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05 2013

Tim Harford, Author of Adapt

Syndicated from: Box of Crayons

I’m talking today with Tim Harford, who’s something of an expert on financial matters. He’s a writer and senior economist for the Financial Times. He also wrote The Undercover Economist, a book that has sold gazillions of copies and has been translated in multiple languages. Tim’s latest book is called Adapt: Why Success Always Starts with Failure. It’s more thoughtful and subtle than most business books, so I think we’re going to have a great conversation on the matter. In this interview, Tim and I discuss: The role of failure in financial success Systemic risk in financial structures and the importance of decoupling Why specific feedback is more beneficial than positive feedback The concept of acceptable loss How managers could benefit from a more entrepreneurial mindset Why some mistakes are “good” mistakes  (Scroll down for more in-depth podcast notes.) Listen to my interview with Tim Harford. 0:03:34: Tim introduces error correction is an important skill, and shares his concerns about the fundamental safety of the financial system. 0:05:00: Michael reiterates the Palchinsky Principles, as outlined in Tim’s latest book: you need to try new things and expect to fail; you need to make that fail survivable; and you need to know when you fail so you can move on. Tim explains that the economic crisis was a result of failing to live by all three of those principles. 0:06:40: Tim touches on systemic risk in the financial system, explaining that failure isn’t very survivable when there’s a lot of leverage involved. He and Michael note that failure is often delayed in finance, creating a false sense of security. Michael points out the importance of decoupling to avoid building everything on a shared foundation and creating a financial “house of cards.” 0:10:01: Tim suggests that people don’t always recognize their own failure because they aren’t given good feedback. He notes that specific feedback is more important than positive feedback. 0:15:10: Michael and Tim discuss how different companies navigate failure and success, and agree that it’s possible to takes risks and affect change at any level of an organization, without completely altering the company’s management structure. Michael points out that successful entrepreneurs focus on acceptable loss rather than expected payoffs, and suggests that managers would benefit from adopting a more entrepreneurial mindset. 0:20:07: Tim notes that sometimes the person who appears to be making poor bets is actually more likely to achieve success. He and Michael discuss how difficult it can be to distinguish those people from “boozers or incompetents.” Tim explains that failure is a necessary part of success, and points out the value of making good mistakes.

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