In this case the argument is flawed because it is too loose in defining a bunch of words and premises. Eg, you can't argue about "bad decisions" because in this case it is a meaningless term. With the frame in the argument it likely isn't correct to say that "once you have less skin in the game, it is easier to make bad decisions". You are still empowered to make the best decisions you can, having less skin in the game doesn't change that.
The skin-in-game principle is a pithy way of talking about principle-agent risks. That is to say, it is a problem for the people fronting the money, not the people on the receiving end. The people on the receiving end are strictly better off (ignoring that they're going to have to trade away control to get the money, obviously - they have strictly more options in the short term). And the people giving the money will still invest despite that, because they need to take risks to earn money - their strategy is to take risks to earn a premium, so they're looking for sensible risks to take.
The skin-in-game principle is a pithy way of talking about principle-agent risks. That is to say, it is a problem for the people fronting the money, not the people on the receiving end. The people on the receiving end are strictly better off (ignoring that they're going to have to trade away control to get the money, obviously - they have strictly more options in the short term). And the people giving the money will still invest despite that, because they need to take risks to earn money - their strategy is to take risks to earn a premium, so they're looking for sensible risks to take.