Skin in the Game: Hidden Asymmetries in Daily Life
02/27/2018 AD published
Taleb's thesis is that skin in the game—i.e., having a measurable risk when taking a major decision—is necessary for fairness, commercial efficiency, and risk management, as well as being necessary to understand the world.
If an actor pockets some rewards from a policy they enact or support without accepting any of the risks, economists consider it to be a problem of "missing incentives". In contrast, to Taleb, the problem is more fundamentally one of asymmetry: one actor gets the rewards, the other is stuck with the risks.[1]
Taleb argues that "For social justice, focus on symmetry and risk sharing. You cannot make profits and transfer the risks to others, as bankers and large corporations do... Forcing skin in the game corrects this asymmetry better than thousands of laws and regulations."
For instance, Robert Rubin, a highly-paid director and senior advisor at Citigroup, paid no financial penalty when Citigroup had to be rescued by U.S. taxpayers due to overreach. Taleb calls this sort of a trade, with upside gain but no or limited downside risk, a "Bob Rubin trade."
Another example: Many war hawks don't themselves bear any risks of dying in a war they advocate.
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Nassim Nicholas Taleb Lebanese-American essayi...
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