Skin in the Game Symmetry
Taleb argues that people who make decisions should share the risks of their consequences. He presents symmetry between benefits and responsibilities as a longstanding organizing principle of collective life.
THE IDEA
A Brief Tour of Symmetry
Meta-experts judged by meta-meta-experts—Prostitutes, nonprostitutes, and amateurs—The French have this thing with Hammurabi—Dumas is always an exception
I. FROM HAMMURABI TO KANT
Skin-in-the-game-style symmetry, until the recent intellectualization of life, had been implicitly considered the principal rule for organized society, even for any form of collective life in which one encounters or deals with others more than once. The rule had to even precede human settlement since it prevails in a sophisticated, very sophisticated, form in the animal kingdom. Or, to rephrase, it had to prevail there or life would have been extinct—risk transfer blows up systems. And the very idea of law, divine or otherwise, resides in fixing imbalances and remedying such asymmetries.
When to use it
Policy-making: Ensuring that regulators have personal liability for regulatory failures.
Business: Compensating executives with equity that they cannot sell immediately.
Legal: Designing contracts where each party bears the consequences of their actions.
Everyday decisions: Checking that your choices affect you proportionally to their impact on others.
FROM THEORY TO EVERYDAY LIFE
In practice
Hammurabi's Code (ca. 1754 BC)
If a builder builds a house and it collapses, causing the owner's death, the builder is put to death. This enforces symmetry: the builder's life is on the line for his work.
Executive Compensation
A CEO who receives bonuses for short-term gains but faces no personal loss if the company fails is an asymmetry. Skin in the game would require executives to hold company stock or personally guarantee performance.
A MOMENT TO REFLECT
Put it to work.
How does the symmetry principle apply to modern financial regulation?
Identify a situation in your life where risk is transferred to others—what would symmetry require?
What argument would be needed to connect Kant’s categorical imperative with skin-in-the-game symmetry?
Often confused with
CONTINUE THE CONVERSATION
Source texts
- Skin In The Game Hidden Asymmetries In Daily Life (Nassim Nicholas Taleb)