Best of Pre-Mortem Analysis: Gary Klein

(upbeat music) I'm Ted Sidies and this is Capital Allicators. For the second year, our summer series will share some of the best episodes of the past, curated from our favorites and yours. You can pull down many of the great ones on our Spotify playlists. This series pushes them to your regular listening feed. Our 2026 summer series focuses on improving the investment process. Over the next six weeks, we'll share 10 gems from interdisciplinary skill sets that will help you level up your investing across decision making, interviewing, storytelling, negotiations, and habit formation. This week's summer series covers the pre-mortem analysis with its founder, Gary Klein. Gary discovered pre-mortems while working with fighter pilots and wrote a white paper applying the tool to investment analysis alongside Paul Johnson and Paul Sankin. 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Randall introduced me to Alex, an AI leadership coaches team built on 40 years of proprietary research into what the best leaders actually do. For investment professionals, that means your entire team gets on-demand coaching, grounded in the behaviors that drive results, and build the kind of ownership that retains your top talent. We use Alex and our team at Capital Allicators Swear Spyet. Try Alex for yourself at the link in our show notes, tryAlex.admiredleadership.com. Please enjoy this discussion of the proper use of pre-mortem analysis and investing with Gary Klein, Paul Johnson, and Paul Sanken from 2019. Gentlemen, thanks for joining me. Nobody wants to respond to too many people in the room, right? It's always a pleasure. Thank you for being here. I know Paul and Paul have been on the show before, so I think it'd be fun given that they were bringing you to the table for this paper we're going to talk about. Why don't you go through your background and areas of interest? Sure. So I'm a cognitive psychologist. My primary area of interest is expertise. How do people become highly skilled? And that started in the mid '70s. And when all of a sudden, the Arab oil embargo hit. And you had all these pilots. I was working as a research psychologist for the Air Force at the time. All these pilots used to fly as much as they wanted. Now they couldn't because Jeff Fuel was too expensive. And so they had to learn in simulators, which they always had considered as toys. But now they couldn't anymore. And so my job is to figure out what is expertise and how do you develop it and how do you develop it most quickly. Had you first get interested in that field? It was a requirement of the job. We had to help these pilots. They were sort of desperate to find out how do we design simulators that are going to allow us to become as skilled as we used to. Of course, we can't fly nearly as much. And what did you find in that? And this will research. So I'll tell you a story. I was doing a project and was down at Tindle Air Force Base. And there were these two fighter pilots, F106 pilots. And we were working on a simulator during the day. And at night, one other evening we went to a bar because that's where they usually went after we finished in the day. And they said, can you ask you a tough question? We're supposed to be developing training. And there's a system called instructional system design. It's very procedural. And takes a task, break it down into the components, and that's the way you teach it. And I said, OK. And they said, we're the ISD specialist for our group. And I said, OK, that's nice. And we're building the IOD specs for how to perform a lot of our flying tasks. And I said, OK. So what's the problem? And they looked around to make sure nobody was overhearing them. And they said, well, we've written all this specs. But we don't follow any of those rules. That's not the way we fly. So I said, OK, just write down the rules you follow. And they said, we don't follow any rules. We just know what to do. And that's what I've been hearing time and time again from firefighters and others. That there's a belief that you just follow rules and procedures for complex tasks and ambiguous situations with lots of uncertainty. There's no set of rules that are sufficient. And an expertise is not about just incorporating all the rules. Expertise is about building tacit knowledge. And that's the core. That's the primary thing that I've learned is how to go after tacit knowledge. We hear a lot about checklists and a tool of one day's checklist manifestos. How do you blend the necessary tasks with the intuition that comes on top of that? Right. And that's an important part, is that it is a blend. And Goandhi comes up with these great checklists. But in the book, he describes how much work it is to come up with a reasonable checklist. And you can't have too many items. You can't make it too complicated. And so there's a real art to coming up with a checklist. How do you blend the other part? You break people out of the mindset that my job is simply to learn the rules and learn the procedures. And a lot of people do have that belief. And you've got to get them out of that mindset and get them into accepting that life is too complicated. And they are going to be encountering situations that none of the checklists are prepared them for. And they better be adaptive and resilient in order to handle them. If we go back then, you're doing this research to try to distill how to help these fighter pilots in simulators. And then you learn that, well, the real way that they do it, the real way they develop practices in their heads, what do you do with that as a conclusion to research? Well, there was no conclusion for the work with the fighter pilots because we were building simulators. So we just had to make the simulators as effective as possible. Now, the fighter pilots in the whole community had the belief you had to make the simulator look as much as possible like the real thing. That was wrong. It doesn't have to look like the real thing. And you don't have to waste a lot of money on that. You have to have really good training scenarios that put people through their paces. And so that was the big aha from that project. But where the expertise work came in was much later when I started studying decision making. And up to that point, there was a belief that a rational decision maker lays out all the options, lays out all the evaluation dimensions, rates, each option on each dimension, and so forth. When's the last time you ever? I mean, people sometimes do it, but it's very rare. and it's not an adaptive strategy, but that's what the field thought was, the gold standard, because the field had mostly studied college sophomores, handling unfamiliar tasks, and laboratory environments, and so the field hadn't studied experts. And so because of my interest and expertise, I was able to look at decision-making and say, where's the expertise here? And that was the formulation for my recognition prime decision model and the discovery we made is that people don't generate lots of options and use lots of standard evaluation dimensions. They use their experience the size of situations very quickly and to identify what's going on, what's likely to happen next, what can I accomplish, and what should I do about it, and then to evaluate it, that's the intuitive part, but there's two parts to the model. The evaluation part was mental simulation. If this is what I think I should do in this situation, let me imagine doing it in this context and see if it works, if it works, I'm fine, if it almost works, I can improve it, and if it doesn't work, then I'll go to the next option in my list. And so we came up with a different model of decision-making, and that's probably the accomplishment in my career that I'm the most pleased with. As you discussed that and looked at different applications, were there areas where it was highly effective, and others where it's less effective? We haven't found many areas where it's not effective, and we looked. We said we're not teaching this strategy, this strategy describes what people naturally do. So we said maybe it doesn't get applied when there's less time pressure, so we looked at non-time pressured situations, we looked at designers, and they still were predominantly using a recognition strategy. And then we said maybe if you don't have much experience to begin with, it's not a strategy you'll use. So we looked at novices, we looked at soldiers at Fort Knox, tank commanders who hadn't really had much experience in tanks, and we said what about them? They were the group we've seen that did not use recognition decision-making. They did look at options. They tried to identify the best option from a set. It didn't help them. They still did a terrible job, but they had no basis and expertise to use recognition strategies. Once you identified that the recognition strategies are the way that people go about making decisions, how did you then study different ways that people can improve their decision processes? That's where it really gets important, isn't it? What can you do about it? And so for maybe 10 or 20 years, we were looking for how do we turn this into training and to preparation so that we can help people become better decision-makers, and we came up with nothing. And it was very discouraging. And then about six or seven years ago, I was exposed to a technique that we call the shadowbox, which is a technique that we've been using it for the last five years, and it wasn't developed by me or my team, developed by a guy named Neil Heins, who's a retired New York Fire Department battalion commander. And he had developed this and the wake of the 9/11 attacks and how do people handle situations that no training could have prepared them for because nobody could foresee them. And the way shadowbox works, it's a scenario-based approach. So I give you a scenario and we walk through the scenario. And then at a certain point, I'd stop and I'd say, okay, Ted, here's four options, what you can do at this point, rank order them and write down the rationale why you rank order them. But it's not just about the options. We may go a little bit further than I'd stop and I'd say, okay, Ted, here's three goals that you could be pursuing. Rank order them in terms of what's the most important to achieve, to the least and write down your reason. Then we might go a little bit further and I'd say, here's five different kinds of signals and uses of information that you might pursue. Rank order which you would go for and why. And on the side, we'd have a set of three to five experts who've gone through the same scenario. They've done their ranking. They've written down their rationale. So after you come up with your ranking, then we say, here's what the experts ranked. And you want yours to match the experts. But more important, you look at what the experts saw. So this is really how to see the world through the eyes of experts. But the experts aren't there because we already collected their data. So we don't have to gather them and schedule them or anything like that. And you see what the experts noticed in the same scenario you read. And you see the inferences they drew and all of the warnings that they spotted and things like that that you just went right past and you didn't notice. So that's how Shadowbox works. Think about how you could revolutionize the Harvard Business School case studies. And it has enormous implications for training, security, analysts. And Ted, you can see why from what Gary's been talking about that I think that and that's why I was attracted to Gary's work because it's directly applicable in so many different ways to the jobs that portfolio managers and security analysts do. You've now set up this framework with the Shadowbox where someone can go through a specific scenario and then have an expert way of assessing it. Is that just a specific training tool for certain scenarios? And where have you seen that applied? Okay, so we've applied it to panel operators and petrochemical plans. We've applied it with case workers doing trial protective services. We've just did a project on systems integration specialists trying to get younger engineers up to speed faster in that area. I'm going to be talking to a hedge fund they're interested in in Shadowbox. So we've applied it in a variety of areas. Interesting. And what are some of the other tools that you've seen along the way? We have a method for cognitive after-action reviews. We've got a cognitive after-action reviews. Right. So it's called cargo, cognitive after-action review guide for observers. And the idea here is a lot of times after a situation after you've had something go well or go poorly, do an after-action review. And frequently the after-action review is you did X and you should have done Y. If you had done Y things would have turned out better. But it doesn't get into the cognitive part. When you chose X, what were you seeing? What were you interpreting? In hindsight, what could you have been looking at? And so trying to get into the person's head to see what they were considering at the moment that they made their judgment and decision rather than just saying X is better than Y. So that's a method that we've been using now. Then there's also the pre-mortem method that we developed gosh about 30 years ago. And it's probably the best known of all the techniques that we're using. What was the first insight in pre-mortems? So let me just tell you what the pre-mortem is. So the pre-mortem is sort of a risk assessment method. And the idea is to try to anticipate what could possibly go wrong with a plan. And when I had my company, I had my research company for about 27 years till I sold it in 2005. And we had grown to 37 people by that time. And at a certain point, we said we have a lot of projects that go well, but not all of them. And some of them don't go well. And we do a post-mortem after it's finished and may help us in the future, but it doesn't help us with the project that that finished. Why don't we try to move that up front to the kickoff meeting? And the analogy would be like in medicine and health care, you do a post-mortem after a patient dies to find out why. And then the physician can discover what killed a patient and let the family members know. So they also gain. And if it's something interesting, they can write it up. So everybody benefits from a post-mortem, except for the patient, of course the patient is dead. So the idea of a pre-mortem is let's anticipate what could happen at the very beginning of the project. So we started doing it with our own projects. We would add this. And it doesn't take very long. We'd added to the end of our kickoff meetings for a new project. And then in around 1993, we had an Air Force customer that wanted us to bleed an effort to build a complex piece of software for them. And there were a number of Air Force engineers and there were other team members who had algorithms that were going to be included in this tool. And we said, okay, at the end of this kickoff meeting, we're going to do a pre-mortem, because we had really gotten to like the method. And our contract monitor said, absolutely not. He hated the idea. He said, it's going to be too depressing. I don't want to do anything that might reduce people's confidence and enthusiasm. And we said, this is the way we do things. You know, you hired us to run the project. This is the way we do it. So we have the meeting. The meeting goes for a couple of hours. And at the end, and we're going to do the pre-mortem. And we said, all right, now let's go through the process. And the way the pre-mortem works is you have a plan. Everybody knows what the plan is. And it's the team that's done the plan and is going to do the execution. They're all prime. They're all ready to spring into action. And if I was doing a pre-mortem with you, I'd say, okay, now, now let's just step back a second. And I'm looking into a crystal ball. And I might sort of imagine there's a crystal ball in the table in front of us all. I'm looking in a crystal And it's now six months in the future, maybe a year. Oh, I don't like what I see. I see a disaster. This plan has failed. It's been a complete and embarrassing failure. And the people on the team don't even make eye contact when they pass each other in the hall. It's been a really big disaster. All right, we know the plan has failed. Now, everybody around the table take two minutes and write down all the reasons why this plan failed. And everybody starts writing madly. And then at the end of two minutes, I stop them. And I say, now let's find out what people wrote. And I go around the table and I start with the project lead to see what that person came up with. And then we just continue around the table like that until we get all of the items that people had. And that was fairly depressing. So we added another step after we finished compiling it, which is now that we've seen all the things that might go wrong, that could go wrong. Everybody take another two minutes and write down what you individually could do to prevent some of these things from occurring. And so people go through that. And that sort of is a mitigating factor. So we did the pre-mortem on this project, this Air Force project. And we got to one person. I think a captain. He was the most junior person at the table. His specialty was information technology. And we got to him. He hadn't said a word during the entire meeting. And we said, what do you have? And he said, well, I'm looking at the algorithms that people are describing and they're really powerful algorithms to do the job. And they run on a supercomputer and they take a day or two. And we're talking about putting this in the field, like during desert storm or something like that, to be used by a history major who graduated from Northwestern and is now in the reserves. And he's now thrust into this job. And at that point, he might have had a 486 machine or something like that. It just won't work. Either the software won't run on that machine. And everybody looked at him and realized how ridiculous the quest had been up to that point. And had we pursued the vision that was the sponsor's vision, it would have been a disaster. And instead, people said, you know, I have a back of the envelope approach that doesn't require a supercomputer. And it's not as good as a supercomputer, but it's like about 90%. And we said, that's what we want. Interesting. So there were a couple of things you mentioned as you laid out how the pre-mortem works. I want to see if you can talk about the significance of it. The first is you said there's two minutes for everybody to go around and write down. Is that just because you just threw out two minutes or just significance to that time frame? Trial and error. When we did this for a number of projects in my company, one minute was leaving people frustrated because people were still writing when they said time is up. When we tried three minutes, a lot of people would be finished and they'd be twiddling their thumbs and we reduced the energy of the room. So two minutes seemed to be the sweet spot. And then you said when people start discussing what they wrote down, the leader comes first. Right. And the reason for that is people don't know how candid to be. And the leader is going to set an example. And if the leader picks something that's frivolous or trivial, that tells people not to take it seriously. So it's really important for the leader to come up with a real problem that hadn't been discussed before. Now, if you are conducting a pre-mortem on the pre-mortem process, what are the things that will commonly go wrong that makes a plan of a pre-mortem fail? Well, that's one of the reasons that I've been writing this piece with Paul Johnson and Paul Salkin. We see people making mistakes. There are ways that the pre-mortem will fail. First of all, if the leader doesn't have buy-in, then the leader will come up with something trivial and everybody knows they have to not surface their prime concerns and choose something that's safer and minor. So that's one part. We see pre-mortem's fail when the person who's facilitating will say something like, "Okay, we've seen the plan. Let's do a pre-mortem. What could go wrong with the plan?" That's the wrong approach. What can go wrong with the plan? That's a typical critiquing approach. You can't say what could go wrong. You say, "I'm looking at a crystal ball. The plan has failed. There's no doubt." That changes the mindset that instead of just sort of musing about it, now you're seeing a disaster and you're now in a mode of what caused that disaster. It changes the kinds of issues people identify. Why is it that it changes it? There is a study from 1989 about perspective hindsight that giving people the perspective of a future situation where something that is counterfactual has occurred. All of a sudden opens up access to kinds of thinking and speculation that people ordinarily wouldn't engage in. And the metaphor I have is like an eclipse. Right now, if we stare at the sun for like quarter of a second or so, it's really bright and we look away. But during the eclipse, and I had a chance to see the eclipse a year or so ago when it happened, when the eclipse occurs in the moon blocks out the sun and you look up and you see the corona. You see all of these trails streaming out of the sun. And it's just gorgeous. And I had these issues I wanted to study during the eclipse and I was just paralyzed by the beauty of it. But it was all invisible because the sun is so blinding under normal conditions. The pre-mortem is a sort of a way of blotting out what you normally think about and your enthusiasm for carrying out a plan. And so you need to cover that up so that these other issues can emerge and become visible. That was what we tried to do in the paper was kind of tie some of these concepts back to research that's been done. But as Gary said, you're reframing the problem and then it's easier to find a reason for why something has happened, why the project is failed as opposed to developing different scenarios of things that might happen. So it just kind of shifts the mindset. It's very nuanced and it's very subtle and that's why we feel as though the pre-mortem is misused because they'll just say, "Okay, what could go wrong?" And they think they're doing a pre-mortem. But just that subtle framing kind of kills the effectiveness. I think there's one more thing that we sort of swept under the rug is that Gary says at the end of the meeting, "You pause, take a deep breath. We're talking 15 seconds." And then you say to people, "We have two minutes to write down why the plan failed and no one has a problem writing down two or three reasons." And that to me is so important because we've given them five seconds to think about it and then two minutes to write and everybody is scribbling things down. So that knowledge is in the group at the tip of their tongue. They're thinking about all through the planning meetings and nobody brings it up. And the pre-mortem allows you to change the mindset as Paul said. It failed. Why did it fail? Then you give them two minutes. And you get to take the number of people in the meeting, multiply that by three. That's how many reasons you're going to get why it failed, none of which were brought up at any point in the planning session. And certainly none of them were brought up in the approval process. For me, the power of the pre-mortem is we're now allowing people to express their concerns that they've had all along, that they've been afraid to bring up. And I think the thing, for me, I think Gary, 100% believe agree with you that if the leader doesn't take it seriously, everybody hides. But the most important factor for me is psychological safety. So psychological safety is the notion that it is safe to say what you're most concerned about. This captain in the example said this just isn't going to run. It would have been very easy for him to sit on his hands and not say anything. And yet if you've given permission, he brings up the most critical issue, change the plan completely. And he hadn't said a word in the whole meeting up to that point. And that to me is the power. We're going to take a quick break in the action to tell you about Ridge Line. Ridge Line makes your day unrecognizable. That's how refreshingly different it is from legacy investment management technology. 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It takes courage for an organization to say, "Okay, let's do it," but organizations have learned to trust us and they've seen the results of what happens when we describe other pre-mortems that have occurred, like the story that I told you, and they said, "We want some of that." But you're certainly challenging a culture, and a culture of intimidation, where people don't like to speak up because of the issue of psychological safety. One of the benefits of a pre-mortem is it starts to change a culture from a culture of hiding to a culture of candor, where we've been able to voice these concerns in a safe place because, you see, if I run a planning session and I say, "Okay, does anybody have a problem with our plan as we're getting ready to implement it?" We've just built a plan. It takes a lot of courage to say, "Well, here's why I think the plan isn't going to work it," essentially means we're all idiots, or we've been wasting our time. So that's really hard to do, and people don't want to do it. On the other hand, with a pre-mortem, the contest is to see who can come up with the most clever and worrisome issues that haven't been discussed at the time, so the whole incentive system changes, and now people are competing with each other to come up with really insightful problem areas that haven't been voiced before. It's amazing to see how it happens. And I think that subtlety, and I think what Gary just said is really important, is none of us really like counterfactuals. I've learned on your podcast many times that the counterfactuals are your best friend, as any duke likes to say we're trying to get to accuracy not to being right. Well, if I'm in a meeting, and there's a lot of momentum, and everybody's excited, and I raise my hand with a counterfactual, I'm really putting myself at risk on many levels. I may be wrong on top of it. This is a concern I have, we should probably address. But if it ends up being a wild goose chase, now listen, I've exposed myself. The pre-mortem, you flip that, now we're going to have a contest who can be the most clever, the most insightful, who can come up with the most serious risks that we've not talked about. And what I found when I've run my pre-mortem, so that little subtlety is shockingly powerful, because people all of a sudden now it's no longer a career risk. It's sort of like, oh, how clever can I be? How insightful can I be? This is how you show off. Whenever I read about, whether it's in your paper or Gary's story about this, fire pilots, it's always the introverted person who doesn't speak up, who seems to have the insight that's the mind-blowing insight. So how do you get that person in the room to consistently be part of the discussion? Well, that's another part of the rhythm of a pre-mortem, is that we go around the table and everybody gets a chance. Not only gets a chance, has to come up with something and is expected to. And so that's a part of it. There's also a structure that, as I go around the table, I say, okay, Ted, what's the top of your list? And you tell me what you have. And then I'll say, Paul, what do you have on your list that Ted hasn't already covered? And we do it one at a time, one item at a time. So you don't get to give your entire list. And there's some dynamic in some groups where people who are extroverted rather than introverted, they want to take more than there are a lot of time. They want to be able to tell you their whole list, they want to sort of go on. And that's not going to work, because everybody else is waiting. And so this is a way of controlling them and giving everybody equally. There's a great democracy in the group. The force democracy has to vote, which gets that introvert to actually say something and often a very good insight. Is there significance in the process to writing down that first response as opposed to it being an open but person by person verbal session? It's too easy to say, yeah, I thought of that or just not to keep track of what you had considered. So this really forces each individual to go on record, at least on the paper in front of them and write down what their ideas were. You also get the production blocking and that people if they don't write it down, they'll forget. So it's a lot in the kind of science that there is importance to writing it down as well. There's one more issue here by having people write it down than they're each working independently. So I'm not influenced by what other people are saying. These are just my own ideas. Are there any other features of the pre-mortem that are kind of essential to making it work work? What we've done a lot of work on is the wisdom of crowds and cognitive diversity. And we think that if you think about an investment committee meeting where they're discussing a stock idea, you have senior people and you have junior people. And the junior people, like fierce stifles, ideation. So they're afraid to say anything because they've only been there for six months and the portfolio manager has been there for 20 years. And as Paul said, they could be wrong and they don't want to look stupid so they keep their mouth shut. When you think about all of the money that firms spend on that talent, it's wasted because there's a lot of cognitive diversity that is lost if these people don't articulate what they're thinking. And that also happens when you get the conversation which is dominated by one particular individual is that that cognitive diversity is lost. And we once did a study where we had four person teams going through an exercise and let's call a garden path exercise where we introduced something at the beginning that made it seem that certain thing was going to happen and everybody was preparing for it. But that was wrong. We were trying to mislead them and then we dribbled in cues to indicate that it was something else going on. And we wanted to see when the team would get off the garden path. We ran seven teams. None of them got off the garden path. The initial assumption held for the entire session. So that was a failure. But we had each person keep a diary of what they were thinking. And we found that in every team at least one or two people had noticed the anomalies and had worried about it. So the knowledge was in the team, you might say the subconscious of the team, but nobody said anything. And so that's the kind of fear that we're trying to overcome. And I think if you get back to the diversity comment is that the more people you have in the group that bring a different perspective, the more cognitive diversity you're going to get almost by nature. And so if you create psychological safety, you do the pre-mortem where you force everyone to contribute, if people are going to come up with their own, if you have this cognitive diversity, you're going to get a broader list of items. I ran a pre-mortem a year ago on a project. We were going to launch 27 people in the room, wrote 27 things down on the first pass. Five of them were path critical of those five. I'd only thought of one. And so I was blown away because team leader, I took it very seriously. We wrote stuff on the board. I was like, I hadn't thought of that. That's a really good one. And it's that power of getting the cognitive diversity, forcing the interaction, forcing people to contribute, and the 27 things, five of them who cared, five weeks kind of thought about it already. And then you start to get into some really good stuff. And there were five that were path critical, like the computer and the army thing that we're going to kill the project. I hadn't thought of four as a team leader. And we hadn't in the process. We had had a very long process. So it was just very powerful, the combination of the two. Ted, as you could see, as we're going through this process, there are like four or five of really nuanced things that if you don't get it right, the pre-mortem doesn't work. And they're very subtle. So just something as simple as having each person say one idea or that problem reframing saying that the project has failed or requiring each person to say one thing. If you don't get each of those steps right, it doesn't work. So let's say we do it the right way. We take our deep breath for 15 seconds and we've got two minutes of writing it down. And the leader starts and we go through this and now we've got 27 ideas on the board. But Paul, as you said, four of the five important ones you hadn't thought of, great. What if the real issues were in the other 22? So how do you know when you go through this or more importantly, when you go through and you've got all your ideas on the board, how do you then make sure that you're using those ideas to improve the process? So after you get everything out in the open, that pretty much ends the meeting. Then we do another phase. What ideas do people have for mitigating that? But then the team leader takes all of that material and goes away and thinks about it and sorts through and said, might say, okay, this one, I was ready to dismiss it. And now that I think about it, it might be more important than I imagined. So there's a subsequent phase of re-planning and re-assessment using all the material. But other thing is that there's no system that's full proof. So going back to Rumsfeld that he said that in terms of risk, there are the known knowns, there are the known unknowns and then the unknown unknowns. What the pre-mortem does is you're trying to take those unknown unknowns and make them known unknowns and reduce that. But you're still going to have unknown unknowns. And the key is that you're never going to eliminate all of them. But you learn so much in this process, and it doesn't require much time. time or energy or investment, that it's borderline-free and you do pick up a bunch of things that you didn't have before. I guess if you could invite God to the pre-mortem, we could get everything. But short of that, the list is going to be so far expanded that if it's really a critical plan, you could do a second pre-mortem. Re-planning, come back in a day, a month, or whatever it is, do another pre-mortem after time has changed. You're never going to be 100% full proof. There's always going to be some unknown unknowns, but you have mitigated enormous amount of risks. We think that's incredibly powerful. There are a bunch of other techniques that we see investment teams use to try to mitigate risks up front. What are some of your favorite ones in addition to pre-mortems, or what are some of the ones you don't like as much? Let me start with the ones I don't like that much. So one of them is the devil's advocate approach, which gets a lot of publicity. I'm only aware of one study that tried to evaluate the effect of a devil's advocate to see if it had an effect. And they got a significant result. It was significantly worse than not using a devil's advocate. And the reason seems to be, if we're a team and I appoint somebody to be the devil's advocate, then I don't know if the person is coming up with these ideas because they're of genuine concern or because that's the person's role. But I assume it's because it's their role and they don't really necessarily believe in it. So it's easy to discount a devil's advocate. It also means I don't have to be critical. I've outsourced it to a devil's advocate. So that's not healthy for a group. Oh, so one thing, and I guess I call devil's advocate, Dr. No. And that's the role that I've played within organizations or have tried to create. And you're a skunk at a picnic. And it's just you piss people off and people don't like it. The other thing is that if you just have one person do it or a small number of people, you're really losing that cognitive diversity of the organization. Right. And so what you want is for people to articulate genuine concerns, which a devil's advocate doesn't and want to have the psychological safety to be able to articulate that. Another approach is to use red teams. And that's a very powerful method. And certainly a very impressive one. I like the method of red teaming, bringing in outsiders to review it. How does the red team work? There's a great book by Bryce Hoffman called red teaming about his observations of an army unit at Fort Leavenworth who is set up to do red teaming. You just bring in outside experts who haven't been involved in preparing the plan so that they can do the critique. And so they have different kinds of expertise. Now we're talking about diversity. And they don't have the the investment in the plan. They don't feel like they have to make the plan work. And the problem with red teams, particularly in the investment businesses, since we're making decisions almost daily or certainly fairly frequently, having a red team coming in and prepping them is probably prohibitive in terms of time and energy. Works really well in a big plan, works really well where there is outside expertise you can bring in to influence it. But when we're making decisions and more in process on a regular basis, investment decision, you just couldn't scale it in the right way. That's an important issue is what kind of effort is involved. For pre-mortem, if you took two hours to do a pre-mortem, that would be terrible because people don't have that time. So they wouldn't use the pre-mortem very often. And it would reduce the energy. And then people would be sitting back in their chair rather than leaning forward ready, ready for their turn in the barrel to be able to say, here's my best salvo against this plan. Pre-mortem should take no more than a half hour, maybe 20 minutes. If it goes for an hour, that's too long. So there's a virtue of keeping it really brief because that compresses the energy rather than dissipates it. And when you think about it in the investment process, like if you buy a stock that goes wrong, it is so painful that if you could just eliminate a small fraction of the mistakes, it makes your life so much better. And the batting average with investments, it's like 55% for someone that's a hero. So if you just make one or two less errors over whatever time period, it's a total win. And it's not a lot of time. Another technique is risk assessment. And there are a variety of risk assessment methods and a lot of research has gone into potential risk factors. And so having people systematically go through all of the risk factors. And that strikes me as fairly a mechanical and fairly insensitive to context because it's the same factors all the time. Whereas for pre-mortem, you're looking about what can go wrong with this plan in this context, in this situation. And so that's going to be always changing. So Gary, as you're going into any type of organization and you're pitching them on doing a pre-mortem, how do you describe what the benefits of the pre-mortem are to those organizations? First of all, we have collected some evidence about what happens to confidence when you use a pre-mortem. And we compared it to other methods like listing pros and cons, listing cons, just offering critiques. Offering critiques seem to have no impact on reducing confidence. Listing pros and cons are just cons reduced confidence, but the pre-mortem reduced confidence more than any of the other techniques we measured. So that's one of the benefits. And I think Gary, what you mean by that is overconfidence. Right, overconfidence. We're trying to reduce the hubris in the group that we figured everything out. The plan's perfect. Let's go, nothing can go wrong. So any kind of critiki method is about reducing overconfidence, increasing the humility and recognizing that things can go wrong. Thank you for adjusting that. You don't have a lot of overconfidence on Wall Street. So we assume overconfidence is pretty much the norm in many settings. And so pre-mortem has that effect. A second effect is it changes the culture to some extent, to one that accepts candor. And so that where people are feeling that they can speak out. And of course they have spoken out with their with their bosses and supervisors present. And the world didn't change. They didn't get fired. I think one of the follow-ons is you do a couple of pre-mortems, which I have now done. You get to the point where you realize it's so incredibly powerful. You're sort of an idiot not to do it. It's not very much time. You're tapping into your group. You're building confidence within the group to be candor. You're getting more honesty, more transparency. The group dynamic improves. I've failed to find anything that hurts because it really tell you about a half an hour, 45 minutes of time commitment. So even that time commitment. That that after you've done a couple of them, you get groups that refuse to not do them. We're not going to make it to say I know you're this scary. I know you feel the same way. I'm at the point now where I won't any plan I'm in, small or big. I won't go forward without a pre-mort. It's just once you've done towards three of them, it's so powerful. You sort of like why would we not do it? And then that increases the dynamic in the group. Everyone is now more candor during the planning process. We've gotten to the point where the pre-mortem is sort of not that important because we've been really critical in a very constructive way along the process. We still do it. But in the end, this sort of sense of confidence, we're being a much more thoughtful group and sort of figuring these things out. That I think is the real benefit is start to do them. You do one that works well. I don't think you ever go back. And another advantage is you make the group smarter because now we're listening to each other and realizing I came up with one. I'm looking at you, Paul. And there were four others that I didn't come up with. So at the end of that session, you were smarter. You were more sophisticated. Your mental model was richer. And you also have a chance to see somebody who maybe didn't say a word that they really, even though they were sitting there quietly, they were thinking and that they have something to offer. And it would have been missed otherwise. We've mentioned this paper and we'll certainly put a link to it. Where is this paper sitting today? We've published it in a fairly academic structure. It's called rendering a powerful tool flaccid the misuse of pre-mortem from Wall Street. We put it out into the wild. We want people to read it. We want people to use it. Certainly, we will consult with them if they have any questions in any way. And more formal setting, Paul Arrival certainly come into an organization. Gary loves doing these. So he's available. He's the busiest man I know. And he lives in Washington DC. So a little bit harder. I teach this at Columbia Business School. So if somebody's interested, they can come when we talk about pre-mortems for that lecture. Yeah. Our goal is to just give this away to everybody as much as we can. I guess we haven't officially released it into the wild yet. But we would have it on our website, pitchtheperfectinvestment.com. And then we'll also try and put it on a SSRN. So it'll be available to the masses. And we're looking at different academic journals to possibly get it published. But we're just not sure if jumping through all the hoops and actually getting it published helps. I'm speaking of which, what's happened to pitch the perfect investment since you guys for last year talking on the show? It's actually sold really well. I'm going to brag more. I recently taught a classic Columbia Business School as an investment class for one week. One of the students, very experienced head friend manager in Australia was taking the class, just heard it was a good class. And he thought, you know, I might as well read a little bit of the book on my flight to New York. He thought it'd be great. He's read a lot, written a lot, very experienced. And he said he started reading it and he didn't stop until he read the very last page. So I've heard this from time and time again, people particularly practitioners that say, you know, it's not really designed for me. It's really for a student. Somebody coming out of business school and they start reading it. They're like, holy smokes. This is fantastic. I've heard that now enough that I will repeat it. When we were on last time, it was just being launched. And the thought was, We hope it's good. You know, people love it and I can't encourage, you know, I just joke with them. The book is $33 on Amazon, Paul and I each get a buck and a half. We'll rebate the buck and a half if you buy the book. But I really encourage people to read it because I think it's great. I think that they walk away and they're like, holy smokes. Either it just reminded me of some of the things I knew, maybe it gave them an insight. So I can't encourage people enough and I'm happy to rebate my royalty. Great. Well, Gary, while we have you here, before we let you go, I want to ask you. A couple of closing questions. What's your favorite hobby or activity outside of work and family? There's a number that I enjoy. I like movies. I like to read. I like to jog. I like to play the game of go. That's pretty much it. All right. What's your biggest pet peeve? People thinking that complex tasks can be boiled down into checklists and procedures and you just have to follow the steps and you don't need expertise and you just have to follow the steps and don't be an idiot. And that's just too shallow. Doesn't quite work that way. No. All right. What reading do you almost never miss? New York Times Sunday Sports section. How about what teaching from your parents has most stayed with you? The idea that when you hit what looks like a barrier rather than saying, okay, that's as far as I'm going on this path, often there's a way around it and not to give up so quickly, but to look around and see, are there any leverage points? So there are any opportunities that I haven't considered. All right. Last one. What life lesson have you learned that you wish you knew a lot earlier in your life? When I see people make mistakes instead of immediately becoming critical and impatient to become curious, why would somebody smart do something that looks stupid? Maybe there's a reason. Maybe I need to try to investigate further. Great. Paul, Paul, thanks so much for joining me. Thanks, Dad. Thank you very much for having us. Thanks for listening to the show. If you like what you heard, hop on our website at capitalallocators.com where you can access past shows, join our mailing list, and sign up for premium content. Have a good one, and see you next time. All opinions expressed by Ted and podcast guests are solely their own opinions and do not reflect the opinion of capital allocators or their firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of capital allocators or podcast guests may maintain positions and securities discussed on this podcast.