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It doesn't mention any negatives of requiring skin in the game. The most obvious is adverse selection: risk-averse people won't enter a profession where mistake

by tlb 13y ago

It doesn't mention any negatives of requiring skin in the game. The most obvious is adverse selection: risk-averse people won't enter a profession where mistakes are severely punished, so you get only risk-seekers.

aston 13y ago
I'd be interested to hear examples of professions where you think we want risk-averse people involved in inherently risky activities without skin in the game. Are these activities beneficial to society?
- draz 13y ago
  Medicine :-)
  - phaet0n 13y ago
    Doctors do have "skin in the game". They face rigorous scrutiny for their medical actions.
    - draz 13y ago
      well, sortta, and mostly in the US where malpractice lawsuits are an issue
      - gahahaha 13y ago
        But doesn't doctors insure themselves against such suits, so the end result is just higher prices?
- tlb 13y ago
  Medicine. Startup founders. Car designers. Airline pilots. Of course, all these guys have some skin in the game now. I'd argue that in all these professions, artificially increasing the penalties for failure wouldn't make the world better.
  - zzleeper 13y ago
    No one is advocating for increasing those penalties. Taleb is just stating that there be some penalties, which kinda makes sense: You feel safer if the pilot is in the airplane with you, and has his life at risk as much as yours, than e.g. if he was just remote-controlling the plane from his office
    - nostrademons 13y ago
      OTOH, you feel safer if the 911 dispatcher is sitting in a far-away call-center and not freaking out because she's at the scene with you, and you feel safer if the surgeon is a dispassionate expert at their field and not the patient's mother. You'd feel better being represented by a lawyer who is not on trial with you than one who is. I think a lot of this depends upon whether the task calls for a rational or emotional response. For tasks that require a rational response, having "skin in the game" can cloud your judgment and make you perform worse than if you were a dispassionate observer. For tasks that require an emotional investment, you want the person's risks and incentives to be aligned with yours. (For example, you want a product designer to actually use the products they design, and you want a teacher to care about your kids as much as you care about them.)
      - graeme 13y ago
        You didn't really respond to OP's point. They said some skin in the game is sufficient. A surgeon faces large legal risks for a botched surgery. A lawyer is likewise legally responsible for his actions. Doctors and lawyers are two of the professions with the most skin in the game! I don't know enough about 9/11 dispatchers to say if they face liability.
  - aston 13y ago
    Are you willing to make the inverse (and I think more interesting) argument, that reducing their respective skin in the game would indeed make the world better?
    - tlb 13y ago
nostrademons 13y ago
It's kinda interesting that the modern corporation was explicitly designed to shield the decision-makers from risk. Without it, many of the large industrial & trade breakthroughs of the enlightenment wouldn't have been possible, as nobody would've been willing to take the personal risk of venturing to the Indies or setting up a cotton mill when the downside of failure was perpetual indentured servitude. I don't think it's bad to require some skin in the game, but require too much and many risks that are quite beneficial to society as a whole just won't happen.
- ronilan 13y ago
  > "nobody would've been willing to take the personal risk of venturing to the Indies" Made me think of this: http://www.youtube.com/watch?v=pM-igYjn6E4 http://www.youtube.com/watch?v=pM-igYjn6E4 The corporation sheilds from financial risk, thus enabeling an actual risk. When latter is missing the problem of lack of skin may appear.
- lmkg 13y ago
  Partially disagree. The original necessity of corporations was to distribute risk, not to remove it. There was the same total risk, but born across a wider number of people. The financial risk was unchanged, but the consequences were made less catastrophic. Equivalently, a corporation aggregates enough resources for the risk to become rational. By contrast, one of the functions of modern corporations is that culpability does not pass-through to the decision-makers. This is an actual removal of risk, not re-distribution, as there are consequences that a corporation is not capable of facing.
  - pash 13y ago
    I was thinking about this the other day. Just as with joint-stock ownership, legally limiting financial liability redistributes risk (by transferring it to creditors), but doesn't reduce it in net. Creditors tend to be established firms and bankrupt companies tend to be new, small enterprises, so it seems that limited liability promotes socially beneficial risk-taking by offloading bad outcomes on those who are best able to absorb them. ... "From each according to his ability, ..."
6d0debc071 13y ago
Well, the degree of risk that someone should take on is debatable. The point of the article was - as I understand it - that we should be suspicious of people who just won't put their money where their mouth is: "The skin in the game heuristic is best viewed as a rule of thumb that places a pragmatic constraint on normative theories. Whatever the best moral theory (consequentialism, deontology, contractualism, virtue ethics, particularism etc.) or political ideology (socialism, capitalism, libertarianism) might be, the 'rule' tells us that we should be suspicious of people who appeal to it to justify actions that pass the cost of any risk-taking to another party whilst keeping the benefits for themselves." Designers who wouldn't drive a car they designed. Doctors who wouldn't get treated in their own hospitals. That sort of thing. The problem, to my mind, is how you'd motivate that sort of risk taking for people who are more powerful than those they're advising, or have different goals, or are in positions where they can't prove that they've skin in the game. I think most of us would, as a matter of course, get people to put their money where their mouth is if we could practically pin people down to it on a day to day basis. But, in reality, I might not choose to be treated in the hospital I work at because I can afford better care, or because I think some of the people there have it in for me, even if I'm an excellent doctor. I might not choose to drive a car I designed because I can afford a better one, or have different tastes. etc etc. And that's even in the case that I can show that I've skin in the game. I've worked jobs before where having any interests in the problem that might tempt you to fudge the results was grounds for not being employed. It's very difficult to apply such a heuristic when I'm not necessarily playing the same game as you for the same prizes.
emmelaich 13y ago
Excessive punishment can be a consequence of artificially limiting entry. So if the limits are removed or relaxed, we might hope that the risk/benefit converges to an ideal.

by tlb 13y ago

aston 13y ago

I'd be interested to hear examples of professions where you think we want risk-averse people involved in inherently risky activities without skin in the game. Are these activities beneficial to society?

draz 13y ago
Medicine :-)
- phaet0n 13y ago
  Doctors do have "skin in the game". They face rigorous scrutiny for their medical actions.
  - draz 13y ago
    well, sortta, and mostly in the US where malpractice lawsuits are an issue
    - gahahaha 13y ago
      But doesn't doctors insure themselves against such suits, so the end result is just higher prices?
tlb 13y ago
Medicine. Startup founders. Car designers. Airline pilots. Of course, all these guys have some skin in the game now. I'd argue that in all these professions, artificially increasing the penalties for failure wouldn't make the world better.
- zzleeper 13y ago
  No one is advocating for increasing those penalties. Taleb is just stating that there be some penalties, which kinda makes sense: You feel safer if the pilot is in the airplane with you, and has his life at risk as much as yours, than e.g. if he was just remote-controlling the plane from his office
  - nostrademons 13y ago
    OTOH, you feel safer if the 911 dispatcher is sitting in a far-away call-center and not freaking out because she's at the scene with you, and you feel safer if the surgeon is a dispassionate expert at their field and not the patient's mother. You'd feel better being represented by a lawyer who is not on trial with you than one who is. I think a lot of this depends upon whether the task calls for a rational or emotional response. For tasks that require a rational response, having "skin in the game" can cloud your judgment and make you perform worse than if you were a dispassionate observer. For tasks that require an emotional investment, you want the person's risks and incentives to be aligned with yours. (For example, you want a product designer to actually use the products they design, and you want a teacher to care about your kids as much as you care about them.)
    - graeme 13y ago
      You didn't really respond to OP's point. They said some skin in the game is sufficient. A surgeon faces large legal risks for a botched surgery. A lawyer is likewise legally responsible for his actions. Doctors and lawyers are two of the professions with the most skin in the game! I don't know enough about 9/11 dispatchers to say if they face liability.
- aston 13y ago
  Are you willing to make the inverse (and I think more interesting) argument, that reducing their respective skin in the game would indeed make the world better?
  - tlb 13y ago

nostrademons 13y ago

It's kinda interesting that the modern corporation was explicitly designed to shield the decision-makers from risk. Without it, many of the large industrial & trade breakthroughs of the enlightenment wouldn't have been possible, as nobody would've been willing to take the personal risk of venturing to the Indies or setting up a cotton mill when the downside of failure was perpetual indentured servitude. I don't think it's bad to require some skin in the game, but require too much and many risks that are quite beneficial to society as a whole just won't happen.

ronilan 13y ago
> "nobody would've been willing to take the personal risk of venturing to the Indies" Made me think of this: http://www.youtube.com/watch?v=pM-igYjn6E4 http://www.youtube.com/watch?v=pM-igYjn6E4 The corporation sheilds from financial risk, thus enabeling an actual risk. When latter is missing the problem of lack of skin may appear.
lmkg 13y ago
Partially disagree. The original necessity of corporations was to distribute risk, not to remove it. There was the same total risk, but born across a wider number of people. The financial risk was unchanged, but the consequences were made less catastrophic. Equivalently, a corporation aggregates enough resources for the risk to become rational. By contrast, one of the functions of modern corporations is that culpability does not pass-through to the decision-makers. This is an actual removal of risk, not re-distribution, as there are consequences that a corporation is not capable of facing.
- pash 13y ago
  I was thinking about this the other day. Just as with joint-stock ownership, legally limiting financial liability redistributes risk (by transferring it to creditors), but doesn't reduce it in net. Creditors tend to be established firms and bankrupt companies tend to be new, small enterprises, so it seems that limited liability promotes socially beneficial risk-taking by offloading bad outcomes on those who are best able to absorb them. ... "From each according to his ability, ..."

6d0debc071 13y ago

Well, the degree of risk that someone should take on is debatable. The point of the article was - as I understand it - that we should be suspicious of people who just won't put their money where their mouth is: "The skin in the game heuristic is best viewed as a rule of thumb that places a pragmatic constraint on normative theories. Whatever the best moral theory (consequentialism, deontology, contractualism, virtue ethics, particularism etc.) or political ideology (socialism, capitalism, libertarianism) might be, the 'rule' tells us that we should be suspicious of people who appeal to it to justify actions that pass the cost of any risk-taking to another party whilst keeping the benefits for themselves." Designers who wouldn't drive a car they designed. Doctors who wouldn't get treated in their own hospitals. That sort of thing. The problem, to my mind, is how you'd motivate that sort of risk taking for people who are more powerful than those they're advising, or have different goals, or are in positions where they can't prove that they've skin in the game. I think most of us would, as a matter of course, get people to put their money where their mouth is if we could practically pin people down to it on a day to day basis. But, in reality, I might not choose to be treated in the hospital I work at because I can afford better care, or because I think some of the people there have it in for me, even if I'm an excellent doctor. I might not choose to drive a car I designed because I can afford a better one, or have different tastes. etc etc. And that's even in the case that I can show that I've skin in the game. I've worked jobs before where having any interests in the problem that might tempt you to fudge the results was grounds for not being employed. It's very difficult to apply such a heuristic when I'm not necessarily playing the same game as you for the same prizes.

emmelaich 13y ago

Excessive punishment can be a consequence of artificially limiting entry. So if the limits are removed or relaxed, we might hope that the risk/benefit converges to an ideal.