52. Communicating Our Mistakes: How to Avoid Common Flaws and Make Better Decisions
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I want to start with a big thank you. Thank you for deciding to listen to this podcast episode. More important and relevant to our topic at hand, I want you to think about the other decisions you made throughout your day prior to listening in. Chances are you've made many, many decisions, some big, some small, some personal and some business related. Today, we're going to discuss how we can make better decisions.

I'm Matt Abrahams, and I teach strategic communication at Stanford Graduate School of Business. Welcome to Think Fast, Talk Smart, the podcast.

I am really excited today to be joined by both Jonathan Burke and Jules van Binsbergen. Jonathan is the AP Giannini Professor of Finance at the GSB. Jules is the Nippon Life Professor in Finance at Wharton. Together, Jonathan and Jules host a new podcast entitled All Else Equal. I've listened in and I've learned a lot. Thanks for being here, Jonathan and Jules. It's great to be with you, Matt. Thank you so much for having us.

It's an honor to be here. Great. Well, thank you both. Let's get started. So, Jonathan, you and Jules have worked together for a long while and published many papers together. I'm curious, what led you to podcasting and what is the focus of your podcast? In a nutshell, our podcast is about making good business decisions. We both feel that people make common mistakes repeatedly.

And often what makes this worse is they have no idea they're making a mistake. At the same time, we hear business gurus providing advice, often either flat out wrong or platitudes like treat your employees well. We felt we could just do better. We could provide some standard advice based on research. In fact, in each episode, we will start with a business decision that people make that they feel is obviously correct.

We'll explain why it is a mistake and hopefully by the end of the episode our listeners will think that the correct decision is obvious. This might sound like a total order but

But you'd be surprised how often people do things in business that are obviously wrong without realizing it. Well, I certainly have seen a number of leaders make mistakes. And what I find so wonderful about your podcast is that you actually get people to come in and talk about their mistakes and you help others avoid those mistakes and learn how to make better ones. So I've listened and I think it's fantastic. And I encourage everybody to listen in.

Jules, given that you both are focused on helping people make better decisions, can you share a specific idea or lesson you've learned that can help us in this area? So I think that when making a decision, people often have a mental model of the world that is static or fixed. But the world just doesn't work that way. It's highly dynamic. And when I say that, I don't just mean that changes happen around us continuously that we have to somehow deal with. What I mean is,

When you move a piece on your chessboard, the whole game changes and the rest of the world who's on the other side of the chessboard will respond to that move you just made. So there are two ways of thinking about the chess game of life. First, think about you being allowed to make the next 10 moves without the other side responding. You can win that game quite quickly and it isn't all that hard. But now...

But now think about the other plane responding after every move you make. This is a very different competitive game. It is much harder to play that game, and you have to think very carefully about the moves that you want to make. That thought process can be really frustrating, but ignoring those dynamic effects doesn't really get you anywhere. It simply is the reality we have to deal with

And because we think this mistake is so common and important, we decided to call the podcast All Else Equal. Because there are many statements that are true when you can hold all else equal, but

But in the real world, all else is never equal. And then suddenly these statements no longer hold and they can lead you astray. I get it. I was wondering where you got the name of your podcast, but thank you. While I'm a lousy chess player, I totally understand what you mean. And I think the focus that you have and the approach you take can be really helpful for

I'd like to follow up though, Jules. What advice do you have on how we actually can go about communicating the mistakes we make? Well, let's start by saying it's really hard. I think we can both agree on that. Absolutely. The most important thing you need to do before communicating a mistake is

is thinking through what happened carefully. What in business language I think is often called do a root cause analysis. Why did that mistake happen? And what can I learn from that? Because admitting mistakes is hard enough as it is, and many people will try to avoid doing so because they experience it as a humiliating thing. If you go to your manager and simply admit the mistake, and then your manager asks you,

"Can you help me understand what happened and why?" You better have a good answer. If you have the explanation as well as your plan for the future ready at that point, you can actually come out of the conversation stronger and you can turn it into a positive experience that isn't humiliating.

So it sounds to me like two things that are important there. One is approach mistakes as part of learning. There's value to be taken from the mistake so you can avoid it or do things better in the future and then do that root cause analysis to really understand. So instead of avoiding and running from it or hiding from it, I don't know if embrace is the right word, but at least accept it and then figure out what went wrong. Is that what I heard you say? Absolutely. But what the second thing is,

Don't follow the first mistake with the second mistake. Do not come to the meeting in which you're supposed to explain the first mistake prepared. Be prepared so that you've done the analysis before going into that meeting so that you can immediately give it a positive twist as opposed to just being a bad experience for you in which you feel bad.

Well, that echoes a lesson we've talked a lot about on this podcast, which is take the time to prepare. It can really help. Jonathan, I'd like to turn to you. Allow me to ask you the same question I asked Jules. Can you share a best practice for better decision making? Well, we called the podcast Or Else Equal because we wanted to highlight a common and cost-to-restate that comes up in many business contexts.

When you make a decision, you have to take into account the effect of that decision on the world. Too often people ignore that. They engage what I would call all else equal thinking, and they evaluate the effect of the decision holding everything else the same. You can never do that. I know it sounds obvious as I talk about it, but you'd be surprised how often in the context of a decision, people get fooled.

We're going to explore many of those contexts on the show. I think that is so important to understand that the environment is dynamic and you need to be able to adjust and adapt to what's happening and not have fixed thinking. So clearly something that people can learn from you and your podcast. When I coach non-finance executives and senior leaders, they often dread and perhaps even fear their interactions with those in finance, like the CFO, for example.

Because they often get their proposals rejected or feel that they need to do battle. I've heard you talk about this as a communication challenge in terms of framing and language. Can you share your thinking on this type of communication? Yes, absolutely. So I think the first thing to establish is we think through language. If we don't speak the same language, it's very difficult to align our thoughts. So let's start with that.

So, and for that reason, I think that one of the reasons why, regardless of their major, a business school student should learn finance and some of the math that comes with it is that you learn the language of quantitative dynamic decision-making. How do you know whether something is a good decision unless you have properly traded off the upsides and the downsides or what economists or finance people call benefits and costs? The discipline that finance brings to the table really helps with that, particularly when the costs and the benefits happen at different times.

So I'm not saying that everybody has to learn all the nitty gritty details of finance, but you do need to understand at least at a conceptual level what goes into making a good decision and why quantities are important in that, not just qualitative arguments. Now, on the other side, and that's the other side of the communication challenge, I think it's important for quantitatively oriented people to translate their insights into plain English.

It is easy to make finance sound completely incomprehensible by using tons of jargon and acronyms, which is really unnecessary as far as I'm concerned. I think a very large part of teaching, say, the core finance class is to make people familiar with the jargon and really show them that once you translate this jargon into plain English, most of these concepts are really quite simple.

That's so powerful what you said. I mean, both sides of the interaction in any communication need to speak the same language. We need to avoid jargon. We need to make sure that the terms are something that both understand. And we have to take time to learn the perspective of the other, what's important to them.

I think it's fantastic that two professors of finance have said, you know what, we need to speak just in plain English to help people understand. So thank you for that. Thank you. Now, speaking about how we think about things, Jonathan, I know you have spent a lot of time thinking about how we think and even further, how we go about teaching others how to think better.

What thoughts do you have on this particular topic that you can share? Well, this is going to be an important theme of a podcast. It's pretty easy to talk about best practices, but putting them into practice is really another matter completely. Right. We are emotional creatures and our emotions materially affect how we make decisions.

For example, we learn best when we make a mistake and recognize that we have made the mistake. But for most of us, it's really difficult to admit that we made a mistake. So an important part of teaching is understanding that emotions often stand in the way of learning. Of course, I do this myself all the time. That is, I let my emotions get in the way of learning and growing.

Now, the best way to teach something is by modeling. So part of teaching is making sure to model the behavior. So admitting that when you make a mistake and showing students how you can learn from your own mistakes. You know, when I do make a mistake in the classroom, I'm always very careful. I try to be very careful to be completely upfront about the mistake, how

how I made it so students can see. Nobody knows the material perfectly, and it's through the mistakes that you really get this deep understanding. I think the notion of how emotions affect us in almost everything we do is critical, especially when it comes to the way we think. And modeling is so important and the willingness. And I really, I strive to do the same thing you do, that when a mistake is made to acknowledge it,

to learn from it and to help others feel more comfortable not only taking the risks they need that might lead to mistakes, but when they make the mistake to acknowledge it and learn from it. So that's really important information and I think can help us all and not only in our decision making, but in most of our interactions. Given the wide variety of topics you both teach and study, do you have any last best practices, advice or frameworks you'd like to impart to us?

Well, you know, I have strong views about teaching and education. You know, I think that the way we go about educating is really an historical accident that was constrained by the technology that we had for most of human existence. But the fact is people do not learn at the same pace, nor do they learn the same way. So our traditional way of learning where we teach everybody at the same pace and the same way, I don't think is that helpful.

I also don't think we learn by being lectured to. Really, the way human beings learn is by doing. So, you know, I changed the style that I taught about a decade ago. And I guess with the colloquial name for how I teach is the flipped classroom. Students do the homework and read the book before the lecture. And in the lecture, we practice by working problems.

So I'm trying to teach by doing. This notion of flipping the classroom that where people do the work in advance so you can actually engage in the material in person is a great tool for teaching. But I would also argue in business settings and business meetings, the same thing applies. Instead of doing updates where all you do is recount information, have people do that on their own time in advance. So when you come together, you can collaborate, discuss and decide. So

The notion of a flipped classroom, which I think is very powerful for education, I think also applies in the business world as well. One way to learn the quickest is by teaching. Yeah.

And so you can take the flipped classroom even one step further. So in the last semester that I taught, what I did was on the last class, I had the students teach the material to the class. Brilliant. So in that way, they had to formulate in their own words what they thought the most important things were that they learned throughout the semester. And I had a very good experience with it. I would recommend it. So there's actually a teaching technique, Jules, that is based on what you just said. It's called a jigsaw application.

or a jigsaw puzzle where you actually empower people to teach each other. In other words, they're each putting a piece together of the puzzle so everybody learns from each other. And you're right. I've experienced this in my own life. You really learn something when you have to teach somebody else how to do it or how to think that way and empowering others to do that. And again, not just in an academic classroom setting. I think this applies to how we run meetings, how we run teams in the business world as well. So thank you for that insight.

Now, I know your podcast ends a little different than mine, but I'm hoping you're willing to answer the same three questions that I ask every guest on this podcast. Are you guys up for that? Of course. So, Jonathan, if you were to capture the best communication advice you ever received as a five to seven word presentation slide title,

What would it be? Keep things simple. Oh, I love it. And I love how simple that was. You only used three words. I gave you five to seven and you only used three. Talk to me a little bit more why simplicity is so important. First of all, I would say all complicated concepts actually have a simple core. And if they don't, there's probably something wrong. But the other thing is people don't learn complicated concepts. It's too difficult. We only learn simple stuff.

So, you know, if you think you're going to get up there and explain something very complicated to somebody and they're going to walk away and learn it, you're just fooling yourself. So, and obviously simple is relative. You know, what's simple to a theoretical physicist in physics is different to what's simple to me. But at every level, you have to keep it simple. If I can add to that. So I think it's important also for groups to set a culture where simplicity is rewarded.

I think that there are certain settings where overcomplicating things, people think that it makes them sound intelligent and makes them look better. But I think in the end, nobody has helped with that approach. I absolutely appreciate what you both are saying. And I think it's really cool that you think this way too, because...

If you can simplify something, and to me, I like to use the word accessible maybe more than simplify, but if you can make something accessible, take it down to the most basic elements, you can really help people learn. And what it requires from your perspective is

is you really have to think through what the other person knows and needs in order to get it to that simplified, accessible point. So it's not just about saying it as simply as possible. It's really about the thought process beforehand that helps you do that. So I love keep it simple. Now, let me ask both of you this question. Who is a communicator that you admire and why? And Jules, why don't you go first?

My favorite communicator is Keith Jarrett, who is one of the best jazz pianists in the world. And he doesn't even need words to do it. I think that there are things that music and particularly improvisation can communicate that no other language can communicate. I am a huge fan of improvisation. We've spent a few episodes talking to experts on improv. And I think you're right. Those who have the ability...

to put things together in the moment can communicate in ways that are just fantastic to participate in as an audience. And be it spoken or playing the piano, it's fantastic. Jonathan, I'm curious, who do you admire and why? Well, I mean, I wish I had as great an answer as Jules. I mean, I think Michael Lewis is a phenomenal communicator. I think he can take pretty complicated concepts and make them very simple and communicate them very effectively.

Jules, our final question for you. What are the first three ingredients that go into a successful communication recipe? So I would say the first ingredient to effective communication is listening. So unless you have at least some basic understanding what the person you're talking to is thinking or often, particularly in the educational setting, struggling with.

what you're going to say is not going to arrive. So you first have to figure out what is going on in the head of the other person. So that's ingredient one. I would say the second ingredient is the one we just mentioned, which is simplicity.

I think that there are certain academic fields that seem to go out of their way to say things in the most complicated way possible. And I think this just serves as a barrier to entry for people not belonging to the in crowd. But in the end, it doesn't help either the people in the out crowd, but also even the people in the in crowd are not helped. Because if you want to get new ideas...

New ideas are very rare. And to get new ideas, you need a lot of people to engage in the conversation, particularly qualified people. So why would you put up barriers to entry, particularly in language, to keep people out? I don't think that's effective. And then finally, the third ingredient, I would say, is also, again, in an educational setting, is humility. And what I mean with that is

In the end, I think it's important to take yourself out of the equation in the sense that in the end, the only measure of success that you have as an educator is how much more the students know or have learned is even a better way than just knowing, have learned at the end of your course. The rest is irrelevant. The idea of listening and being clear, accessible and simple, very, very important is

But the last point about humility, I think, is fundamental. And not only is it in education, but just I think in all communication, it's not about you. It's about the people you're speaking to and what they can do with the information you're providing. And that understanding is really critical. You know, Jonathan and Jules, I knew this was going to be fun and exciting. Thank you so much. You've provided us with so many insights and so many ideas to help us make better decisions.

I encourage everyone listening to listen in to their podcast, All Else Equal. Best of luck to both of you and congratulations. Thanks so much, Matt. Thank you very much, Matt. It's been a lot of fun. Thanks for joining us for another episode of Think Fast, Talk Smart, The Podcast, produced by Stanford University's Graduate School of Business. For more information and episodes, visit gsb.stanford.edu or subscribe to our show wherever you get your podcasts.

Finally, find us on social media at stanford.gsb. Hi, Matt here. Quick question for you. When was the last time you took a step back from your daily life and took the time to invest in yourself and your education?

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