I’ve been reading a lot of Taleb recently, and one of the concepts which is repeated over and over again and that is proposed as a rule is of "skin in the game". For those that haven’t heard of this before, the idea is that: we should not be protected from the downsides of natural volatility if others would be exposed to them otherwise - e.g. a cook should taste their own food as a preventive measure to giving others food poisoning (doing so makes them more careful than they would be otherwise.)

While this concept is a good heuristic for trustworthiness it’s unlikely to survive evolution.

Small transactional costs stop things from existing at the fetal/growth stage. Evolution destroys them long before the long-term benefits demonstrate themselves as it supports short-term adaptive traits over long-term adaptive traits. If you require skin-in-the-game transactional costs then your transactions will happen far less often, and in the short-term you will get out-competed for resources by those that protect themselves with top-down regulations.

It is often difficult for third-parties to evaluate the authenticity of a cost or regulation, which is why institutional costs exist - they factor out hundreds of checks of hundreds of transactions into a single check of the institution that regulates hundreds of transactions (which itself is often proxied by the social proofing of this institution.) This lowers the transaction cost which causes high growth.

Fetal is really a good analogy here. The womb exists for good reason; scaffolds exist for good reason; decorum on first dates exists for good reason. Without these things early transactional costs defeat growth.

In short, skin-in-the-game evolves out of artificial systems as it is bad for early-growth. However this does not mean that it should; in well-designed/natural systems the entity first exists in a protective bubble during its gestation period and then slowly has its skin placed in the game.

This is currently a draft.