Abstract

http://ssrn.com/abstract=2298292
 
 

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The Skin In The Game Heuristic for Protection Against Tail Events


Nassim Nicholas Taleb


New York University-Poly School of Engineering

Constantine Sandis


Oxford Brookes University - Oxford Brooks

October 1, 2013

Review of Behavioral Economics, 2014, 1: 1–21

Abstract:     
Standard economic theory makes an allowance for the agency problem, but not the compounding of moral hazard in the presence of informational opacity, particularly in what concerns high-impact events in fat tailed domains. Nor did it look at exposure as an evolutionary filter that removes bad risk takers from the system so they stop harming others. But the ancients did; so did many aspects of moral philosophy. We propose a global and morally mandatory heuristic that anyone involved in an action which can possibly generate harm for others, even probabilistically, should be required to be exposed to some damage, regardless of context. While perhaps not sufficient, the heuristic is certainly necessary hence mandatory. It is supposed to counter voluntary and involuntary risk hiding and transfer in the tails. We link the rule to various philosophical approaches to ethics and moral luck.

Number of Pages in PDF File: 12

Keywords: RIsk management, Heuristics, Black Swans, Fragility, Ethics, Moral Philosophy, Probability

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Date posted: July 26, 2013 ; Last revised: June 10, 2014

Suggested Citation

Taleb, Nassim Nicholas and Sandis, Constantine, The Skin In The Game Heuristic for Protection Against Tail Events (October 1, 2013). Review of Behavioral Economics, 2014, 1: 1–21. Available at SSRN: http://ssrn.com/abstract=2298292 or http://dx.doi.org/10.2139/ssrn.2298292

Contact Information

Nassim Nicholas Taleb (Contact Author)
New York University-Poly School of Engineering ( email )
Brooklyn, NY 11201
United States

Constantine Sandis
Oxford Brookes University - Oxford Brooks ( email )
Gipsy Lane
Headington
Oxford, OX3 0BP
United Kingdom
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