‘…losses encourage prudence.’

As I mentioned at the end of this post, last week’s EconTalk with Nassim Taleb, Skin in the Game,┬áis worth listening to. He describes some history of how having skin in the game is a simple and effective risk management rule and how removing it causes problems.

In ancient Babylonia, architects who built houses that fell down and killed people could themselves be killed. As Taleb explained, ‘that simple rule outperformed any inspector.” And, yet, there were still architects there. Apparently good and/or confident ones.

Here is more of what Taleb had to say about the Golden Rule:

And of course we have the Golden Rule that we see in the Old Testament, which is a positive–up till then it was a negative rule: ‘Don’t do unto others what you don’t want them to do to you.’ And then the Golden Rule: ‘Do to others what you want them to do to you’ and so on. Up to then we had a civil rule. What you see behind this is the foundation of moral philosophy, as a foundation of ethics and a foundation of civil society. But in it we saw something much more potent–we saw the foundation of risk management.

I thought this was interesting, too, regarding parenting and letting kids grow up:

The expression in Lebanon, that the first 7 years you play with them (and protect them), the second 7 years you let them get in trouble and the third 7 years you advise them on how they got in trouble.

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