Joachim Andersen

Accelerated Learning

Skin in the Game: Why Shared Risk Makes Better Decisions

A bearded stonemason in a leather apron stands under the arch of a stone bridge at night with his hand on the vault while a horse cart crosses above and a young man in a navy suit holding a tablet watches from a distance
The builder stands under his own arch as the cart rolls overhead, while the planner watches from a safe distance.


Skin in the Game means having something real to lose if I am wrong. When the people who make decisions also bear the consequences, they tend to decide more carefully, and their words become far more credible. It’s one of the mental models I return to most often when deciding whose advice to trust, and how to make decisions of my own.

The essence of Skin in the Game is to ask: “Does the person making this decision, or giving this advice, pay a price if it turns out to be wrong?”


Origin: From Hammurabi to Taleb

The idea is almost 4,000 years old. Around 1753 BC, the Code of Hammurabi in Babylon stated in law 229: “If a builder build a house for someone, and does not construct it properly, and the house which he built fall in and kill its owner, then that builder shall be put to death.” Harsh, but the builder could not walk away from the risks he created for others.

The modern phrase is often credited to Warren Buffett, but the language writer William Safire found earlier uses, and its origin remains uncertain. The person who turned it into a full philosophy is Nassim Taleb, a former options trader, in the book Skin in the Game: Hidden Asymmetries in Daily Life (2018). His thesis is that sharing the risks of a decision is necessary for fairness, for risk management, and for understanding how the world really works.


Key Concepts

  • Symmetry
    Those who get the upside of a decision should also carry its downside. Taleb’s problem with many systems is not just missing incentives, but asymmetry: one person collects the rewards while others are left with the risks. I explore the incentive side of this in Incentives.

  • The Bob Rubin Trade
    Nassim Taleb named this unfair setup after Robert Rubin, a top executive at Citigroup. In the ten years leading up to the 2008 financial crisis, Rubin took home more than $120 million in pay and bonuses. When the bank nearly collapsed and had to be rescued with taxpayer money, Rubin did not have to give any of that money back. It is a classic case of “heads I win, tails you lose”: he kept the profits in good times, while the public covered the losses when things went wrong.

  • Filtering by Survival
    When people bear the cost of their mistakes, those who make bad decisions are eventually removed from the game. Without skin in the game, this filter stops working, and poor judgment can survive and even spread.

  • Avoid Ruin
    Taleb stresses that some losses are not just large, but final. A strategy that works on average can still wipe me out if I play it long enough, so I give the risk of ruin far more weight than the average outcome.

  • Soul in the Game
    The strongest form is when people do their work out of pride and a sense of duty, not only because of a contract, like a craftsman who refuses to sign off on poor work.


Some Examples

  • The Captain and the Ship
    In 2012, the cruise ship Costa Concordia hit a rock off Italy and 32 people died. Captain Francesco Schettino left the ship while hundreds of passengers were still on board, and was later sentenced to 16 years in prison. The tradition that a captain is the last to leave exists for a reason: it puts the captain’s fate in the same boat as the passengers’.

  • Eating Our Own Dog Food
    In 1988, Microsoft manager Paul Maritz sent an email titled “Eating our own Dogfood”, challenging his team to use their own product internally. When the people who build something also have to depend on it every day, problems get found and fixed much faster.

  • Clawbacks
    To restore some symmetry after the financial crisis, the US Dodd-Frank Act called for clawbacks. In 2022, the SEC adopted a rule requiring listed companies to recover incentive pay that executives received based on financial results that later had to be restated.

  • Donald Knuth and TeX
    The computer scientist Donald Knuth concluded that the designer of a new system should also be its first large-scale user and write its first manual. Using his own TeX typesetting system, he wrote, led to “literally hundreds of improvements” he would otherwise never have thought of.


Applying Skin in the Game

When I want to use this mental model, this is the simple process I follow:

  1. Ask What They Lose
    Before I act on advice or a forecast, I ask what the person loses if they are wrong, and weigh their words accordingly.

  2. Prefer Practitioners
    I give more weight to people who do what they recommend, like the investor who owns what he recommends, or the doctor who would choose the same treatment for herself.

  3. Look at What People Do, Not Say
    Actions with real costs reveal what people truly believe. As Taleb puts it, “Don’t tell me what you think, tell me what you have in your portfolio.”

  4. Put My Own Skin in the Game
    When I recommend something to others, I try to be willing to live with the same consequences, and to commit publicly to the outcomes I aim for. This is also why I build in public.

  5. Design for Symmetry
    When I set up teams, partnerships or deals, I try to make sure those who decide also share both the gains and the losses.

  6. Never Risk Ruin
    I avoid bets where losing would take me out of the game for good, no matter how attractive the expected return.


Pitfalls and Limitations

  • Too much skin can create excessive caution. When New York and Pennsylvania published report cards on heart surgeons, a study by David Dranove and colleagues found that some hospitals and surgeons avoided the sickest patients, making those patients worse off.

  • Skin in the game is not the same as being right. People who own something tend to talk their book, so their exposure can bias them as much as it disciplines them.

  • Not all valuable knowledge comes with personal risk. Scientists, teachers and historians can be highly reliable without betting their fortunes on every claim.

  • It can be used as an ad hominem shortcut, dismissing a good argument because of who makes it. I try to use it as one input, not a replacement for judging the argument itself.


Related Mental Models

Skin in the Game reminds me that words are cheap, while consequences are not. By trusting people who share the risks of their advice, and by being willing to share the risks of my own decisions, I can make better choices and become someone whose word others can rely on.



To learn more about scientific rational thinking, reasoning, epistemology and methods,
check out: Wise: How to Attain a Deep Understanding of the World, History, Our Place in It, and How to Live Well



📚 Sources and References


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