My 3 Takeaways from Reading Skin In The Game

Skin in the game is about the symmetry of outcomes. Let’s say you are in charge of making a decision or conducting any activity. 

Then, if according to the “symmetry concept” of skin in the game. If everything goes right, you will be taking benefits, and if something goes wrong, you will bear the loss as well. This is the simple symmetry of outcomes concept of skin in the game. 

Let’s take an example of two professionals, 

βœ”οΈ 1) Aeroplane pilot and 

βœ”οΈ 2) Banker who is responsible for creating a policy that impacts the economy at large. 

If the pilot is good at work, he will get his salary/promotion and eventually lead a good life. But if he is terrible at work, what will happen? If something goes wrong, he will also die with other passengers. 

Now let’s see the banker’s case if the banker’s decisions go well. He will be rewarded with a lot of money. But what if his decision destroys the bank or the people dependent on the bank? 

They all will bear the loss, and the government will ultimately bail out the bank !! So baker is benefiting from the profit but transferring losses to others. So no symmetry of outcome. So No skin in the game. 

Below are three things I learned by reading this book. πŸ‘‡

1: Advice 

Take Advice from the people who have something to lose if their Advice goes wrong. 

People who don’t take the risk should not be involved in the decision-making!

Once shared a twit on a similar note,  πŸ‘‡

2: Implication of Skin In The Game

Understanding this concept and applying it in real life means you will be taking a risk. In return, it will make you a better decision-maker than the people who make a decision or keep on advising without any skin in the game. 

3: Inequality vs. Inequality 

βœ”οΈ Scenario #1: Common people don’t feel cheated when artists, entrepreneurs, scientists, film actors achieve fame and earn substantial money because they understand that these people have skin in the game. 

βœ”οΈ Scenario #2: Common people feel cheated with the success of bankers, company top executives, bureaucrat because these people don’t have any skin in the game.

For ex. If a bureaucrat makes a policy decision and if everything goes according to the plan, he will take the benefits (awards, name, promotion etc.). But what if the policy fails ( due to corruption, mismanagement, etc.) government will bear the loss, which means the people of the country will bear the loss. So he is transferring the losses to others. 

There is more to it and many concepts that you will not understand at the first reading. I will indeed re-read this book! Nassim  Taleb is genius for sure πŸ™‚

Highly recommended  πŸ“°

Now as we are on it, do subscribe to my weekly newsletter, “Prashik’s Newsletter,” where I will be sharing πŸ‘‡

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