Does “Skin in the Game” Really Matter?
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The concept of “skin in the game” suggests that when someone’s own money is on the line, they’ll make better decisions. In the financial world, this is often applied to fund managers who invest in their own strategies.
READ THE ARTICLEHowever, is this always a reliable indicator of success?
Incentives are complex. A fund manager’s heavy investment in their strategy could signal confidence, or it could be a red flag for overconfidence and excessive risk-taking.
It’s also important to remember that group decisions, like those made by investment committees, often involve misaligned incentives. Everyone might have different goals and risk tolerances, leading to suboptimal outcomes.