incerto skin in the game from Nassim Taleb

Incerto’s Skin in the Game – 3 Lessons from Nassim Taleb

My first contact with Nassim Taleb was more than 10 years ago. I was still a junior stockbroker in Brazil. From there, things changed — I moved 16 times to 4 different countries, changed jobs, and opened my first (and then second) business. I also continued reading whatever I could from the Lebanese dilletante, including his Incerto collection and Skin in The Game – Nassim Taleb.

From all his writings, Skin in The Game is the most controversial. It is certainly a book that gained for Taleb plenty of enemies.

As one of the reviewers stated:

If, by the end of the book, you have not been offended by something he has written, then you haven’t been paying attention. Taleb is blunt, sometimes obtuse, and often right.

Yes, Blunt is the perfect adjective to describe the 272 pages of Skin in the Game.

It is what makes it singular among the five-volume Incerto collection. While The Black Swan is a sharp essay about global drastic changes, and Antifragile is marked by reflection on survivorship (and lessons that helped me to save my business during the 2020 crisis), Skin in the Game will make you angry. Angry with bureaucrats, economists, academicians, and, maybe, even with yourself.

The good news is that you will be angry because of facts. 

A smack-in-the-face, kick-in-the-scrotum portion of facts. Things like politicians sending kids to non-sense wars because they don’t have any downside if a mother in Louisiana loses her only son. Things like market analysts praising Lehman Brothers in 2008 because they would have no downside if they were wrong — and they were wrong.

What does skin in the game mean

Nassim Taleb, a professional risk-taker and best-selling author of books such as The Black Swan and Fooled By Randomness, has written a lot about skin in the game. In his own words, skin in the game is:

“When you have an incentive to be more accurate, you are more accurate”¹

For Mr. Taleb, having skin in the game means that people will act more responsibly if their interests are aligned with the ones that they’re advising. Why is that? Because when someone has a stake in the outcome, they’re more likely to provide advice that’s honest and accurate. But when there’s no downside for being wrong, people are free to take on excessive risks with other peoples’ money or give advice that may not be entirely accurate.

In other words, someone who has skin in the game will make better decisions than someone who has nothing at stake. If you are managing money for clients but have no personal investment in those funds, you may be more likely to make unwise investments than if your own money was on the line.

The concept was also used in politics and business ethics, where it applied to executives and politicians being held responsible for their actions. Executives who had significant personal wealth to lose were more accountable than those whose net worth was less than their bonus checks.

Lesson 1 from Skin in The Game – Nassim Taleb: Grandmothers Are Better Than Psychologists

One of the most common subjects of Taleb’s works is risk. He writes about assessing risk, facing risk, avoiding risk, and, in Skin in The Game, he writes about understanding risk.

There are two main ways to understand risks. One is through experience. The other is through pure theory. 

The first way is how your grandparents — or Fat Tony, an archetype of a street-wise, successful man — learn about risk. 

The second way is how the academy and newspaper specialists learn — they learn about risk without ever facing it themselves.

The absence of skin in the game from authorities leads to academic prostitution, or the relentless repetition of verbosity detached from the real world. As Taleb wrote:

If you hear advice from a grandmother or elders, odds are that it works 90% of the time. On the other hand, in part because of scientism and academic prostitution, in part because the world is hard, if you read anything by psychologists and behavioural scientists, odds are that it works at less than 10%, unless it is has also been covered by the grandmother and the classics, in which case why would you need a psychologist?

Talking about Grandmas, there is a saying that often comes from their mouth: better safe than sorry. That popular aphorism is closely related to the 2nd Life lesson that I learn from Taleb’s book: Ergodicity.

Lesson 2: Survival Comes First; Understanding, Later.

Not everything that happens, happens for a reason. But everything that survives, survives for a reason. Nassim Taleb

The book introduced the mathematical concept of ergodic systems. As Aaron Brown explained, they are systems that return to every possible state an infinite number of times. There are no “absorbing states” like death, bankruptcy, or other situations that once you enter then, you cannot leave. 

Ergodic systems have no game-over. Non-Ergodic systems have.

To bring in practical terms, I will use the example imagined by the channel Stocks and Coffee.

If you are a casino owner, somedays you will lose money because the clients will win more than they lose. There are deviations in the short term, but due to the negative sum of gambling, in the long term, the casino will profit because of the built-in margin from the house. The casino owner wins due to the sheer power of the large numbers and repetition.

For the owner, gambling is an ergodic situation that benefits from a greater number of occurrences. A few gamblers may win more than they lose, but the vast majority of losers mean profit for the casino.

But if you are not the owner, and instead just a customer, from the same casino, it may happen that one time or another you win more than you lose. But a sequence of losses can put you out of the game. 

Bankruptcy. Game-Over. 

For the gambler, it is a non-ergodic situation. The more he plays, the larger are the chances that the single, catastrophically bad game that causes his bankruptcy will happen.

Most of the systems in business, stock trading, or life, are non-ergodic. They have a game-over.

They are systems that learn by removing the losers from existence, as Taleb explained:

People don’t learn so much from their and other people’s mistakes; the system learns by selecting those less prone to a certain class of mistakes and eliminating others. Bad pilots, are under the ocean, dangerous drivers are in the cemetery. Transportation didn’t get safer just because people learn from errors, but because the system does.

During my time as a stockbroker, often I saw people falling for the fallacy of the survivor (or survivorship bias). This is a fallacy that happens due to neglecting the possibility of a game-over in non-ergodic systems. It crushes investment portfolios.

Lesson 3: Don’t Pay Attention to What People Say, but to What They Do and How Much They Risk

I still have contact with friends from business school. Some of them read Taleb. Others hate him, and mostly because he points to their profession directly: economists.

Taleb affirms that you can define a free person as someone whose fate is not centrally or directly dependent on peer assessment. Economists are heavily dependent on peer validation — to be fair, this is also true to a good part of academia. 

They have no skin in the game as long as they repeat what other economists do. If everyone is wrong, it was just a random event that skewed the prognostics. Economists will tell you that it is no big deal that their forecasts are inaccurate, as long as most of their peers were also wrong. 

No Big Deal”. 

They will have no shame to tell that over the corpses of all investors, retired teachers, or small entrepreneurs that were foolish to believe in their words. This is one of the 5 reasons I listed to not listen to economists.

Conclusions: Lessons from Skin in The Game by Nassim Taleb

The example that Taleb uses multiple times in his writings is a situation from 2008. Weeks before the bankruptcy of Lehman Brothers, economists, credit risk agencies, and financial analysts were still affirming that the bank had a solid situation.

Why? Because they had no skin in the game. Except for a few that lost their jobs, most used the excuse that you cannot be always right.

The problem, as explained by the Lebanese dilettante, is that the track record of economists in predicting events is monstrously bad. It is beyond simplification; it is like medieval medicine.

Better hear the advice from your grandma, or from the grocery cashier — unless his name is Paul Krugman.

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Levi Borba is CEO of, creator of the channel Small Business Hacks, and best-selling author. You can check his books here, his other articles here, or his Linkedin here.

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