The Sentinel Evening Post: The Ancient Law of Skin in the Game

Nassim Nicholas Taleb

4,000 years ago in ancient Babylon, they introduced a new law for builders. If you built a house and it collapsed, killing those inside, you, too, would be put to death. And as you can imagine, the quality of houses much improved after this law.

This is one of the earliest known examples of what Nassim Nicholas Taleb calls 'skin in the game.' The idea is that if you are the one giving the advice, making the decision, or selling the risk, then you, too, have to share the consequences if, or when, that goes wrong.

But of course, today the world is built the other way round. A banker will keep his bonus even though the bank collapses. A pundit's predictions might be wrong every single year, and yet they can keep their column. A consultant tells a company to make a big and bold risk, but is long gone before anybody realises that it was a disaster. The advisor or the guru gets all of the benefits without having to face the consequences.

But Taleb's point goes beyond fairness. It's about the trust we have in our systems and in each other, because somebody who has skin in the game cannot bluff. They cannot lie and manipulate because they will suffer alongside you if things go wrong.

So, the next time somebody tells you to do something dangerous or urges you to take the risk, don't ask them their reasoning. Ask them what happens to them if things go wrong. Because the safest houses are built by those people who have to actually live in them.