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SKIN IN THE GAME and OUR FRAUD DETECTOR

SKIN IN THE GAME and OUR FRAUD DETECTOR
+ Have you ever wondered why people are upset by CEO compensation, sometimes >200x that of the average employee, but not if an entrepreneur makes the same amount of money; nor are they upset with singers, authors, or performers?
+ The economist Thomas Sowell found this an aberration. His argument is that a CEO is not harming you; he is not sponsored by the taxpayer (or let us grant him that for this argument). But Sowell and the others apologists of CEO pay are missing the fact that our naturalistic fraud detector may be picking up something quite severe. A CEO has inverse skin in the game; his losses are transferred to the shareholder (as he keeps the upside with stock options and stick others with the downside). As I said in Antifragile, he is no entrepreneur (or artist where thousands are sacrificing their lives, so entering the profession cannot be done rationally on economic grounds).
+ We also detect that a CEO is largely an actor. Just look at one on TV for a split second.
+ So our ecological instinct is effective there in smelling something unfair; it is more powerful than that of regular economists who need a more sophisticated understanding of contract theory/asymmetry to get the point.
+ Note that in some countries where wealth has a bad name, it is often because it is associated with rent seeking. In the US, perception is different because wealth is traditionally associated with risk taking.
+ Correct me if I am wrong, but it seems that societies give respect to people who have skin in the game (but not exclusively), and have a moral repulsion towards those who have inverse skin in the game.

via: Facebook

One Comment

  1. chimerika wrote:

    why is this so hard to understand for the media? quite simple really!

    Wednesday, July 29, 2015 at 3:04 pm | Permalink

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