Upside at the Expense of Others
Taleb criticizes arrangements that let decision-makers collect gains while others bear the losses. He argues that this asymmetry can conceal fragility and that those exercising power should share responsibility for its consequences.
THE IDEA
Upside at the Expense of Others
Which brings us to the largest fragilizer of society, and greatest generator of crises, absence of “skin in the game.” Some become antifragile at the expense of others by getting the upside (or gains) from volatility, variations, and disorder and exposing others to the downside risks of losses or harm. And such antifragility-at-the-cost-of-fragility-of-others is hidden—given the blindness to antifragility by the Soviet-Harvard intellectual circles, this asymmetry is rarely identified and (so far) never taught. Further, as we discovered during the financial crisis that started in 2008, these blowup risks-to-others are easily concealed owing to the growing complexity of modern institutions and political affairs. While in the past people of rank or status were those and only those who took risks, who had the downside for their actions, and heroes were those who did so for the sake of others, today the exact reverse is taking place. We are witnessing the rise of a new class of inverse heroes, that is, bureaucrats, bankers, Davos-attending members of the I.A.N.D. (International Association of Name Droppers), and academics with too much power and no real downside and/or accountability. They game the system while citizens pay the price.
At no point in history have so many non-risk-takers, that is, those with no personal exposure, exerted so much control.
The chief ethical rule is the following: Thou shalt not have antifragility at the expense of the fragility of others.
When to use it
Evaluating executive compensation plans to ensure leaders share in downside risk.
Analyzing financial regulations to prevent bailouts that socialize losses while privatizing gains.
Assessing political decisions where policymakers are insulated from the consequences of their actions.
Designing incentive structures in organizations that align personal accountability with outcomes.
FROM THEORY TO EVERYDAY LIFE
In practice
Bankers and the 2008 Financial Crisis
Investment bankers created and traded complex derivatives that generated huge bonuses during booms, but when the market collapsed, taxpayers and ordinary citizens bore the losses through bailouts. The bankers had upside from volatility but little downside, exemplifying antifragility at the expense of others.
Corporate Executive Compensation
An executive’s compensation may reward gains in the share price while leaving much of the loss to employees and shareholders. Assessing the asymmetry requires examining the actual pay arrangement and the executive’s own exposure, including shares held and rewards that can be lost.
A MOMENT TO REFLECT
Put it to work.
Identify a situation in your life or work where you benefit from volatility while others bear the downside. How could you introduce more symmetry?
What hidden asymmetries exist in the systems you rely on (e.g., financial, political, corporate)? Who is protected and who is exposed?
How would the world change if everyone had to have skin in the game for their decisions? What policies could enforce this ethical rule?
Often confused with
References
- Antifragile: Things That Gain from Disorder — Nassim Nicholas Taleb (2012)
CONTINUE THE CONVERSATION
Source texts
- Antifragile (Nassim Nicholas Taleb)