Name: Skin in the Game
Uploaded: 2022-01-29T17:55:49.000Z
Duration: 4 min 46 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

Skin in the game is an economic and ethical  principle whereby those who seek to gain  

from their activity, should also lose when  things go wrong. In other words, the idea  

aims to create symmetry of risk and return.   King Hammurabi of Babylon already used the  

principle when he established one of  history's first laws. To ensure high  

construction quality inside the empire,  one set of laws was for the builders.

Law 229 stated that if a builder builds a house  for a client and does not construct it properly,  

and the house which he built collapses  and causes the death of the owner,  

that the builder shall be put to death.  

As a result, builders who were not able to  construct properly or tried to cheat left the  

trade —one way or another. Soon, those who were  planning to build a house had less to worry about.

The law's harsh consequences and its simplicity  

made sure that the incentive of  the builder who gains to profit  

and the man who risks the cost of construction,  living inside the house, are aligned.  

Nassim Taleb, who wrote extensively  about “Skin in the Game'',  

argued that having a measurable risk when  making a major decision was necessary for  

fairness and commercial efficiency. He  also linked the principle to learning.

In particular he argued that brains of smart  people who work in positions where there are  

high returns but low risks, don't receive the  necessary feedback to learn from their mistakes.  

Over time, this will produce inferior ideas  and risk turning smart people into idiots.  

Intellectuals yet idiots.   Take for example an intelligent CEO  

today who leads a public company and builds huge  construction projects using other people's money.

Unlike a Babylonian, our constructor  sits comfortably in his chair  

instructing those who actually take the risk.  

To protect himself further, he hires third party  engineers who sign off on the construction plans  

and have insurance policies to protect  them against any imaginable misfortune.  

When important clients complain, they  are welcomed by account executives.  

And if a house actually collapses, our constructor  just reads about it in an annual report  

because the man who lost his family inside will  only get to see the constructor's legal team.

As a result and over time the constructor  becomes disconnected from reality,  

stops learning from his mistakes  and becomes bad at his job.  

The consequences are frustrated  customers and poorly built homes

To keep learning and achieve excellence,  

it is therefore important to work in a position  where risk-taking is part of the daily routines.  

Not only because we get feedback from  people who share a risk working with us  

but also because, only if we have a stake  in the outcome, do we give our best.  

One of the best ways to learn faster,  therefore, is to have a stake in the outcome!  

To learn how to cook, cook for friends. To learn about an idea, publish a video about it. 

To learn about shares and companies, invest  in the stock market with your own money.

Almost 4,000 years after Hammurabi, the beautiful  ruins of the ancient city of Dara are testimony  

to the quality of the builders of Babylon.   But what do you think about the principle?  

Are there other possible downsides besides  the horrendous consequences of law 229?  

Please share your thoughts in the comments  below. To improve the quality of your argument,  

put your skin in the game and add  your name, and where you are from.

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