Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts

of Stanford University's Hoover Institution. Our website is econtalk.org or you can subscribe,

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Today is August 1, 2013, and my guest is Nassim Taleb. His books include,

fooled by randomness, the black swan, and anti-fragile, and we've done podcasts talking about those

before. Our topic per day for today is skin in the game, and as a jumping off point, we're going to

use a recent paper. Nassim has written with Constantine Sandis titled, skin in the game, the skin

in the game, heuristic, for protection against tale events. Nassim, welcome back to Econ Talk.

Hi, thank you for inviting me. This is becoming, I mean, I'm a habit. I'm never ever invited

by the same person twice. I'm afraid that says as much about me as it does about you and Nassim,

but here we go. What, let's start with this expression, which is a familiar to some in America,

but maybe not to non-native English speakers and to some even English speakers. What do you mean by

skin in the game? We mean that I cannot skin a game that cannot take risks in tailing,

you know, like may harm others without being subjected to them myself. That's why I want to

amend the skin in the game. In other words, that you cannot possibly make a bet on tailing

or on a variable that can harm others without you yourself being somewhat harmed. It doesn't

have to be as harmed. You need to encourage some personal harm enough to be deterrent. Now,

this is quite potent because it is probably the earliest idea that ever, okay, disseminated in society.

It's the first idea, probably. It's definitely behind the first document. I mean, the oldest document

we have, Amur Abis code. So it is very potent and in it, and I'll explain a few minutes. It's so

...