“Skin in the Game” — that’s the concept, and name of the book by Nassim Nicholas Taleb. He’s a Risk analyst, statistician, trader and works on areas like randomness, probability, and uncertainty.
The concept is basically “having a personal stake”, or investment in a decision, project, or outcome. When someone has “skin in the game,” they are directly affected by the consequences of their actions, and their own well-being is tied to the success or failure of the endeavour.
Understanding “Skin in the Game”
When someone has “skin in the game,” they are directly impacted by the consequences of their actions.
Having skin in the game is seen as a way to align incentives and ensure responsible decision-making.
A business owner who has invested his own money is his business has “skin in the game” and is likely to make decisions with the company’s long-term success in mind. In contrast, someone who does not have personal stakes may not be as motivated to act in the best interest of the company and may not be the best person to make decisions.
The idea of skin in the game emphasizes accountability, responsibility, and a direct connection between actions and consequences.
Skin in the Game isn’t a random philosophy I just started writing about. Once you’re aware of this, you can see it across various field in your life, such as:
It has been a constant problem of mine since years. It is also a reason why I dropped out of one of India’s best business schools just after 5 months.
The professors who teach business at a business school, often haven’t spent a day working at one.
Sure, they know about businesses, teach good and you learn from them. But teaching business and running one are two completely different things.
So college might give you theory, but it often lacks the real-world grit.
Now contrast this with the case where I really like college education — medicine.
One of my uncles has recently finished his masters from BHU — one of the country’s best medical institutes.
I visited and even stayed at the campus — closely observing how they study there.
In a 5-year bachelors, they spend half of the time working as “junior doctors”, working under doctors on real patients. The professors at a medicine school are actual doctors, not people who just know about medicine but have never practised it. The classrooms and workplace (hospitals) are adjacent in the same campus.
This way, the students recieve education from people with skin in the game.
So that’s the philosophy — learn from people who have actual skin in the game.
I learnt business concepts from actually working in one. I learnt how to handle a startup by being a part of one from it’s inception to acquisition. [Read: My Perspective at a Startup: Starting to Acquisition]
So my business “professor” was’t some teacher in glasses talking case studies, but Isaac Morehouse, who has started and ran 4–5 successful businesses.
Skin in the game means depth. It’s not about skimming the surface; it’s about diving deep. Become the expert who’s not afraid to get their hands dirty.
Let’s take a trip back in time. In Hammurabi’s kingdom, architects faced death if their design collapsed and killed the owner.
As for the Romans — they knew if the engineers were made to sleep under the bridges, they’d make strong ones.
If you make people eat their own cooking, they’re a lot better off.
Finance and Risk Management
Finance bros, If your strategy can hit you where it hurts, that’s your risk management.
When hiring a finance advisor, you want a strategy that’s a winner. Imagine if the strategy has losses that can harm him as well; this incentive will give you risk management. Else, without this incentive, the whole system blows up.
You learn this and you stop taking advice from people who have nothing to do with your success. i.e., they have no skin in game.
(Financial advice from a random comment you saw on reddit? Bad idea)
To wrap it up, always strive for “skin in the game.” Be the person who’s not afraid to take risks, own results, and dive deep.
Nassim Nicholas Taleb’s book, “Skin in the Game,” serves as an insightful guide to understanding and implementing this philosophy. And if you’re hungry for more, check out this video for Taleb dropping knowledge bombs.