Skin in the Game
Skin In the Game
If you want to reap the benefit of a positive outcome, you also need to be willing to tolerate the negative outcome when things go wrong.
Implications of Skin In the Game
- Allows the minority to rule over the majority
- Makes you smarter
- Turns employees into a dependable workforce
Inequality v.s. Inequality
Expert Problem
You should avoid experts who do not have skin in the game — Intelligent Yet Idiot (IYI). These people do not have real expertise because they are not battle-tested by feedback from real life. A pilot is an expert; an economist who has not practiced with real money is not.
As a pilot, if you screwed up, then people die, there are real consequences to your lack of expertise. In fields where your expertise is judged by other experts in the field who have no skin in the game, that’s really bad.
Some corollaries:
- Never take advice from experts who do not have skin in the game
- A lot of the time, science actually came from application and engineering, not the other way
- Darwinian survival: Survival of the fittest
Symmetry
Hammurabi’s code: You cannot walk away from risks that you create for others. You should own your risk. “The cook should eat their own cooking.”
- Golden rule: Do unto others what you want them to do to you (this is a bit intrusive)
- Silver rule: Don’t do to others what you don’t want them to do to you (more robust)
The moral symmetry in the modern world is no longer symmetric. In the old days, it was risky to be a Roman emperor. In the modern day, you can sit in Washington and wage war and make hard financial decisions without personally dealing with the consequences. This creates moral asymmetry. But in our old societal structure, those leaders who were in leadership positions often exposed themselves to more risks for others.
“People who have scars command respect. People who take risks command respect.”
Taking risks can also be used as a signaling device. Starting a business, creating jobs for others is also risk taking, this is also why founders in Silicon Valley are so high in the social hierarchy. However, beware the cosmetics: if you have two doctors, one looks like a butcher, and one fits the Hollywood version of a doctor, which one would you choose? You would choose the one that looks like a butcher, because they have to overcome more.
Ergodicity
In probability theory, an ergodic dynamical system is one that, broadly speaking, has the same behavior averaged over time as averaged over the space of all the system’s states in its phase space.
