israel, prompting Palestinians to go to war to reclaim the land, supported by foreign intervention from the Arab League. They lost the war, prompting Israel to take even more Palestinian land.
At each of these events, foreign bodies without skin in the game intervened at a distance from the consequences. Taleb argues that if, at either one of these junctures, world powers would have simply let Israel and Palestine solve their own problems, the conflict would have been resolved by now.
In 1993, a pair of peace treaties called the Oslo Accords were signed between the Israeli and Palestinian governments, but this didn’t last long, because, Taleb argues, “no peace proceeds from bureaucratic ink”—the people actually living in Israel and Palestine were dissatisfied with this agreement. In Taleb’s eyes, both states’ governments lacked skin in the game, as neither side achieved the desires of the people they were representing.
Taleb argues that people mistakenly believe in the need for strong institutions to establish peace because of the assumption that without the order of a centralized government, the natural state of coexisting societies is constant bloody turmoil.
He challenges this assumption, suggesting that most people vastly overestimate the toll of small-scale wars and conflict throughout history. Why?
Taleb accuses historians of fitting historical records to their flawed political theories. Just like academics in other fields, they overestimate the accuracy of conjecture that cannot be proved. They can’t help but interpret history through their own understanding—which causes them to write history books that portray the default state of man without governance to be constant warfare.
Additionally, Taleb states that, due to the fact that history books must condense large spans of time, wars and conflict seem more common and impactful than they really were. Books tend to leave out unremarkable periods of peace, making eras without large government seem more violent than they really were. Historical accounts put greater emphasis on conflict precisely because it is the exception to the norm.
Pushing Back Against Academic Distortion in Schools
There have been pushes in recent years to reform the way history is taught in schools for reasons similar to Taleb’s—reformers accuse schools of teaching history from a limited point of view that excludes valuable facts and perspectives from the narrative. American history classes are alleged to be overly nationalistic, idealizing past “wars for freedom” and failing to consider nuance when dealing with events regarding race, gender, and foreign policy.
Some argue that the traditional narrative structure of history classes is what needs to be updated. One experimental undergraduate class based at Harvard deals in “cases” in which students are given the same historical information that historical decision makers did, and are forced to weigh the issue at hand as if it is happening in real time. This method is intended to teach students historical context as well as valuable critical thinking skills.
Another factor contributing to a distorted view of historical warfare is the availability heuristic: The psychological principle that people tend to put disproportionate emphasis on the ideas that most readily come to mind. In this instance, we overestimate the frequency and negative effects of historical conflict because our idea of it is so emotionally impactful.
We’re far more likely to think of the bloody American Revolutionary War than the evolution of the fur trade happening during the same time period.
(Shortform note: The availability heuristic was originally identified by psychologists Amos Tversky and Daniel Kahneman, as described in Kahneman’s book Thinking, Fast and Slow. It was first studied when researchers found that, when asked if there were more words in English that started with the letter “k” or had “k” as the third letter, subjects incorrectly guessed the former, as words that began with “k” came to mind more quickly and easily.)
When judging the destruction of historical wars, people often make the false assumption that frequent conflict necessarily means worse conflict. Conflict should be judged by the negative impact it has on the population instead of the mere fact that conflict is happening.
Frequent skirmishes between smaller states can be a sign of relatively harmless jostling for power, which has little impact on anyone outside of the military itself. Often, commerce and quality of life can thrive despite war and conflict. On the other hand, it only takes one particularly intense war to send a nation into chaos and create millions of refugees.
To explain, Taleb discusses the recent history of Italy. Historians generally say that Italy was in constant turmoil before its unification into a single nation in the late 19th century. It consisted of several independent states that were constantly at war with one another. Taleb insists that the actual damage done by these battles was drastically less than the loss suffered when unified Italy entered World War One—which wouldn’t have occurred if Italy hadn’t been unified.
For these reasons, Taleb argues that institutions like large centralized governments aren’t as necessary to avert massively destructive war as many people assume. Decentralized, uninvolved states are much more stable.
The Virtue of Volatility
Taleb introduces this idea in Antifragile—that volatility doesn’t mean fragility. In fact, some amount of small, random destruction is required in antifragile systems. When humans prevent small, relatively harmless forest fires, flammable material that would have normally been burned away collects on the forest floor, until it sparks into a fire too big to stop. Small skirmishes between Italian states prevent the need for war on a national scale. Random stress better prepares systems for the uncertain future than the suppression of all stress.
Systems that are too stable suffer from stagnant decay. Taleb applies this idea to business and politics—he asserts that companies that keep their CEOs for too long fail to adapt or innovate and that the United States’s two political parties have passed their “expiration dates.” Ancient Greeks solved this problem by choosing assembly members by drawing lots.
Taleb also ties this idea back into his overarching disdain for modernity and human design. Modernity is marked by domination over nature, but many modern inventions do away with small amounts of discomfort that are, in the long run, healthy. Taleb’s examples include safe, boring office jobs, “efficient” MBA programs that replace trial and error, and social science that oversimplifies the world.
We’ve extensively covered the areas in which skin in the game is responsible for ethical, productive behavior in our world, as well as the ways in which a lack of skin in the game causes systemic harm.
For the final section of our guide, we’re going to examine Taleb’s bold, sweeping claims that skin in the game reveals the meaning of life and religion. He argues that skin in the game reveals that what we truly value above all else is the survival of the human race. With this in mind, Taleb then argues that religious belief is rational in the sense that it contributes to our survival.
First, we’ll explain how skin in the game is the only thing that’s truly “real.” Then, we’ll show how skin in the game reveals that the end goal of all humanity is survival. Finally, we’ll build support for Taleb’s argument that religion is fundamentally rational by showing how it contributes to our survival and arguing that everyone is religious to a certain extent.
Risk taking—skin in the game—is the essence of life itself. As Taleb puts it, “real life is risk taking.” He means this literally—by definition, a life without risk is not a real life. Let’s break down exactly what Taleb means by “real.”
Taleb is saying that risk defines what we consider to be reality and creates meaning by defining value.
In a metaphysical sense, skin in the game is how we define reality. Risk is what separates reality from fiction. Movies aren’t “real” because their events have no lasting consequences. They’re entirely without risk. Taleb asserts that this is why dreams aren’t real. When we wake up, they have no lasting consequences.
Taleb brings up a thought experiment posed by philosophers: Imagine we were able to plug ourselves into an “experience machine” that could create the illusion of real life. We would see, hear, and feel a full world for an extended period of time, but it would all be implanted in our brains instantly. Would that experience be real? Taleb says no—because of the absence of risk or lasting consequences.
The Experience Machine’s Libertarian Roots
This “experience machine” thought experiment was first posed by philosopher Robert Nozick in his 1974 book Anarchy, State and Utopia. Nozick was a libertarian who wrote Anarchy, State and Utopia as a counterargument to the political philosophy of John Rawls. The experience machine is intended to support his argument that maximal pleasure for as many people as possible cannot be the end goal of society, as some people seek higher values than pleasure (and so should not have their behavior limited by the government except when necessary to preserve human rights).
To prove that some people seek higher values than pleasure, Nozick argues that even if the experience machine could provide whatever pleasurable experience you could want, some people would refuse to plug into the machine, because they want things that the machine can’t give them—for example, to live up to a higher ideal in the “real” world by staying and providing for their family.
Skin in the game is at the core of everything valuable or meaningful.
Humans emotionally connect to the idea of risk and loss—it’s baked into our neurology. This is because how much we value something can be measured by how much we’re willing to risk for it.
If you want something, you’re going to need to sacrifice something to get it—for example, if you want a larger income, you need to spend time and effort to secure a raise at work or find a new job. Even then, you’ll never know for sure that you’ll get the raise you want. This is where risk comes into play—our world is inherently uncertain. Every sacrifice you make to get something you want is a risk.
In this way, risk and sacrifice are the core of human experience. Risk is what makes us human.
Why Do Humans Find Stories Meaningful?
In his book Story, screenwriting teacher Robert McKee argues that stories “entertain when they give the audience a fresh model of life empowered with an affective meaning” [emphasis added]. Humans are on a never-ending quest for meaning. We want to figure out what will make us happy—more than that, we want to know what is worth sacrificing for.
Like Taleb, McKee understands that we define value by how much we’re willing to risk, and he makes it a central tenet of his writing advice. Characters in stories need to have something to lose, or else it becomes obvious that nothing in the story matters, and the audience gets bored. Stories with stakes are engaging because they have a chance of showing us a new situation where meaning can be found.
So, skin in the game is a reflection of value, but this still doesn’t answer the question: Why do we value what we value?
Taleb frames everything we are, everything we do, everything we risk, as a means toward one end: the survival of the human race. Everything we feel an emotional attachment to is, somehow, intended to motivate us to keep the human collective alive.
All of society is one group effort to help us all live for as long as possible. We build houses to protect us from nature, we build cities to help us collaboratively fulfill our survival needs, and we create technology to help us live longer and easier lives.
In order to achieve these goals, each of us needs to make countless sacrifices over the course of our lives—it takes sacrifice to build a career that benefits society and to forge mutually fulfilling relationships. Skin in the game is what it means to be human because being human means being wired to contribute to the collective's survival.
Irrational Beauty
Taleb doesn’t comment on beauty or art—the things we value highly, but don’t seem to have much practical value when it comes to survival. Immanuel Kant defined beauty as that which is pleasurable, yet not a means to another end. That is, not a biological pleasure like food or sex (which would, by Kant’s definitions, be “agreeable”) nor a conceptual pleasure that makes you happy because you rationally know it will help you get what you want, like a house or a car (which Kant would call “good”). Music, art, and aesthetics are “beautiful.” In this way, Kant defines beauty specifically as what Taleb would call “irrational,” as it seems to serve no greater purpose.
If that’s the case, how would Taleb explain how much humans value beauty? Artists often bear tremendous risk and sacrifice in order to create something beautiful, showing, by Taleb’s definition, that they value it, despite it not contributing to humanity’s survival. By his logic, Taleb would have to argue that beauty serves some practical purpose for humanity that we can’t easily identify. For example, beauty could merely be an intense drive for pattern detection that motivates us to discover subtle information valuable for survival. An unromantic way of looking at the world, for sure.
With this conception of humanity in mind, Taleb redefines what is “rational.” Instead of defining rational beliefs as those that align with our understanding of the way the world works, Taleb argues that we should see any belief that enables survival as rational.
It’s impossible to judge the rationality of beliefs using logic and abstraction. The universe is too incomprehensibly complex—there will always be unknown factors that could lead us to faulty conclusions. Even if we did possess complete knowledge of the universe, no one on Earth would be able to effectively process that information into a usable mental model. We need a different way to determine the rationality of beliefs.
To this end, Taleb believes in a “natural selection” of beliefs: Any belief that has survived for several generations is rational because those who held that belief have survived and chosen to pass it down. This is an extension of the Lindy effect—time is the only impartial judge of quality. In this view of rationality, even beliefs that are distorted or outright untrue can be “rational” if they cause us to behave in a way that helps us survive.
Critique of Taleb’s Rationality
This definition of rationality is a recurring point of contention among Skin in the Game’s critics. If we were to totally refrain from abstract judgment of beliefs and instead wait for them to play out over years to see if they survive, truly irrational beliefs could cause massive amounts of suffering—as an extreme example, if the Allied Forces had allowed Nazi Germany’s ideas to play out, they could have destroyed the world. It’s necessary to label some beliefs as irrational.
It’s impractical to assume that all new beliefs are inferior to traditional ones. Taleb’s assertion that “everything that survives survives for a reason” doesn’t necessarily prove his more extreme point that every belief that has survived has aided that survival. Sometimes, beliefs survive despite hurting our chances of survival—people believed in medicinal bloodletting for thousands of years.
Additionally, the world is constantly changing, and we have reason to believe that it’s changing faster and faster. Even if a belief has been successful at promoting survival for the past several millennia, this doesn’t 100% prove that it will continue to do so forever—this is the main idea in Taleb’s own The Black Swan. The world is inherently unpredictable and can change in unpredictable ways.
This leads us to Taleb’s major argument that we’ll be discussing for the rest of the guide: Lasting traditional religions are all rational belief systems because they aid humanity’s survival. In order to explain why, we need to first take a look at loss aversion—the human instinct to overestimate the pain we’d feel upon losing something.
Most psychologists describe humans’ sense of loss aversion as irrational. They justify this with math—studies show that people are willing to overpay to insure against financial loss. (Shortform note: Check out examples of this in our guide to Thinking, Fast and Slow.)
In Taleb’s view, however, loss aversion is very rational. It’s a mental bias that helps us survive. He takes into account one factor that, he claims, invalidates the conclusions of most social scientists who attempt to deal with probability: the effect of “ruin.”
“Ruin” is a state of loss that you can’t come back from. If a business suffers enough losses that it’s forced to shut down, it’s ruined. Even if its profits would skyrocket in the next quarter, it doesn’t matter. The business has suffered a permanent loss.
Opportunities for ruin are all around us, yet they’re largely ignored when academics try to analyze risk. It’s impossible to mathematically calculate risk versus reward when ruin is a potential outcome because no benefit could outweigh the finality of ruin.
Taleb uses the example of Russian Roulette. Imagine someone offers you one million dollars to load one bullet into a six-chamber pistol, spin the cylinder, and fire at your own head. Traditional cost-benefit analysis would conclude that, on average, you can expect to make $833,333. That doesn’t sound too bad! In reality, however, almost no one would take this deal. Cost-benefit analysis leads to invalid conclusions if you’re risking a permanent loss.
With this in mind, the human instinct to overcompensate and avoid risks appears to be more rational. Even if there’s only a tiny chance of total ruin, it’s worth it to take precautions against it. For example, only about 5% of home insurance owners ever successfully file a claim—yet around 85% of homeowners insure their homes. On average, you’d come out ahead financially if you refuse to get home insurance, but it’s worth it to hedge your bets against ruin.
Additionally, risks are cumulative toward ruin. Our tendency to overestimate loss is a reflection of all the risks we bear, across our lives, not just any individual risk. If you lack loss aversion and take many undue risks—for example, you frequently forget to pay your credit card bills and hurt yourself parkouring—the costs add up, and you could find yourself in financial ruin. A hypersensitive aversion to small losses helps avoid a cumulative permanent loss.
Why Taleb Hates Nudge
As we’ll see, Taleb uses the rationality of loss aversion to explain his view of religion—but of course, he can’t help insulting economist Richard Thaler again on the way there, calling him a “creepy interventionist.” Why does he resent Thaler so much?
In his book Nudge, Thaler argues that those offering choices should “nudge” people to make better, more “rational” decisions, without forcibly coercing them. Thaler uses loss aversion as an example of “irrational” behavior that should be discouraged—for example, he argues that employers should make their employees’ retirement accounts operate by a fixed, wise investment strategy by default, as loss aversion makes employees who are forced to choose their own strategies make irrational decisions that end up costing them money. Taleb argues that such discouragement would prevent people from creating strategies that protect themselves from ruin.
Taleb further details his argument against Richard Thaler’s “Nudging” in his Scala Politica. His main problem is that since those doing the “nudging” lack skin in the game, they’re not held accountable for any unforeseen side effects of their large-scale intervention. In Taleb’s eyes, these side effects are inevitable due to the complexity of large-scale systems.
Because groups operate differently at different scales, Taleb makes the point that behavior that is rational for an individual may be irrational for the collective. He uses the example that if people are “nudged” to invest their retirement accounts in the same basket strategies that provide the safest benefits for the individual, the collective as a whole will suffer from a lack of diversity in strategy. The potential damage of one Black Swan event multiplies.
Taleb does brush past one of Thaler’s main points: Thaler explicitly supports “libertarian paternalism”—the libertarian part of which means that the government should avoid limiting someone’s choices. Taleb exaggerates the decision-making power “nudgers” want to have. Still, this doesn’t defeat the logic of Taleb’s argument, as even small “nudges” have an intense, multiplied impact when applied at scale.
Taleb asserts that there’s no reason to ever risk ruin directly. There is always a way to take risks without enabling the possibility of ruin. This is why Taleb opposes the consumption of genetically modified crops. In his eyes, there are many other ways to feed the world that lack potential unknown dangers.
(Shortform note: This idea is summed up in Taleb’s “barbell strategy” from The Black Swan. Instead of investing in a single “moderately risky” venture, invest a lot of money in an extremely safe way and the rest in extremely aggressive, risky ventures with the potential for huge upside. By pursuing both extremes, you protect yourself from the rare risk of ruin and open up the possibility of an extremely rare windfall.)
With this view of risk and ruin in mind, Taleb presents a new perspective on religion.
Taleb claims that the ultimate purpose of religion is to offset the risks of societal ruin caused by humans’ self-serving instincts, and as such, it’s extremely rational.
Religion is society’s expression of loss aversion. Just as each of us plays it safe in all the little areas of our lives to avoid cumulative ruin, religion ensures that as many people as possible live in ways that avoid contributing to the risk of destroying the human race.
This is why religions impose commandments on their adherents—these rules are a way for entire civilizations to hedge their bets against moral deviance. These rules are typically simple, without gray areas, and err on the side of restriction and safety. This makes them easy to teach, difficult to misunderstand, and more likely to avoid the risks of moral ambiguity. Consider the 10 Commandments. If a society is deeply, spiritually compelled to obey commandments like “You shall not steal,” “You shall not murder,” or “You shall not commit adultery,” it’s going to be a more stable, productive society.
A single small theft of one of your neighbor’s sheep isn’t going to have much of a harmful effect on society. But if everyone is constantly stealing every little thing they can get away with, society will suffer. A widespread, oversensitive aversion to these sins mitigates the cumulative damage to the collective.
Additionally, religion provides a visible sense of group identity that encourages collaboration and self-sacrifice. Taleb supposes that other benefits of religion that aren’t immediately apparent exist, too—most importantly, the fact that the vast majority of surviving human civilizations have formed lasting organized religions speaks to the efficacy of religious belief.
Another Purpose of Religion
Taleb is a vocal admirer of the philosopher John Gray, calling him the wisest living person today. Although Gray is an atheist (unlike Taleb, who is a practicing Greek Orthodox), he shares a similar stance on religion as Taleb, criticizing the hostility toward religion held by “evangelical atheists.” Gray argues that religion is a historical prerequisite for a society built on liberal, humanist values such as human equality and personal autonomy.
Gray points out that “new atheists” like Sam Harris hold the assumption that widespread scientific understanding rationally results in a society built on liberal values. Gray, however, states that there is no link between scientific advancement and liberal values, as evidenced by historical ideological movements that are illiberal, yet founded in science and atheism, like Stalinism and Maoism.
Liberal values like freedom and justice cannot be taken for granted as universally accepted virtues. There have been many ideologies, religious and secular, that deliberately reject these ideas—Gray cites the Salafi Islam of Boko Haram and Pol Pot’s communism in Cambodia. Specific moral perspectives like liberalism aren’t prewritten within the human heart.
Instead, Gray argues that religious beliefs are what spawned the idea of the uniquely valuable human soul—the foundation of liberal values. There would be no liberal humanism without religion. Gray cites Nietzsche, who recognized this fact and rejected both liberalism and the religions that he saw as responsible for it. Even the idea of the separation of church and state is founded in Christian thought, established in the Bible and by ancient Christians like Saint Augustine.
The final point we’ll discuss from Taleb's argument (that religion should not be dismissed as irrational) is that in practice, religious beliefs are not too different from secular beliefs.
To explain, Taleb distinguishes between two types of beliefs, which we’ll call Metaphysical Beliefs and Actionable Beliefs. Metaphysical Beliefs are those that explain how the world works and why, while Actionable Beliefs are those that dictate how people should act. For example, the idea that God created the world is a Metaphysical Belief, while the idea that you shouldn’t steal is an Actionable Belief.
Taleb asserts that religions are often judged based on their Metaphysical Beliefs, when they should be judged based on their Actionable Beliefs. The philosophical underpinnings of any worldview don’t matter—only the actions of its adherents have the power to help or harm. Additionally, the link between Metaphysical and resulting Actionable Beliefs isn’t as predictable as most would think.
Philosophies and religions that seem like complete opposites when considering their Metaphysical Beliefs often end up looking quite similar when you examine their Actionable Beliefs. For example, most modern Christians behave identically to atheists in important matters—they go to the hospital when they’re sick or injured and obey the laws of secular governments.
Similarly, atheists often do things that appear religious, revealing further overlap in Actionable Beliefs. Meditation and yoga are both popular among atheists, and nearly all atheists partake in rituals of some kind—weddings and funerals, for instance.
Additionally, Taleb sees no difference between the Metaphysical Beliefs held by religious people and the Metaphysical Beliefs held by atheists, in the sense that they both require faith in something you can’t see. For example, atheists often have faith in the efficacy of a complex government or the invisible hand of the free market—powers that you trust are working, even if you can’t see or fully understand them.
To summarize, Taleb asserts that everyone is similarly “religious” to some degree, so it would be hypocritical to immediately dismiss organized religion as irrational.
Religion is rational because it emotionally compels people to live with skin in the game, and as we’ve established, this is the foundation of an honorable, fulfilling life.
Values Matter More Than Beliefs
Similarly to Taleb, novelist David Foster Wallace equates religious and atheist ideologies in his 2005 Kenyon College Commencement Speech “This is Water,” which was later republished in book form.
Wallace argues that “there is actually no thing as atheism.” Like Taleb, Wallace downplays the Metaphysical beliefs of any worldview, instead focusing on the direction and meaning it adds to your life. In his eyes, the most important characteristic of any religion or ideology is the value system it causes you to live by. Any worldview that tells you what is important and why is a religion, and some of these value systems are far healthier than others.
Wallace explains that some people worship money, power, or beauty, measuring how well they’re fulfilling the purpose of life by these materialistic values. But these values are temporary and largely out of your control. If you pursue materialistic values, you’ll never feel like you have enough and fall into helpless despair when they’re gone. Like Taleb, Wallace judges traditional religion favorably, as, compared to these materialistic ideologies, it provides a more reliable source of purpose and meaning founded on virtuous principles.
Wallace’s point with this commencement speech was to explain the true value of education. By being exposed to new ideas and different perspectives, the student is really learning how to detach from assumptions and consciously choose how to interpret the world around them. They’re learning how to avoid the default setting of simply worshipping whatever their parents, friends, or culture worships, becoming aware when they are chasing something that can’t be caught and adjusting accordingly.