1-Sentence-Summary: Skin In The Game is an assessment of asymmetries in human interactions, aimed at helping you understand where and how gaps in uncertainty, risk, knowledge, and fairness emerge, and how to close them.
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He must be among the top 10 most interesting accounts on Twitter: Nassim Nicholas Taleb. Besides lots of intellectual insights and witty tweets, he shares a lot of strong opinions, albeit weakly held. Having spent a great deal of his life examining how we can think more rationally, he is quick to argue for a cause, but not afraid to change his mind. Previous bestsellers from the former investment banker turned scholar and statistician include Fooled By Randomness, Antifragile and The Black Swan.
Taleb’s latest book, Skin In The Game, is a continuation of his Incerto series, which the past three books are part of, and thus a remix of past themes: rationality, uncertainty, statistics, economics, information, risk and morality. However, it is his most practical work to date, using anecdotes and analogies to highlight how gaps between these factors affect our everyday lives. By showing us hidden asymmetries and who’s got the most to lose in certain situations, Taleb helps us make better decisions and get the outcomes we want.
Here are 3 striking lessons from one of the clearest thinkers I know:
- The minority often rules the majority.
- How competent winners have to be depends on the industry we work in.
- Rich people are easier to scam, because they have less to lose than the people selling to them.
If you’ve been scammed before, ended up with a low-quality product, or are fed up that everyone seems to get the better of you in negotiations, this summary is for you. Let’s see who really has skin in the game!
Lesson 1: It is not uncommon for the minority to rule the majority.
One of the many asymmetries Taleb has found lies in the consumption behavior of societies. Often, whoever has the most skin in the game can win, even if the odds are against them. This particular concept is called minority rule. It implies that societies will adapt demand for certain goods based on an inflexible minority. The majority does not always decide.
For example, 70% of the lamb meat the UK imports from New Zealand is processed according to halal standards. However, only 4% of the population is Muslim, which is the main group that demands halal meat. How can such a small segment account for such a large share of imports? Well, minority rule is usually a result of the majority being flexible or indifferent. In this case, non-Muslims don’t mind eating halal meat over non-halal meat as there is no difference in taste.
The majority doesn’t care, so the minority gets what it wants. Similarly, firms selling genetically modified food have a hard time advertising. Most people are happy to eat non-genetically modified food because the products don’t have a big advantage. Hence, the small but hardcore group of anti-GMO activists decides what makes it onto the shelves.
Lesson 2: Successful people don’t always have to be competent, because how we evaluate winners is industry-dependent.
If we’re honest, we’ve all used this excuse before, or at least thought of it: We claim someone got somewhere before us because they looked the part and we didn’t. While that may or may not have been true in your situation, Taleb claims the relationship between success and image isn’t the same in all industries. For professions where skin in the game is necessary to succeed, an awkward image can be a sign of someone who’s more prolific, but where it isn’t, subjective factors decide who will win.
For example, a lawyer who is extremely sought after, but dresses very sloppily, is bound to have proven herself in court over and over again. If she didn’t win cases, people wouldn’t hire her. The same is true for surgeons, authors whose book’s sell like crazy, and elite soldiers: without stellar results, they’d never have made it.
On the other end of the spectrum are CEOs, politicians, and bankers. Being good at what you do won’t hurt your chances here, but the main requirement for doing well is being perceived as capable. After all, votes and thus people’s opinions decide who gets the part.
Lesson 3: When selling to rich people, the risk-reward-ratio of the transaction is off, which leads to more scams.
You know how supposed door-to-door salesmen sometimes scam old people? They sell inferior products, charge too much, or sell products people don’t need in the first place. These con artists target older people because they’re a bit slower mentally. They also have more money.
The more money you have, the more easily I can convince you to part with some of it. If it’s a small portion of your overall fortune, you won’t mind as much. The risk-reward-ratio becomes skewed in favor of the seller. They have more skin in the game.
If they sell you a mansion for $4,000,000 rather than $1,000,000, they’ll get four times the commission. For someone worth $200 million, however, it almost doesn’t matter whether they drop one million on a home or four.
As we get richer, the risk of spending more money on individual purchases goes down, and we’d rather be safe than sorry. That’s why we throw more dollars after trivial items than we should. Even those of us who aren’t millionaires.
Skin In The Game Review
Taleb is out for truth. He reasons from the ground up, relies on the scientific method, yet paints colorful pictures with stories that are never boring to read. With Skin In The Game, he’s doing his part to help our generation tackle important problems we care about, instead of veering off into careers with lots of dollars, but little responsibility. I think that’s a good thing.
Who would I recommend the Skin In The Game summary to?
The 22 year old business graduate, who’s about to enter the consulting world, where no one takes on risk for their clients, the 40 year old professor, who hasn’t dared to put any of his non-scientific writing out for the public, and anyone who knows they’re an easy sales pitch victim.
Last Updated on August 15, 2022
