Kedrosky: So how do you typically respond to being wrong? Do you think you're good with this whole “wrong” thing, or is it like everyone else? You struggle with it?
Schulz: Well, I don't think I started out terribly good at it and I would say I've gotten both much better and also not as much better as I wish I had. You know, I started out as a relatively stubborn, opinionated person, probably not out at the very far extreme end of that spectrum, but able to hold my own in a contentious argument. And I suppose that's part of what got me interested in the idea to answer your first question. You know, I recognized in myself the impulse to be right and the desire to be right and, you know, I would say that I am still a stubborn, opinionated person. That hasn't changed. I have a lot of convictions about the world and, you know, I should say that in no way is this book an argument against having convictions. I think it's important to have strong, although also thoughtful, beliefs. What has changed for me is that I'm much quicker than I used to be to step back and say, “You know what? I don't know what I'm talking about.” Or, “I could be completely wrong here.” And that's actually been really liberating.
Kedrosky: So as you've – well, why don't we start – let's go to the, right in the sort of the meat of the book. So sort of summarize in general sort of the argument is that there's huge merit to recognizing that, you know, we're all prone to being wrong, we're wrong all the time, and if we were better at recognizing it and sort of getting to the other side and learning from it, we'd be much, you know, I suppose, better people in many ways. But sort of summarize for me sort of what the thesis is here.
Schulz: Sure. I think you just did a nice job, although I would add that I think aside from just needing to sort of learn to cope with it, there's actually, I saw some very wonderful things about being wrong. But in essence, I'm writing against what I think is our default cultural attitude toward being wrong, and that has kind of two components to it. One is I think that most of us think of being wrong as this kind of rare anomalous experience that just drops into our life out of left field. Whereas, I argue that, no, actually this is something that's quite common in both within our individual lives and as a culture. And as you look back over history, it's not escapable. It's fairly omnipresent. And second, I think most of us tend to think of mistakes as sort of embarrassing and humiliating and in some way an indictment of our overall intellect or memory or judgment or even our moral worth. And here again, I say, no, no, that's not the case at all actually.
Kedrosky: And I think that's really interesting. And I got to thinking about it after I read it. You've got a wonderful series going on on the Slate website called “The Wrong Stuff,” I think. I may have gotten that wrong.
Schulz: No, you're, no.
Kedrosky: Okay. And it's been just a wonderful series of interviews. And the one that – there's been a couple that have really caught my eye. One was with the hedge fund manager and – well, intermittent hedge fund manager and columnist, Vic Niederhoffer who is a fascinating guy and it sounds like you had a truly entertaining series of e-mails back and forth getting the thing together. And the other one who I thought was really interesting was Ed Viesturs who is an Everest climber, a high altitude alpine climber. And maybe just to start with that one, I thought he had a really, a comment that caught me by surprise and I wondered if you thought about it in the context of the book. Because you asked about some of the many fatal mistakes made on mountains every year and he made a comment that, you know, one of his worst mistakes was one that actually didn't turn out to matter because they went ahead up and they came down and they survived. And you said, you know, this doesn't sound so bad. You made it down safely after all. And his comment was, “Yeah, but a mistake is a mistake even if you get away we think.”
Schulz: Yeah, I have to say I was so thrilled that he said this because it's such a nice and also such a vivid encapsulation of a very basic, but I think overlooked principle of what I call in the book “wrongalogy.” Most of us, I think, tend to assume that a good outcome means we had a good and reliable process, and likewise that a bad outcome means that our process was bad. And unfortunately, that's not actually the way life works. You can hit on a, you know, a great discovery or a great solution or a correct answer or you can get safely down a mountain and still have done innumerable, stupid, stupid things along the way.
Schulz: Likewise, things cannot work out and yet your fundamental process was sound. I mean, statistics is a great example of that. If you are, say, a card player and you're dealt a hand of blackjack and you know exactly what your odds are and you know that the statistics dictate that you should keep going, some of the time you're going to lose. But was your process bad? No. Your process was totally statistically sound, it's just you can't always, you know, bank on the immediate outcome.
Kedrosky: Yeah, I mean and this idea that, you know, and vice versa, that you – sometimes your process can be bad and you actually win. You can go in the with the wrong cards and the wrong estimates of probability and you actually survive it all and so you don't get that immediate feedback that tells you you were wrong.
Schulz: Exactly. And as Ed Viesturs points out in that interview, you know, it's gravely dangerous to not get that feedback and to assume that because you got away with it this time, you can try it again or probably you did everything fine and he, of course, is such an interesting person because he's in a situation where literally his life is on the line in terms of how he thinks about error and the margin of error in that situation is very, very slim. And I think that point that mistakes are mistakes even if they don't have any immediate consequences is completely crucial, yet for most of us very easy to overlook.
Kedrosky: So let's cross over to the other, the Niederhoffer interview for a second, who is a fascinating polymath in many ways, I think. An entertaining guy. But, you know, he's in the financial domain where you're constantly getting feedback about your decisions, telling you whether, I suppose, in the short term anyway, whether they're right or wrong or at least, you know, something – there's no doubt about what's happening I suppose in some level. And he had a bunch of sort of interesting comments, but, you know, he talks about kind of, you know, embracing in many ways being wrong, that he's desperately, desperate to find out he's wrong. Is that something, that trait, you think is unusual in the sense that this is something that's maybe unusual to people who operate in domains like finance where, you know, the penalty for not finding out you're wrong as quickly is very high.
Schulz: I think in general, yeah, the characteristic of being curious about your own wrongness is a pretty rare one, which is too bad because it's a really invaluable one. I think some of our best and most interesting and most innovative thinkers are the ones who do as a matter of practice ask themselves, “What if I'm wrong here?,” or, “What might I be wrong about right now?,” or, “What could I change my mind on?,” or, “What's the counterevidence?” We don't get that kind of thought process very often and especially, you know, strangely I think we don't get it in, for instance, the financial domain, even though as you say the stakes there are very high. And yet, there's also I think a real culture of confidence and it is a prediction game. And so, although you're right, but in the sense there's a feedback mechanism, you know, if you make an investment and it doesn't pay off, in theory you've learned that you were wrong. And yet, because, in a sense, the goal is just to be better a little bit more often than anyone else, any individual piece of negative feedback can really be written off if you choose not to look too closely at it.
Kedrosky: No, that's a great point and I think that's very true. And again, the same problem exists where my whole process could have been wrong and I still get this gigantic financial payoff. You know, people right now, you know, going on and on and about John Paulson who was, I don't know, made a “terabillion” dollars of money by going short against the subprime mortgage debacle. But, you know, the point being that A), you know, subsequently, he hasn't performed nearly as well, and B), many people made the same bet as he did. They just made it a year earlier and so, you know, they were right, but they were wrong. And if he had made the same bet a year earlier or a year later, it wouldn't have turned out nearly so well. And it was really chance that he timed it as well as he did.
Schulz: Right, exactly. And in fact, you know, if you look at the kind of chatter about rightness and wrongness in the financial domain, you still often hear what I think of as the timeframe excuse. You know, “Oh, I was right, but I was ahead of the crowd.”
Kedrosky: Right, yes, that is a classic. The other comment I like from the Niederhoffer interview which was fun and maybe partly because I'm a squash player. Maybe I'll get you to summarize it if you can remember the story. But it's something to the effect that it was a mistake, I think he said to you in an e-mail or something like that, that he played a flawless – you know, he's renowned as a wonderful squash player – but that it was a mistake on his part to play a flawless squash game. Do you remember that comment of his?
Schulz: I do and I remember it in particular in fact because it struck me in the initial e-mail and then I followed up with him in the interview because I found it so intriguing. Here's a guy who was for ten years the reigning amateur squash champion, I think, in the world. So by all outside appearances, he was actually doing everything right. And his take on it, interestingly, was that he should have – he was doing everything right and that it was a problem. That he wished that he had been a riskier squash player and instead he chose every time to make the most conservative choice he could make in a given play, in a given game, and that he feels that ultimately it kept him from really raising his game to the next level. Now who knows what that next level might have been given how successful he was. But it was particularly interesting in that here's someone who has made incredibly risky choices in his capacity as a hedge fund manager, and yet played a very, very conservative game of squash. And it was interesting to hear him compare those set of decisions. I had tended to think that someone who is going to be risk averse is going to be risk averse across most domains of their life and someone who is super aggressive is going to be aggressive across most domains. And he essentially said, “No, you know, I got it backwards. I should have played a more conservative game as a hedge fund manager and a riskier game as a squash player.”
Kedrosky: Which was really interesting. I mean, it was, as you say, it was a complete inversion of, I suppose, what you might expect and he wished very much that he had managed to flip it the other way around and play, I suppose, invested like he played squash.
Schulz: Well, I mean, you know, for starters, however big of a risk you take on a squash court and no matter how high you've risen through the squash ranks, quite frankly, the stakes are just never going to be as high as the stakes of a risky decision in your financial life. You know, maybe you'll miss that point. Maybe you'll lose that game and maybe you will even slide in the standings that year. All of those are recoverable and none of them have a terrifically major impact on your overall life. Whereas, if you make a risky financial move and blow up your hedge fund, well guess what?
Kedrosky: Right. Right. Lots of consequences.
Kedrosky: The other kind of interview that I thought was interesting from the Slate series and then we can jump back to the book, is you had one with, it's the Kitchen Confidential, Anthony Bourdain, who was another interesting character. But just the idea, you know, I hadn't really thought of wrong in the context of cooking, but I guess I should given how bad my cooking is. But the comment, I think the quote was and I may have this one incorrect, but it's something to the effect that, “Good eating is all about risk and risk means the chance that something could go badly wrong.” And how did he respond? You asked him about that in the context of the discussion and did that have resonance with him?
Schulz: It did in fact. You know, I think he's someone who is, you know, he cooks and eats the way Victor Niederhoffer, you know, makes financial decisions. He's very interested in risk. He's not daunted by the possibility of failure, of things going wrong. And he essentially felt that, look, if you're going to have a really spectacular experience or have the chance of having a really spectacular experience, you've got to do things you haven't done before and you've got to try new things, and are some of them going to turn out a little bit unpleasantly? Yes, of course. On the other hand, if you don't take that chance, you're not, you're never going to put yourself in the path of a really transcendent and amazing experience. And while it may seem like a kind of small or the odd point in the realm of cooking, unless you happen to serious foodie, I think it applies in life in general. And one of the things that I really enjoyed talking to Tony Bourdain about was his experience traveling because I think he's had the same experience there where, as someone who now because of No Reservations, his TV series, travels all over the world, he's found that, you know, one of the most kind of overarching characteristics of life as a traveler is you just get things wrong all the time because everything is new, you have no idea what you're doing, and yet that experience is offset by so much novelty and excitement and learning that it just seems intrinsically really worth it.
Kedrosky: I like that perspective a lot. And you kind of took it in an interesting direction when you asked, you know, something to the effect, you know, your life, being wrong about how your life was going to turn out and this was a guy who I think many people don't know this – but I think he was, you know, really kind of a, how shall I say it, dissolute at one point and looking like things weren't particularly going anywhere interesting other than maybe to a, you know, long term care. And that he turned out to be completely wrong. But it's an aspect of wrongness that I just found really rich. Did you, did you get into that with more people than him or was this just sort of something you came up with sort of ad hoc in that conversation?
Schulz: No, it's something that I've thought about a lot. You know, I think – I like the category of wrongness because I feel like there's many, many things that fit into it that we don't tend to put in it. We have such negative associations with the idea of being wrong that we tend to throw anything out of that category that seems like it has any positive effects on our lives at all. And one of the things that I've thought about a lot, and this gets back to the Bourdain interview, you know, I think that quite a lot of wrongness really just looks like growing up. You know? We have a set of beliefs about the world and then something happens, we move, we make a new friend, we get a job, we lose a job, we fall in love, we get our heart broken, and our whole operating theory from five minutes or five years ago just fell apart. It doesn't work anymore. And that experience is very much an experience of being wrong and it's the engine I think that drives most of us forward in life and helps us learn and grow up and become adults. And I think that, you know, again Anthony Bourdain, great example, here's a guy who, you know, yeah, dissolute is a nice way of putting it. He was a heroin addict. You know? Who was kind of …
Schulz: … at various points desperately looking for a job in any crummy kitchen in New York City and now he's this internationally famous, you know, multimillionaire celebrity and he was radically wrong about his life and lucky for him, he was wrong about it in a really good direction. But I think in lesser ways, all of us have that experience just inevitably as part of, you know, growing up.
Kedrosky: I really like that point and it's something that only kind of caught me as I was reading that particular piece I think. And this idea that, you know, in many ways, your entire life becomes a framing exercise in rightness and wrongness and that this whole maturation process becomes one of, you know, how do I deal with finding out that I'm wrong? I'm just wrong about how I thought I would be and where I thought I would be and what do I do in response to that realization?
Schulz: Right. And I think that for many of us at least, you know, often in the moment, those experiences of being wrong about our life are quite difficult. You know, probably everybody listening to your podcast is old enough, for example, to have gotten their heart broken. None of us welcome that experience. It's horribly traumatic at the time. And yet, you know, many of us also go on and create entirely new lives. We, you know, move and live in some other part of the country or some other part of the world. We take up a new job. We meet somebody else. We have beautiful children and that experience that in the moment had been one of really having to relinquish an entire vision for our future and start from scratch becomes, you know, a moment that we're incredibly grateful for in retrospect.
Kedrosky: There's a great series of – there's a book actually and I've referred to it previously on this podcast. It talks about, you know, the Challenger launch decision and the crash of the space shuttle Challenger and there's this notion that a sociologist, Diane Vaughn, sort of proposes in that book about this kind of normalization of deviance at the response of engineering cultures to error. And her point is that this idea that rather than saying we were wrong, we just sort of, we say instead, we sort of expand the launch envelope. We launch at progressively lower and lower temperature conditions and we normalize the abnormal. We normalize deviance. And it's this propensity of engineering and science driven cultures. And I wonder, you know, to sort of build out from that, I wonder as an increasingly science – I won't say science, that's probably wrong – technology centric civilization where we realize so much on the fruits of technologies if that's not sort of increasingly endemic, that we have no idea anymore and we just sort of, if something works, well then it must have been okay.
Schulz: Well, I suppose it depends on whether you're talking about the designers or the users of that technology.
Kedrosky: No, the users. The users. I'm thinking of us poor beleaguered user more than anything else.
Schulz: Well, you know, us poor beleaguered users, I think the question of how technology is changing our relationship to being wrong is a really fascinating one. Certainly, I think that we do, as you were just suggesting, I think kind of often base our judgments about what works or what's successful off of outcomes. That's sort of what we were speaking about before where you pay attention to the outcomes instead of the process. And I think most of us, you know, we're living in a – we're increasingly reliant on tools that we don't understand. You know, I'm speaking with you over Skype. I don't have the first notion of how this is happening. It's a complete mystery. In fact, even if I were talking to you on, you know, Alexander Graham Bell's own telephone, I wouldn't understand how it works and this is both an intrinsic part of life and increasingly a part of modern life and a real conundrum when you think about wrongness. And I don't know if this is the direction you wanted to go, but what it makes me think about is the way that we are intensely reliant on the knowledge and expertise of others. And that's a really wonderful thing. Right? It's why I'm able to talk to you right now. On the other hand, it means that we need to choose our experts with care. Right? And we need to allocate our reliance with some eye toward do we trust this source? Do we trust this technology? Do we trust this person? Because essentially, you know, when I line up behind something and say this is right, increasingly it's not my own empirical knowledge that's enabling me to say that. What I'm really saying is I think you're right and therefore I stand behind this.
Kedrosky: You were writing this book, obviously – it just struck me that you were writing this book as this kind of, you know, global financial meltdown was happening and, you know, most of modern economics was in a sense being proven, if not wrong, irrelevant and maybe a little of both. I'm wondering how did that sort of filter in and, if in any way, kind of influenced the way you thought about it or did it?
Schulz: It was great. You know, the thing about wrongness is it's like it's the subject matter that keeps on giving. You know, I mean, I started this book at a moment or shortly after a moment when there was the whole weapons of mass destruction crisis and then sort of midway through the book there was, you know, Bernie Madoff and the financial crisis, and you know, then I finished, then there was BP and the oil spill in the Gulf. And you know, for good and for ill, and of course, in the case of those particular examples, largely for ill, getting things wrong, including on the catastrophic level is, as I said, really an inescapable and inevitable part of life. In terms of the specific impact of the financial crisis on the book, you know, it was very fascinating for me because it happened to be unfolding at a moment when I was really thinking extensively about belief and how we construct belief systems because I do strongly believe that in order to understand error, you have to understand belief. You know, when we're wrong about something, we're always wrong about a belief. So the question becomes how do we construct our beliefs? You know, where do they come from? What use do they serve? And economists are such an interesting example of this for several reasons. One is that they are engaged in the business of very deliberately creating models in the world which is essentially what a belief does. So it's interesting to, you know, watch what happens when one of their models implodes. It was also interesting to me because economists, historically, have had a kind of sideline in, I don't want to say mocking, but in sort of kind of intolerance for the presumed irrationality of others as if economics was a domain that was somehow immune to all of life's [inaudible] that the rest of us fall for. And then suddenly we have this situation where lo and behold, you know, the most entrenched and wanted economic beliefs of our time just, you know, crumble out from underneath everybody.
Kedrosky: Yeah, I mean, watching that happen, as you say, it does become the, wrongness does become the gift that keeps on giving. As you sort of look around the, and you mentioned a couple of examples like BP and others, sort of the business and economic landscape, it strikes me that, you know, as much as you would think that business in particular would be eager to embrace its wrongness because being wrong comes with high costs, it's at least my sense that's not often the case. As a matter of fact, whenever, you know, companies are wrong about something, they're generally ridiculed for having been wrong. I mean, look at poor Microsoft that hasn't yet, I think, overcome its Microsoft “Bob” adventure.
Schulz: Right. You know, I have slightly mixed feelings on this one. And I'll share kind of both of my sets of feelings because I'm sort of newly coming to the mixed feelings. My initial or my baseline sense has always been the one you just articulated, which is that outside of politics, which clearly has the most dysfunctional relationship to being wrong of any domain of life, that business was really a close second and in part because business leaders were and are subject to some of the same forces that I think keep political leaders from being honest and open about their mistakes. I think this is a really widespread phenomenon within business, this sort of impulse to deny or downplay or get defensive about or simply kind of outsource the errors. You know, blame them on somebody else. There's no question that that happens and that it's really widespread. The reason I'm sort of pausing in that judgment right now is that I've been on the road talking about the book since it came out and I've been really surprised by the appetite for talking about wrongness within the business community. And it has led me to suspect that whatever is going on internal to that culture is a little bit more complex, that there are people and there are companies that really deeply recognize that, you know, a kind of better and healthier attitude toward error is profoundly productive, including for the bottom line. And at this point, my baseline sense is that it's really cultural, but at the micro-cultural level. You know, like what's Google like versus what's Microsoft like? It's really that specific.
Kedrosky: Yeah. And that makes a lot of sense. I mean, because certainly in some of the large organizations that I run into, you know, one of the great fears at the sort of the most senior levels of the organization is that information that would tell them they were wrong actually never makes it to the CEO. It's just not in the interest of their hired hands, if you will, to push that information higher because, you know, it's career threatening and it's potentially a liability and so it's always this question of how do I find out I'm wrong if no one will tell me?
Schulz: Yeah, exactly. I think one of the real problems that corporate leaders and political leaders as well succumb to is what I think of as the “yes man” problem. You know, at that point when you are, when you wield so much power it is easy to surround yourself intentionally or just by failing to be very proactive about, you know, kind of changing the situation, it's really easy to surround yourself by people who are just going to affirm all of your own beliefs because they think that's what you want to hear. And maybe it is, although it's certainly not going to be good for you when your company, I mean, …
Kedrosky: Right. Or at least not for a long time. I mean, and something similar, I mean, at Kauffman we spend a lot of time on sort of the entrepreneurship side of things in terms of this whole question of being wrong. And in many ways, you know, one of the points that I like to make to people is that the reason why it's not that interesting when someone has a first time company and they're successful as an entrepreneur is because there's so many reasons, there's so many reasons you could have been successful despite everything having gone completely awry and then to discover that, you know, if they're sort of a serial entrepreneur, then, well you've got a little bit of a, a little larger in terms of having demonstrated that this wasn't just a fluke the first time. And it's remarkable how many people having been successful once, you know, assume that they've sort of got all sort of adult omniscience with respect to starting young companies and doing this stuff over again. And they go out and they try and they blow up.
Schulz: Right, exactly. Because I actually think one of the really sort of crucial lessons we learn when we think about wrongness is that, you know, replicability is a tricky thing and it's very often an illusion. The notion that because something succeeded in context x, it will succeed equally well in context y. Or, that something that works on one scale will work on another scale is often misleading. And so I think to get someone who really can consistently generate good ideas, typically that person is going to be someone who is tremendously responsive to slight variations in environment and who, you know, I think is just a little bit addicted to ideas. You know, instead of kind of wanting to keep doing the thing they've just done, actually gets really curious about what's the next thing down the line?
Kedrosky: Yeah, and maybe as a way of kind of taking that and sort of wrapping up the conversation, I mean, I'll confess up front. I'm a huge fan of Being Wrong. I mean, I actually look for and try to find ways all the time where I'm wrong. I remember back in grad school, I was fascinated with Karl Popper and falsification and everything else. And one of my favorite quotes is a great one from the physicist, Neils Bohr, which is, you know, “Tomorrow's going to be wonderful because tonight I don't understand anything.” And he was talking about having attended a lecture and being completely confused and having his whole world turned upside down. But rather than that being a dismaying experience, it was a wonderful experience because it meant tomorrow he was going to have – suddenly his whole world was going to make a whole kind of new sense. I think that's a wonderfully rich and liberating way of viewing the world and maybe I'm wrong. But how do we get people to the point where they feel liberated to be wrong?
Schulz: You know, I think it's a great question. It's the crucial question and I think that the quote that you just shared gets at some of it, which is that getting people comfortable with being wrong, to a very large extent, is getting them comfortable with doubt and uncertainty and confusion and surprise. Because I really think oftentimes it's not just the actual error or the actual collapse of a belief that freaks people out, it's where they're left after that. You know? It's, wow, now I'm here in this sea of confusion and I don't know where I'm going and I don't know where the solid ground is and instead of seeing that as an opportunity to rethink the world and that kind of Neils Bohr moment of, “Wow, tomorrow the world will look totally different because I don't understand tonight and something new will come out of it.” I think that's a really great and admirable attitude, but I think for many people, it just feels very scary.
Kedrosky: Well, I was hoping more people are less scared and more compelled in feeling, and at least knowing when they're wrong. But that's a great note to end on. Thanks very much for doing this, Kathryn. I appreciated this. It's a great book and a wonderful topic.
Schulz: Thank you so much. It's been my pleasure.
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