Skin in the Game

Skin in the Game is an aphorism popularized by Nassim Taleb in his Incerto collection of books on randomness, decision making under uncertainty and complex, dynamic systems. The concept of Skin in the Game is that agents in a system where outcomes are uncertain, make better decisions if they have something to lose in an adverse outcome.

Disincentives

Proponents of Skin in the Game argue that disincentives are just as, if not, more important than incentives in its effect on behaviour. They argue that golden parachutes and stock option programs create misalign the interest of agent-operators from the interests of shareholders.

There are many examples of structures or moral codes that apply the concept of Skin in the Game. Roman builders were made to stand under a bridge while a legion would march over it for the first time, captains of ships would go down with their ships and Hammurabi’s code was a legal system based on disincentive.

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