Why you need skin in the game

Skin in the game is the antidote to the abdication of responsibility and it is badly needed. If more people would experience the consequences of their decisions and advice, the world would look a better place.

Lindy effect

I am a huge fan of Taleb. I think “Antifragile” is a classic that should be read by everyone. That is how I got introduced to the Lindy effect. Something that was true thousands of years ago, is probably true now. It is your grandmother versus scientific researchers. If you hear advice from a grandmother or elders, the odds are that it works 90 per cent of the time.

Skin in the game

So I was looking forward to “Skin in the game”. It is a bit of a rant book, with some salient lessons. In academia there is no difference between academia and the real world; in the real world, there is. You cannot separate knowledge from contact with the ground. And the contact with the real world is done via skin in the game—having an exposure to the real world and paying the price for its consequences, good or bad. In leadership, it would be called suffering and accept the consequences of your actions. Closest felt in the military and sport. If you fail in the military you might potentially be dead. In sports, you lose. No excuses. Consequences.

Decision making

Those who do not take risks should never be involved in making decisions. Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions. So we end up populating with people who are delusional, literally mentally deranged, simply because they never have to pay for the consequences of their actions. Hence the mess we are in.

Decentralisation

Decentralisation is based on the simple notion that it is easier to macrobull***t than microbull***t. Loosing the connecting with the people they are serving. That is why in business, there are inverting the pyramid. Read books such as “Employees first”, “Reinventing organisations” or “The connected company”.

Feeling the pain

Civil servants should be on social welfare for a while, the CEO of McDonald’s should eat only McDonalds food for a while, hospital managers…… In the case of hospitals, both the doctor and the patient have skin in the game, though not perfectly, but administrators don’t—and they seem to be the cause of the troubling malfunctioning of the system. Administrators everywhere on the planet, in all businesses and pursuits, and at all times in history, have been the plague.

Extreme anthropology

You get the picture. Extreme anthropology. Not just observing. Feeling it. Those who talk should do and only those who do should talk.

Bankers

If bankers’ profits accrue to them, while their losses are somewhat quietly transferred to society, there is a fundamental problem by which hidden risks will continuously increase, until the final blowup. Regulations, while appearing to be a remedy on paper, if anything, exacerbate the problem as they facilitate risk-hiding.

Advisors

Also avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice. People who see complicated solutions do not have an incentive to implement simplified ones. Things designed by people without skin in the game tend to grow in complication (before their final collapse). People have two brains, one when there is skin in the game, one when there is none.

Complicated vs simple

People who have always operated without skin in the game (or without their skin in the right game) seek the complicated and centralised, and avoid the simple like the plague. Practitioners, on the other hand, have opposite instincts, looking for the simplest heuristics. People who are bred, selected and compensated for finding complicated solutions, do not have an incentive to implement simplified ones.

Boring

Skin in the game can make boring things less boring. When there is fire, you will run faster than in any competition. In the old days, prominent people took risks considerably more risks than ordinary citizens. The Roman emperor Julian the Apostate died on the battlefield fighting in the never-ending war on the Persian frontier while emperor. The ultimate skin in the game.Nature is a lot more ruthless. Systems learn from removing. Evolution can only happen if the risk of extinction is present. There is no evolution without skin in the game.

Old laws

Smart people got that a long time ago.

  • Hammurabi’s law was posted on a basalt stele around 3,800 years ago in a central public place in Babylon, It contains 282 laws and is deemed to be the first codification of our rule extant. Hammurabi’s best-known injunction is as follows: “If a builder builds a house and the house collapses and causes the death of the owner of the house—the builder shall be put to death.” Translate that to banking, pollution, poisoning, emissions, fraud, etc.
  • In Gitano tribes, in a case where a member of one family kills a member of another, a direct relative of the killer will be delivered to the family of the victim.
  • Calumny was already a very severe crime in Babylon, where the person who made a false accusation was punished as if he committed the exact crime.
  • Kashrut laws survived several millennia not because of their “rationality” but because the populations that followed them survived. It most certainly brought cohesion: people who eat together hang together.

Intelligence of time

Old rules work, because they have thousands of years of wisdom, (intelligence of time he calls it) tinkering and experience in them. We tinker with them at our own peril as we have no idea of the unintended consequences over time. We should not be replacing the “natural,” that is age-old, processes that have survived trillions of high-dimensional stressors with something in a “peer-reviewed” journal that may not survive replication or statistical scrutiny is neither science nor good practice. As your grandmother would have said, better safe than sorry.

Local rules first

Skin in the game also means that you cannot create universal rules. In reality, your skin lies in a broader set of people, one that includes a family, a community, a tribe, a fraternity. It cannot possibly be the universal. Universal behaviour is great on paper, disastrous in practice. However, we are local and practical animals, sensitive to scale. The small is not the large; the tangible is not the abstract; the emotional is not the logical. Skin in the game is by definition local. We should focus on our immediate environment; we need simple practical rules. Ethics are something fundamentally local. That is why political systems should start with the municipality, and work their way up. Be wary if unfettered globalisation and large centralised states.

Soul in the game

There is no other definition of success than leading an honourable life. Honour means that there are things you would do unconditionally, regardless of the consequences. As a Spartan mother tells her departing son: “With it or on it,” meaning either return with your shield or don’t come back alive

Honour

Honour means engaging in actions going beyond mere skin in the game to put oneself at risk for others, have your skin in other people’s game; sacrifice something significant for the sake of the collective. However, there are activities in which one is imbued with a sense of pride and honour without grand-scale sacrifice: artisanal ones.

Artisans

Artisans have their soul in the game. Artisans do things for existential reasons first, financial and commercial ones later. They have some type of “art” in their profession; they stay away from most aspects of industrialisation; they combine art and business and put some soul in their work.

Random wisdom

A lot of other random words of wisdom:

  • Treat others the way you want to be treated.
  • Metric can kills.
  • The most intolerant wins.
  • It is preferable to have an army of sheep led by a lion than an army of lions led by a sheep.
  • Never doubt that a small group of thoughtful citizens can change the world.
  • Use laws that are old but food that is fresh.
  • Burn old logs. Drink old wine. Read old books. Keep old friends.
  • Surgeons should not look like surgeons.
  • Less is more: Truth is lost with too much altercation.
  • Real gyms do not look like gyms.
  • Food does better through minute variations from Sicilian grandmother to Sicilian grandmother.
  • The only enemy you cannot manipulate is a dead one.
  • Never engage in virtue signalling.
  • If you want peace, make people trade.
  • History is largely peace punctuated by wars, rather than wars punctuated by peace.
  • Love without sacrifice is theft
  • Someone with a high public presence who is controversial and takes risks for his opinion is less likely to be a bull***t vendor.
  • Courage (risk-taking) is the highest virtue. Put yourself on the line, start a business.
  • Mathematicians think in precisely defined and mapped objects and relations, jurists and legal thinkers in constructs, logicians in maximally abstract operators, and fools think in words.
  • Not everything that happens, happens for a reason, but everything that survives, survives for a reason.
  • Never cross a river if it is on average four feet deep.
  • Survival comes first, truth, understanding, and science later
  • Ruin is indivisible and invariant to the source of randomness that may cause it.
  • True equality is equality in probability.
  • Jumping from a bench would be good for you and your bones. While falling from the twenty-second floor will never be so.
  • Skin in the game prevents systems from rotting.
  • Judge a system by asking not whether it makes sense but whether it works.
  • The longer an idea has been around without being falsified, the longer it’s future life expectancy.
  • Invoke the principle of simplicity.
  • We only have one planet. So the burden is on those who pollute—or who introduce new substances in larger than usual quantities—to show a lack of tail risk. In fact, the more uncertainty about the models, the more conservative one should be.
  • You do not need science to survive (we’ve survived for several hundred million years or more, depending on how you define the “we”), but you must survive to do science.
  • Making some types of errors is the most rational thing to do, when the errors are of little cost, as they lead to discoveries. For instance, most medical “discoveries” are accidental to something else.
  • Religion exists to enforce tail risk management across generations.
  • Anything that hinders one’s survival as an individual, collective, tribal, or general level is irrational.
  • Small injuries will be beneficial, never larger ones, those that have irreversible effects.
  • All risks are not equal.
  • Science isn’t the sum of what scientists think.
  • Intellectual and ethical freedom requires the absence of the skin of others in one’s game, which is why the free are so rare.
  • Macroeconomics and financial economics are scientifically worse than astrology and pharmaceutical trials replicating at best only a third of the time.
  • In most countries, the government’s role is between five and ten times what it was a century ago (expressed in percentage of gross domestic product).

The last one should make you think. Because most government officals and civil servants have no skin in your game…..

sensemaking cover

WHY REINVENT THE WHEEL AND WHY NOT LEARN FROM THE BEST BUSINESS THINKERS? AND WHY NOT USE THAT AS A PLATFORM TO MAKE BETTER BUSINESS DECISIONS? ALONE OR AS A TEAM.

Sense making; morality, humanity, leadership and slow flow. A book about the 14 books about the impact and implications of technology on business and humanity.

Ron Immink

I help companies by developing an inspiring and clear future perspective, which creates better business models, higher productivity, more profit and a higher valuation. Best-selling author, speaker, writer.

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