Skin in the game is no guarantee of success.

Nassim Nicholas Taleb is one of the foremost thinkers and practical philosophers alive today, as well as certainly the most entertaining. All of his books are fascinating but if you only have time to read one of his publications then Antifragile – Things that gain from disorder is the number one pick.

I also follow Taleb on Facebook, and over the past year he has been posting random excerpts from his next book. Usually he posts them on Medium.com but occasionally he’ll stick a short burst up on Facebook which is where I screenshotted the following:

Becoming a whitewater rafting guide taught me a lot about the importance of skin in the game. Or perhaps it would be more accurate to state that because I had skin in the game while rafting, (either myself or my clients might have died), then my focus and subsequent learning curve was greatly enhanced. Over time I learned to check everything over and over again. I wasn’t at all keen on the idea of chance when it could be me that might be on the receiving end.

I also noticed how some guides could not learn these lessons. While their technical abilities may have been super high, they were always a liability due to the fact that their overall awareness of risk and consequences remained severely limited. In essence they lacked the imagination to be able to associate possible actions with a range of future consequences. This lack of imagination was often down to laziness which was a direct result of intelligence.

Less intelligent people tend to be more fatalistic. If it happens then it happens, is their philosophical outlook on life. This is always tempered by the subconscious belief that it will never happen to them. Why prepare and be cautious if you’re bulletproof? It takes time, effort, and energy to take your learning and performance up to a high level and consistently keep it there.

I have worked with a number of guides who subsequently died on rivers, the majority in their free time while kayaking. The vast majority of them, while highly skilled, lacked this ability to compute risk even when they had massive skin in the game.

This doesn’t just exist on an individual level; you see it across entire cultures as well. An extreme example of this is from when I rafted professionally on the White Nile. We had to constantly remind our Ugandan safety kayakers that they had to make every possible effort to ensure that customers who fell out of the raft did not in fact drown or get swept to areas where certain death awaited them. As far as they were concerned losing a few customers would not matter due to the fact that a bus would arrive with new customers the following day and every day thereafter. Explaining this to them only slightly alleviated the situation.

I also worked with Chilean guides on several occasions. They were nowhere near as bad as the Ugandans in this sense, but they where nowhere near as good as us either. The very worst first world guide that I worked with was probably at the level of one of the best Chilean guides. Remember, I am not talking about technical skills. I am only referring to the ability to benefit from having skin in the game.

Italy is also a fascinating example of how skin in the game works. Italian law is more or less based on the fact that you can do whatever the hell you want, but if you get unlucky and someone gets hurt then you’re in big trouble. A recent small earthquake on the island of Ischia caused several substandard buildings to collapse with subsequent fatalities. Keep in mind that the vast majority of buildings constructed are probably not to regulation. An example will be made of the “unlucky” builders but overall nothing will change. There is skin in the game but only if you are sfigato, (unlucky).

Perhaps this is a reason why some cultures excel while others stagnate, and why individuals fail or excel at the same level. Academics are infamous for having no skin in the game. But if we took an academic and forced him into a situation where he did have skin in the game, would his performance necessarily improve? Perhaps individuals are attracted to certain professions precisely because there is no skin in the game. The profession matches their intellectual capacity for benefiting or not benefiting from risk. Not all entrepreneurs succeed; in fact, the majority fail.

Taleb states that when he doesn’t have skin in the game then he is usually dumb. But skin in the game or not, a lot of people and cultures are simply dumb all of the time.

8 thoughts on “Skin in the game is no guarantee of success.

  1. Bernd

    Not to disregard Taleb’s book, but for me Antifragile was just painful to read. I tried it, could not make it.

    His concept of fragility is actually nothing new, it is taught in first semester systems theory since about 50 years. Although packed into mathematics, so forever out of reach of economists and the like.

    His concept of antifragility is more or less the same that is used in some kinds of neural network for learning ability since the 70s. In fact antifragility in his sense is nothing but the ability to adapt or to learn, but not in the perspective of a singular person, but in the perspective of a system.

    I conclude with him on his take on statistics in the sense that this tool is used wrongly most of the time. However i strongly disagree with him on his opinion concerning the inability of statistics or risk estimation to predict the effect of low probability/high impact events. If you have high errors on low probability events it does not mean that the method of statistics is flawed, but that your sample size is too low. Again wrong implementation of the method / wrong interpretation of the statistics. In this sense he demonizes statistics as ineffective because of his personal misuse of the method. Nothing new here either. Statistics is hard, so most people get it wrong. He is not an exception.

    In the end his book is just a philiosophical take on scientific knowledge known since half a century. While it may make the topic more accessible to non-scientific people, his endless ramblings, repetitions and very similar anecdotes really are hard to read. My recommendation: throw away his waste of paper and buy a first/second semester math book.

    On the topic of skin in the game: Stupid people do stupid things. The Darwin Award exists for a reason. Nothing new under the sun.

    Like

  2. I’ve done work in the past looking at the tails of probability concerning hazard scenarios. What is especially interesting is that many people think there is a time or repetition factor required to have something bad happen. It could go south your first time out of the chute.

    Like

  3. Phil B

    try Laurence Gonzales’ book Deep Survival for an insight into risk taking and highly experienced people getting killed doing things that they are expert at.

    It is readable and gives excellent insight into the way that the human mind works and operates on a day to day basis.

    Like

  4. Pingback: In The Mailbox: 09.26.17 : The Other McCain

  5. Pingback: Linkage: 3 October, 2017 #TheTriggering » Cynical Libertarian Society

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s