You’ve probably heard people talk about skin in the game before. Usually, it’s some guy in a suit on CNBC or a tech bro on X (formerly Twitter) shouting about why founders need to own more of their companies. But honestly? The concept is way deeper than just owning stocks or having a down payment on a house. It’s about the fundamental link between an action and its consequences.
If you don't have skin in the game, you're just a spectator.
Nassim Nicholas Taleb, the guy who basically turned this phrase into a modern philosophy in his 2018 book Skin in the Game: Hidden Asymmetries in Daily Life, argues that the world is currently falling apart because too many people in power have none. Think about it. When a bureaucrat makes a mistake, they usually keep their job. When a pilot makes a mistake, they go down with the plane.
That difference changes everything about how we trust, how we build, and how we survive.
The Brutal Reality of Incentives
We live in a world of "agency problems." That’s just a fancy way of saying that the person doing the work for you might not actually care if it turns out well.
Take your typical financial advisor. If they recommend a fund that crashes, they still get their commission. You lose the money; they keep the fee. That is a total lack of skin in the game. Now, contrast that with a hedge fund manager who has 90% of their personal net worth in the fund they manage. If they lose money, they feel the sting in their own bank account. They aren't just "managing risk" for you; they are surviving alongside you.
It’s about symmetry.
History used to be much more honest about this. In ancient times, the architect of a bridge was often required to stand under it while the first heavy carts rolled across. If the bridge collapsed, the architect died. Simple. Brutal. Effective. It’s the ultimate quality control mechanism. Today, we’ve replaced that physical reality with legal disclaimers and insurance policies, which is why things feel so much more fragile and dishonest.
Why Exposure Matters More Than Expertise
Knowledge isn't enough. You can read every book on swimming, but if you've never jumped into the deep end, you don't know a thing about it.
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Real learning happens through contact with reality. When you have skin in the game, your brain functions differently. You aren't just processing information; you're scanning for threats. You're alert. You're actually alive. This is why "consultants" often give such terrible advice. They have the credentials, sure, but they don't suffer when their "five-year strategic plan" turns out to be a flaming dumpster fire.
They just move on to the next client.
Spotting the Lack of Risk in the Wild
You see this everywhere once you start looking. It’s in the way politicians vote for wars they won't fight in. It’s in the way journalists write articles about industries they’ve never actually worked in.
Actually, look at the 2008 financial crisis.
The bankers who packaged those subprime mortgages into "safe" investments didn't have to pay back their bonuses when the whole thing imploded. They shifted the risk onto the taxpayers. That’s the opposite of skin in the game—it’s transferring the "downside" to someone else while keeping the "upside" for yourself. Taleb calls these people "Interventionistas." They love to mess with complex systems because they don't have to deal with the fallout.
The Problem with "Professional" Opinions
If someone gives you advice, ask yourself: "Do they own what they’re telling me to buy?"
If a doctor tells you to take a specific pill, do they take it themselves for the same condition? If a nutritionist tells you to go vegan, are they actually vegan, or are they eating a steak the moment the camera turns off?
Honesty is tied to consequence. Without it, talk is cheap. In fact, talk is worse than cheap; it’s often dangerous because it carries the weight of authority without the anchor of reality.
Creating a Life With Skin in the Game
So, how do you actually apply this? It’s not just about business deals. It’s about how you live.
- Own your mistakes. If you mess up at work, don't look for an excuse. Own it. It hurts your ego, but that pain is what prevents you from making the same mistake twice.
- Seek out partners with exposure. Whether you're hiring a contractor or picking a business partner, look for people who are putting something on the line. Avoid people who want "equity upside" without any "downside risk."
- Beware of the "Expert" without a track record of loss. A real expert is someone who has survived multiple failures and stayed in the game. Success is often just luck; survival is the real indicator of skill.
The Ethics of Risk
There is a moral component here too.
The Silver Rule (a variation of the Golden Rule) says: "Do not do unto others what you would not have them do unto you." In terms of risk, this means you shouldn't put others in a position of danger that you wouldn't be willing to face yourself.
If you are a manager and you're asking your team to work 80 hours a week, you'd better be in the office right next to them. If you’re a CEO cutting safety corners to save money, you should be the one testing the product. Anything else is just cowardice masked as "efficiency."
Real-World Examples of High Stakes
Let’s look at SpaceX.
Elon Musk (love him or hate him) is a prime example of someone who puts his skin in the game. Early on, he poured his entire Fortune from PayPal into Tesla and SpaceX. He was literally living on friends' couches because he’d bet everything. When the first three Falcon 1 launches failed, he was one launch away from total bankruptcy. That level of risk creates a different kind of focus. You don't get to Mars by playing it safe or by following a "best practices" manual written by someone who has never built a rocket.
Compare that to the old-school aerospace contractors who operate on "cost-plus" contracts. In those deals, the government pays the company for their costs plus a guaranteed profit. If the project takes longer or costs more, the company actually makes more money.
They have zero incentive to be efficient. In fact, they have an incentive to be slow. They have no skin in the game regarding the budget.
The Small Business Perspective
Your local coffee shop owner has more skin in the game than the CEO of a Fortune 500 company.
If the coffee shop owner has a bad month, they might not be able to pay their rent. Their kids might notice the difference. The Fortune 500 CEO, meanwhile, can get fired for incompetence and walk away with a $50 million "golden parachute."
Who do you think cares more about the quality of the product? Who do you think is more attuned to what the customers actually want?
How to Protect Yourself
The world is full of people trying to sell you things they don't use and ideas they don't believe in. You have to become a "risk detective."
Before you sign a contract, before you follow a "guru," before you vote for a policy, ask the simple question: "Where is the downside for the person suggesting this?"
If there is no downside for them, run.
Actionable Steps for Better Decision Making
- Audit your circle. Look at the people you take advice from. Do they actually live the life they promote? If your fitness coach is out of shape, fire them. If your business mentor hasn't started a business in twenty years, find a new one.
- Structure your own deals for symmetry. If you’re a freelancer, consider "performance-based" pricing where you get a bonus if the client hits a certain goal. It aligns your interests perfectly with theirs.
- Read the right things. Stop reading "how-to" books written by people who make their money selling "how-to" books. Read biographies of people who actually did the thing. Look for the scars.
- Don't ignore the "Soul in the Game." This is the level above. It's when you do something not just because you have skin in the game, but because you actually care about the craft. It's the artisan who spends ten extra hours on a detail no one will see, just because they know it's there.
Having skin in the game isn't just a way to avoid getting cheated. It’s a way to live a more authentic, grounded, and effective life. It forces you to be honest with yourself and the world. It’s the difference between being a hollow shell and a real person.
Stop watching from the sidelines. Get in the game. Take the risk. Feel the sting of failure and the genuine pride of a win that you actually earned. It’s the only way to truly know what you’re doing.