This book is part of Taleb’s Incerto series, in which his exploration of various topics mostly related to risk, his homespun philosophy and his acute observations of the real world all come together: each of his books is standalone, but can also be read as part of the series. Here, he delves into “a) uncertainty and the reliability of knowledge… b) symmetry in human affairs… c) information sharing in transactions… and d) rationality in complex systems and in the real world”.

Quite a large agenda, and this is a large, untidy book, part monologue, part rigorous mathematics (there is a 12-page technical appendix full of integrals and summations that one can safely ignore), and part meditation on ethics, honour and other old-fashioned virtues (along with asides into his favourite sport, weightlifting, which he sees as a metaphor). Accordingly, this review will also be large and untidy, and given space constraints, not comprehensive.

Taleb succeeds in demonstrating that those who do not have skin in the game are not serious. They are often only virtue-signallers. And it’s not always about metaphorical skin either: he talks about a corrupt Persian judge, Sisamnes, who was flayed alive, and whose son then occupied the judge’s chair, which was upholstered with the skin of his father.

Skin in the Game is divided into segments (“books”). There is a Prologue, where the overall concept of imperfect knowledge and also of symmetry in risk are introduced. Then two sections look deep into symmetry and agency in risk-sharing, as well as the insightful “minority rule” where a small segment of the population inflicts its preferences on the general population. There is also a consideration of scale and emergent properties of groups, as opposed to individuals.

The subsequent segments look at dependence, followed by how risk-taking is a necessary part of living and how those who take the risks and have the scars are the ones who lead. The famous “IYI”, the intellectual yet idiot, is introduced.

The next segment introduces “bullshit” detection heuristics. Another looks into how religions stack up in the issue of skin in the game. The last summarises Taleb’s views on risk and how this is based on action, rather than mere talk. All through, the central issue is how those without risk are not dependable: for instance, he suggests that your financial adviser cannot be trusted to be competent or ethical unless he/she owns the same stocks/funds that you are advised to own.

A vivid example of the opposite is what he calls the Bob Rubin trade, in mock homage to a former investment banker and Bill Clinton’s treasury secretary who loosened the Glass-Steagall Act. In Taleb’s retelling, there is an art to making money without a downside — and a class of people who keep the upside, but transfer the downside to others. “Heads they win, tails others lose” is their motto. Citigroup made huge, bad bets in the subprime loan crisis that culminated in the 2008 financial crisis. Rubin made $126 million as chairman of Citigroup; and he kept it when Citigroup ended up being bailed out by taxpayers. Obviously, Rubin transferred the risk to others.

This asymmetry is something deplorable in India as well. Huge sums are looted by various politicians and hangers-on; since there is no proper clawback, at most these people are sent to jail, while taxpayers end up losing big. In my opinion, there is no point jailing and thus making martyrs out of them, but instead the state should attach everything they and their proxies own, and impose punitive fines: that would be a good deterrent.

The issue goes beyond asymmetry, and Taleb suggests it’s about what it means to be a human. What do you do that’s not just for yourself, but for the collective? How do you do group selection? How does scaling happen? Some of the ramifications are counter-intuitive and lead to theology. Fundamentally, it’s about ethics, and is also captured in traditional notions of honour.

Historically, those who rose to the top were the ones who took the risks, and had the scars (literally) to show for it. Roman emperors typically didn’t die in their beds, they took maximum risks through their military careers, and could demonstrate that they were willing and able to take these risks for the benefit of the society they belonged to. In India, the jauhar by Rajputs and the chaver samurai of Malabar demonstrated that honour is not subordinate to other considerations.

Interestingly, the idea of honour (or allegiance to a community that’s greater than oneself) is something left-leaning people simply cannot comprehend, according to Jonathan Haidt in The Righteous Mind: Why Good People are Divided by Politics and Religion. He posited that there are six elements people seek in an ethical system: compassion, fairness, the desire to fight oppression, group loyalty, respect for authority, and the notion of sanctity. Leftists can only comprehend the first three, whereas right-leaning people can see all six.

Taleb suggests that group loyalty is an integral part of ethics in traditional societies; furthermore, the scale of a group is critical. At small scale, group members tend to avoid the tragedy of the commons, wherein members overuse common resources (as in over-grazing); but as the group grows beyond a certain size, it becomes hard to maintain that in-group feeling, and people begin to cheat.

In a society like India, perhaps that is one reason why jati is so strong: people are unwilling to dilute their group identity in the larger, pan-Hindu world, preferring their own smaller jati.

In modern societies, Taleb suggests that BS (bullshit) vendors (a favourite term of his) do not understand the world, and do not take personal risks. Examples are what Taleb terms “cowards” in positions of power, in bureaucracies and in academia. He is particularly scathing about interventionist as who advocated regime change in Iraq, Libya etc, and caused massive harm: an example of asymmetry. He says: “Now some innocent people — Ezidies, Christian minorities in the Near (and Middle) East, Mandeans, Syrians, Iraqis and Libyans — had to pay a price for the mistakes of these interventionistas currently sitting in their comfortable air-conditioned offices”.

This resonates precisely with the notion of Jawaharlal Nehru’s omniscient Planning Commission and other dirigiste monstrosities, who “sat in air-conditioned offices”, and condemned half a billion people to misery, preventing them from clawing their way out of poverty. They had no skin in the game.

Furthermore, Taleb talks about selection and scale. How do systems self-select? Unlike academic ideas of selection, where it is confined to a nepotistic inner circle (how reminiscent of the Indian judiciary!), true selection happens when outsiders judge it for value. Those that have value thrive, others will not. This also explains his “Lindy Effect”: something that has survived for a long time is likely to continue to be around, as it has some value that may not be obvious to us. Once again, this reminds me of the jati system.

Can ethics be imposed on society through laws and regulations? Taleb is sceptical. He admits that tort laws to some extent can help (India should note and strengthen its own tort laws so that there is civil recourse if asymmetries are exploited by people). Societies recognise that there are two great virtues — prudence and courage, which interestingly are sort of mutually contradictory.

There is a counter-intuitive rule, though, that Taleb articulates: the dominance of the stubborn minority. He starts with an exploration of food taboos: only 0.3 per cent of US residents are Jewish, but almost all packaged soft drinks are kosher (following Jewish dietary laws). To make their products acceptable to this tiny minority, and to avoid having to stock two separate inventories, manufacturers have made all drinks kosher, especially as non-Jewish people have no problem consuming kosher drinks (the reverse, of course, is not true).

Much the same observation is true about halal food (following Muslim dietary laws) in, say the UK, even though most residents in the UK do not observe halal restrictions: although Muslims are 3 to 4 per cent of the UK, most of the meat sold there is halal-certified. There is an asymmetry of choice.

Taleb (a Lebanese-American himself) then goes on to show that this simple rule has led to the situation where the previously-Christian Middle East is now overwhelmingly Muslim, for two reasons: if a non-Muslim marries a Muslim, then the former has to convert, and their children will be raised Muslim; and becoming a Muslim is irreversible, as apostasy is a crime punishable by death. Over time, this was enough to mostly wipe out Christians:

“So all Islam did was out-stubborn Christianity, which itself won thanks to its own stubbornness. For before Islam, the original spread of Christianity in the Roman empire was largely due to the blinding intolerance of Christians; their unconditional, aggressive, and recalcitrant proselytising. Roman pagans were initially tolerant of Christians, as the tradition was to share gods with other members of the empire. But they wondered why these Nazarenes didn’t want to give and take gods and offer that Jesus fellow to the Roman pantheon in exchange for some other gods. What, our gods aren’t good enough for them? But Christians were intolerant of Roman paganism. The “persecution” of the Christians had vastly more to do with the intolerance of the Christians for the pantheon of local gods than the reverse. What we read is history written by the Christian side, not the Greco-Roman one.”

Amazingly appropriate for India today. Tolerant Hindus had better be careful.

Finally, here’s Taleb’s introduction to the “Intellectual Yet Idiot”:

“What we saw worldwide from 2014 to 2018, from India to the UK to the US, was a rebellion against the inner circle of no-skin-in-the-game policymaking ‘clerks’ and journalists-insiders, that class of paternalistic semi-intellectual experts with some Ivy League, Oxford-Cambridge or similar label-driven education who are telling the rest of us 1) what to do, 2) what to eat, 3) how to speak, 4) how to think, and… 5) whom to vote for.”

I almost fell over laughing when I first read this. Absolutely accurate, and pretty much what I had thought.

It was Narendra Modi who triggered off the revolution of the masses against the know-it-all IYI (in India, this means Lutyens-type journalists and Jawaharlal Nehru University (JNU)-type academics); the Brexit vote and the Trump vote were copycat revolts that followed later. But they were all reactions to the tyranny of the know-nothing virtue-signaling bullshit that passes for “analysis” amongst this lot. The natives are restless, and the Ivy-Leaguers had better watch out.

There’s more, much more, including a hilarious page-long description of what an IYI does, reads, believes, drinks, says, but I must stop here. As Taleb has said elsewhere, if his book can be summarised, then it wasn’t worth writing in the first place. You simply have to read it.

Rajeev Srinivasan has taught innovation at several IIMs. He is a Contributing Editor at Swarajya.

Skin In The Game

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