Information, Responsibility, and Fairness on a Team

Spencer: I used to have a buddy when, email started getting hot he used to say, "CCs are free," a courtesy copy. "CCs are free." And I used to always say, "Man, it comes with an opportunity cost. all right, Aaron, this is a, this is a special episode for me. I mean, what happens is we host these guests who are just tremendous, and man, thanks to all our guests out there. I'll kinda review 'em here in a little bit, but we don't have a lotta time in that, Aaron, for me and you just to kinda riff on the ideas that are Leadership Economics. Um, so I'm glad we're recording this, where me and you get to, you know, jazz it up a little bit from what we've learned from our guests and how we're continuing to learn. We started this with a, "We're curious, and we wanna know why the world works the way the world works." we wanna know why human beings, make the decisions they do, how they interact, and we wanna be able to describe that and maybe, become a little more predictive in nature, if we truly understand, the process of how they're doing it. to this point, we're talking about Josh Richardson killed it. Drew Barnes killed it. Dean Dudley was awesome. Rob Shaw was awesome. Then Ben Summers, and then me and you did one of these. We tried to talk about the difference between uncertainty and ambiguity, which is at the graduate level, I believe. But most recently, we've had Geoff Kent, Right before him, we had Mike Yankovich. Before him, Jay Powers, and before him, Todd Howard. So these last four, I think we'll spend a little of our time there. Before I turn it over to you, I just wanna kinda start at the beginning again for everybody. I just said what we're trying to do. We're trying to explain the world and how it works and how our relationships work, but I wanna start with economics as a discipline has only gotten better, and it really is after explaining human beings, and that's wonderful. I do believe we have free will. We're not here to argue free will. Actually, we... If we don't have any choices, then economics becomes a lot less important. I am also here to say, hey, there's scarcity in the world, that you face trade-offs. that's gonna happen. There's limited resources. We have a finite set of resources, and resources as we define them is really broad, really broad. I'll then say that, we're working in a production function of some sorts. We're all working in some kind of production function where we have a goal, and we all have scarce resources. How we use those scarce resources, hopefully we can learn more about how they're projecting us toward our goal, towards the vision that a leader has, towards the vision that defines who you are, defines the team you're on, as we all interact and bounce around, um, this life together. So, the production function's, I think, tremendously important. I'll then go to the big framework, the buckets, as I think we like to call 'em. You know, the allocation, information, motivation, and execution that exists within this scarcity and within the production function, the choices that we have as people, as leaders. I think in the middle is the most important-- is the hardest piece, where information and motivation is influencing allocation and also influencing the execution of this. And that it's a recursive cycle, that you go through this thing over and over again, you should get better and better. It doesn't mean the outcomes are staying the same. I mean, now at this age, my outcomes are different than what they were thirty years ago. And, the inputs have changed too. The scarcity of the inputs have changed. So this is all dynamic. It's all changing all the time. And then I'll just say 'em real quick just to, to get 'em in there. beyond the framework, we're talking about a playbook, and in that playbook, there's trade-offs and opportunity costs, number one, always there. Number two, we're generally thinking on the margin, okay? We do a marginal analysis. we'll warn you right there, there's marginal value uncertainty in the world. there's uncertainty and ambiguity we're facing all the time. So it's not easy as marginal benefit versus marginal cost. And then there's motivations, the incentive structures that are out there, and those are hard to nail down, and those are changing. And then there's trade, there's specialization, comparative advantages. There's win-wins to be found in our relationships. The next thing is the context in which we operate, and that's prices and signals as prices, which are really kinda describing the incentives, the motivations back to number three. So that's always at play. In the free markets, prices and, um, public goods are our relationships. those prices, I call 'em relative prices at times, but there's information in there. And we're always sending and receiving information to each other. And the last thing is, is this idea that governments have a place or in a free market or organizations, centralization and decentralization, policy, standardized, operating procedures, that all has a place. somebody has got to set the rules of the game. and then the last thing is that we enter with humility and curiosity, and that we're, looking to see, how we can get better. So that's a-- that's probably too big of an overview, but maybe worthwhile thinking about. so the last four guests that we've had, I've learned a lot. I've only grown in my curiosity, Aaron. What do you think, man?

Aaron: Well, I think what's difficult is we're, dealing with these, know, real world experiences, and then we're trying to understand their experiences and the point that they're making. And then also for us, it's difficult to, work through the process of seeing what the insight is that we can get out of Leadership Economics. But, I think it's valuable to, go through that interpretation to help exercise this muscle of, what is the clarification that we can add to this situation? 'cause I find that a lot of times, when you talk about these things with people, they've got these wonderful insights or these experiences that matter a lot, but what's difficult is organizing them. And I think that's a-- maybe it's a me thing, but I have a strong preference to being able to actually organize these thoughts and understand where everything's fitting together. so I think like for me, that's part of the goal too, is just saying, we've got these different insights, we've got these different experiences that we've talked with people about, and then being able to show the audience that this is, put together in a clear picture through Leadership Economics.

Spencer: Yeah

Aaron: and to this day, I still, haven't found a situation that fits in. And that's not to say that, um, Leadership Economics is all things and explains all things, but again, it is useful for an organizational sense of, how do you understand all these different experiences and fit them together in a way that's productive. So that would be my goal.

Spencer: That's awesome. I think you're, dead on. It's a lens, I think we use that on the website. It's a lens to unravel complexity in the world, and you're definitely right. It doesn't explain... God, the information and motivation that's coming out of things. I mean, the world is changing. I mean, like There's so many things that, so many disciplines, academic disciplines, contextual stuff out there that informs how we decide. But yeah, I think you're right. The structure is really solid, and I think that's proven out to be the case in our conversation with our guests, who come from a wide variety of, industries.

Aaron: Well, it works every time in, in your mind and in my mind, right? Like, so, so the point here is

Spencer: Yeah, that's right.

Aaron: work every time in everyone else's mind, I think would be, would be the point. So I guess,

Spencer: Yes

Aaron: reviewing the different episodes and some of the themes that came up, I guess I'll start off by asking you, what were some of the things that either you wanted to puzzle through or really stood out as insights that would be worth, thinking through more clearly

Spencer: Yeah. Yeah, Like the biggest idea, and it, it kind of is it's in the information and motivation piece. and I've said this a few times here, but, it's like how we, uh, pass signals to each other and how we receive signals from each other. I talk about relative prices of an organization all the time, and I make this, claim that, the currency of commitment is a lot like dollars or currency, regular currency that you would use in, a normal free market, but I think this currency of commitment, we generally agree about, like, what we would expect of each other in terms of commitment. and I mean that in many different fashions. I mean that when you and I were on the exact same team, up at West Point, we kinda had a, an accepted standards of how much commitment I expected out of you and what too much was. Like, "Hey, go home. It's too late. You know, we're not staying here to finish that tonight. Go home." Or, "Hey, Dude, could you show up a little earlier tomorrow? We, we need to get this done." we kinda understand the commitment that we have for each other, but fundamentally, the information problem is driving the allocation problem, but the information is the hard part, and people's motivation is hard. And I just the so many different ways to go at it, from what Todd Howard was saying to what, Mike Yankovich was saying, I think those are two separate areas when you think about private or public goods. But, the mechanism is the same, but maybe the information gets worse. So how do you reduce the asymmetries of information to create a win-win? That's, I think, my big

Aaron: when, when you're talking about like, commitment at West Point, I'll never forget, I think it was my first year, maybe my second year here, and, there's a big old storm coming in, and so there was talk of, well, okay, we're gonna, pause classes for the day or something like

Spencer: Yeah

Aaron: And, um, there was some rotator, he was new too. He'd come in with me and I was like, "Listen, if it's super dangerous to come in, you know, I gotta go over these hills and these mountains and

Spencer: Yeah

Aaron: if it's super dangerous, then no, I'm not gonna be here. I've got a family that I need to take care of, and I'm not gonna get myself stranded or injured in a way." And he was like, I'll give you a reason. You've got a paycheck as a reason to be here." And I was like, "Oh my gosh, dude." but it was fine, like whatever, but somehow you caught wind of this

Spencer: Yes

Aaron: I have a theory of how this got to you, but, somehow you caught wind of it. So you at one point, just in passing, you're like, "Oh yeah, I heard that there's this, maybe this confusion or something. I just wanna be very clear, if it's not safe to be here, you shouldn't be here." Um, but that's for me, one, it's a good example of the, of, the commitment you're talking about where it was clear to me that you prioritized things that were relevant to me. and then also when we talk about these asymmetries of information, again, I don't know how you figured this out. I think I might have told one person in passing. Maybe that, that person told you, I don't know. But, you felt it was important to just bring up. that's the kind of thing that like if it were me, I would've thought the same thing as you, but I wouldn't have-- I'm not sure I would've remembered to say the same thing, right? and like to me personally, it didn't seem like a big deal 'cause it's like I know what I'm gonna do. But, it was a signal of saying that that priority is my priority too. so there are kinda two issues that you bring up here. One is that, information sort of functions like a public good, and the other issue is, there are always these asymmetries of information. how do we guarantee that what's in my head ends up in your head? that's always a problem in the world, right? that's not something you're gonna escape. And so How do you resolve these things? I mean, economics has a lot of different things about, information models and like signaling versus screening versus, all these different things. But, I think to get back to that in a minute, what I do wanna focus on first is, is seeing information as a public good is something that I hadn't really thought about. you can think about, meetings right now. Everybody hates meetings. Nobody wants to have meetings, and people avoid meetings as much as they can, myself included. but I've stopped doing that as much, and it's for this reason. when COVID hit and we switched to a lot of telework, it became very clear to me that there was a huge increase in the amount of information that wasn't really spreading around as much. and as soon as I could, I,made a bigger commitment to actually just be in the office a lot more. many professors are rarely in their offices. But we do a lot of other work, not just with research, but we do work with the Army,

Spencer: Yeah

Aaron: And there are a lot of these short turnaround type things that are coming up and being dealt with or these opportunities that come up, and you're gonna miss out on them because you're just not around. It's not like people are excluding you on purpose or they don't like you. It's that you're just not around to get that information.

Spencer: Yeah

Aaron: and so this is one of those things where, Information, if we see it as a public good. A public good is one that, is valuable to everybody, and it's also non-excludable, which means that you can't, easily exclude people from receiving it. Right? So, so I'm not sure information fits this description perfectly, but, what it does have that's similar to a public good is that it has these positive externalities. So by having people in the room, all of whom have some information, by getting people to share that information, there's sort of this, value that everybody gets out of it, hopefully. so, when dealing with information like it were sort of this, positive externality and it's gonna be underprovided, right? Like if there's this positive externality that people aren't really taking into account when they're trying to provide information, then they're gonna underprovide information. And in the workplace, I see this all the time too, where I may know of something or know about something, but there's not really a clear, venue for that to always sort of just come out. how you solve this, I think, depends a lot on your context, like your work environment. But I will say that information itself, um, you should see it as something that's going to be underprovided. if we're talking about information about, you know, if you're in an environment where everybody's working on slightly different projects that are sort of related but they're not always related, right? There's gonna be, naturally a lack of sharing just because of the incentive structure. And so at the very start, being aware of it seems to be useful in trying to come up with solutions. but there's also this issue of, how valuable is it to have a weekly meeting where we all sit around and just say things. I'm not sure that that's really, really useful either. And so, being able to actually structure the meetings or the announcements or the bulletins or the emails in a way that is both informative but also not wasteful is, is sort of the goal, is that you do need to share the information. You need to elicit it from people and get it spread around so everybody is aware of what's happening, but at the same time, reducing the, burden it's putting on everybody. And so I would say, that's just my initial take. if we wanna talk about information as both asymmetric often and then also as a public good, that's how I would combine those ideas and at least start to think about how do you solve it.

Spencer: Yeah Do you think it applies to like a negative externality? I used to have a buddy when, email started getting hot he used to say, "CCs are free," a courtesy copy. "CCs are free." And I used to always say, "Man, it comes with an opportunity cost. Everything comes with an opportunity cost." Like, you could have too much information in that inbox, or you could have too much information in the cockpit, So I could get overloaded with information and then lose sight of the thing that is gonna kill me, so I think the idea of having too much, too little, an equilibrium, the right amount of information, and then the quality of the information I think is truly important, too, 'cause, I think this idea that good information or the truth is costly, whereas like gossip or bad information is pretty cheap. we can make up a story pretty, easily, right? But

Aaron: I can tell stories all day about things that my like kids, family, coworkers, anything. I can go on forever about gossip if you want. but

Spencer: There's value, but there's value in it too. There's value in some gossip, but Yeah,

Aaron: yeah, But, um, one of the things, this reminds me of a book. I read it a while ago. it's called A World Without Email. for some reason, the author's name is eluding me. He's written several books. sort of the main thing that just stuck with me, you know, I can't say that you should go read it. I think about eighty percent of it is probably not really necessary, um, not to be mean. but the one thing that really did stick with me was the evolution of the problem. How before email it was phones

Spencer: yeah,

Aaron: um, face-to-face communication or letters, so if you think about back in the day, trying to publish a paper in academia, it would require you literally physically mailing a copy of your paper, and then the editors would have to physically mail copies of that paper to a variety of different people, some of whom might say, "No, I don't wanna review this." so if you think about how this process works, like that would take forever, and it would go slow, which seems super inefficient, but at the same time, it frees up so much space, in between.

Spencer: yeah,

Aaron: and so same within the office, where if it is nearly costless to just shoot off a message on Teams or on Slack or whatever it is, right? Like suddenly it is costless for you to just shoot that message

Spencer: Yep

Aaron: but if you think about, um, you know, if you've got this guy who's thinking CCs are free, think about the person's inbox who you're CC'ing all the time, There is something important in that inbox

Spencer: Yeah, it was me.

Aaron: it's getting pushed farther and farther and farther down. and so what happens is not only is it costly to try to cipher through all the information, but it's costly to sit there and say, "This is important. This isn't. This is im-" It's like why we all hate spam

Spencer: Yeah.

Aaron: it's not because it's hard to hit the delete button. It's that it just, it buries you in all this stuff where you're trying-- you have to figure out how to find the important stuff. So, I would say it's not just that too much information is, bad, it's that, There's a limit to how Uh, you, you don't want it to overwhelm

Spencer: Yeah

Aaron: the important stuff. so again, like I would say that, I don't know many people in my line of work who over-email, but I think it's because of what I do. I imagine that there are way too many Slack messages andYou know, if I'm deep into some work and somebody texts me there's gonna be all these distractions pulling me away. So I, I think like the distraction part of it is slightly different than the information part, where

Spencer: Yeah

Aaron: if you're getting a ton of information at once, even if all of it is relevant, there's still an issue of ciphering through it and being able to prioritize. I, yeah, so I think that there are negative externalities for people who find sending emails or messages to be free

Spencer: Yeah.

Aaron: it's not...

Spencer: that--

Aaron: so how do you balance

Spencer: Yeah

Aaron: I think that that's like, that's the hard question here, is like how do you balance it?

Spencer: Right. And I think, one of the main takeaways from what you said, like, the lower the cost of something, probably the lower the value of it. so I mean, I think that's, been true, feels like it's been true over and over. I mean, we know that, like, um, a handwritten, thank you note, it's cost a little bit more, and it means a little bit more when you get it. You know, a thumbs up or a like or whatever, that's pretty easy to do. We all know that. So

Aaron: I, would say as, as far as people and relationships go, I think that that's true generally speaking

Spencer: Yeah

Aaron: if it's costly in terms of the effort required or the thoughtfulness it required, Like that's valuable.

Spencer: Yeah.

Aaron: But, but yeah

Spencer: I'm even thinking back to like Lord, our last dispatch had General Grant in it, Just think about the dispatch you're writing. I'm gonna write a, an order or a command to a young officer, a younger officer that's downriver from me. What am I putting on this letter? How dangerous is it for this guy riding horseback to get down there to get this letter to this person, And what do I put in that letter, Like, the Message To Garcia, it was, um, talked about individual responsibility, but, I remember this, as a common book we all gave to, graduating lieutenants or people who just got promoted or something. I mean, but it talks about individual responsibility, but the cost and the value, of most things are associated, right? I mean, we're talking about information here. And, I think as it becomes more and more, as more and more able we are to send correspondence to each other, sometimes it just got easier, so the information got worse. The value of it got worse. So, I think that's one thing that I take away with that. A World Without Email. I'm about to go check this book out. but the quality of the information, I think, is too much, too little, but then the quality that's out there, too, the value of it, it can get better. Like in the Army, we use mission command orders. You've seen this. It's in, it's one of the principles from the mission command philosophy. It's like putting the information in the right spot, that makes it more efficient. And, any officer out there that knows how to look at a five-paragraph op-operations order, an OPORD, like, that's efficiency of information, a transfer. that's one method, but I think about me and my wife, I mean, like, we've been together since 1988. We pretty much move information pretty quickly as well with an eye movement, she can move information to me. I, but I'm, I perceive that thing a lot. or she can see something out of me, like, when you start to reduce the asymmetries of the information and you understand the cost and the benefits of each one of these actions, it's, a result of better information, it's a result of knowing your teammates better, the big result that I'm after is that it's, uh, more efficient outcomes with better information. So, I think that's kind of when I think about it, that's why it really is important is, getting to good information. You know, even Ben Summers, back when he was talking about it, he was talking about, uh, psychological safety, And at some point, you wanna have psychological safety, but at some point, there needs to be a edge in the room, And that leader or that person who's responsible or even the teammates that are there kinda understand that edge, like, "Hey- That's enough. Shut up. We're not moving forward from what you're saying. Now you're just grandstanding or whatever, I don't know. I don't wanna leave information. I think that's... Information, and I also wanna talk about motivation. We've talked about a little bit of that, but, information I think is, one of the really, really critical pieces of what we're talking about

Aaron: yeah So the, um, you know, if you, if, you wanna go to economics to think about what is the equilibrium and, how do you get there, what comes to mind immediately is, you know, you've got,a few examples. I, I think Elon Musk is fairly famous for his, meeting rules. You know, if there's not a clear purpose for this meeting then we're not gonna be doing this. Um, and then you've got, what is it? Um, BlackRock,

Spencer: Yeah. Oh, Bridgewater. No, Bridgewater.

Aaron: or

Spencer: Ray Dalio. Yeah.

Aaron: these up.

Spencer: Yeah.

Aaron: Ray Dalio

Spencer: Yes

Aaron: their obsession with honesty, so there's, there's all these different things that are out there. people talk about this, this approach, or they talk about, Bridgewater's approach. And What they all come back down to is enforcing discipline about information. that might be the first thing is to, is to start to create norms of what information is necessary, what information is valuable, and then also the right, medium to give that information and then the other thing about not only do you need an appropriate level of information coming in, the quality of the information and, when we talk about quality, there's a whole, spectrum of different things that we would care about with, the value of information. but probably the trickiest, I would say the trickiest thing to get quality information on is when you need clear honest feedback from subordinates where the incentives are getting screwed up

Spencer: Yeah

Aaron: where they start to be concerned about how this information's going to either change the amount of work they have to do, or it's going to change, your perception of them, or it's going to jeopardize their position in the company. those issues of incentive alignment for information, I think are another really important aspect that we spend some time actually in the class, here at West Point talking about. And the bottom line is with, actually eliciting the truth from people, it has to be the case that you've set up the structure so that telling the truth is their best option. and so I think, Radical Honesty from Ray Dalio is one example of this, You've essentially set up these incentives where there's a very strong culture to always be thoroughly and radically honest, and not doing so is more, penalized than bringing bad news or even admitting a mistake, That's one example of setting up the proper incentives for truly making sure that people are just telling the truth or, revealing all the appropriate information. And there's other things that you can think of where, you're trying to decide how you're gonna allocate certain resources between different people or different projects, and how do you get them to truthfully reveal their honest opinion of its value? So if I have an incentive to over-report its value, how are you supposed to, as a leader, determine sort of the, the truth there? And so again, there's some like interesting theoretical ways to do this, but essentially it all comes back down to how do I get you to bear the burden of, um, over reporting right? If, if I say that this is worth more than I really think it is, how can I set this up such that there is a cost you pay for over-reporting? so that again, that can be very difficult. and my, honest take here is that The best fundamental way to do this is to really just get people aligned through culture and through their identification with the organization. that's how you're going to align everybody's thinking in terms of this is the goal. We're all pulling in the same direction. How do we just make sure we all get there? Like, that would be-- that is the ultimate version of this, where we have really come together in terms of what we want matches what the organization wants. And that-- I don't think that's always either totally possible or at the very least it takes a long time to get there, I would say. So those would be my initial takes on, establishing, the right level of information to be coming through and then also establishing, the kinds of information and the truthfulness of that information.

Spencer: I'm gonna restate something I think you just said. How do I get you to bear the cost of over-reporting? Was that right?

Aaron: Yeah

Spencer: Okay. I like that. It requires some adjudication, right? Somebody has to decide whether you over-report it or not. What about under-reporting? Well, give us an example of over-reporting. Let's do that

Aaron: So let's say thatyou know, a company has a budget of a hundred thousand dollars for one of two projects, right? I mean, a hundred thousand dollars for a large company isn't a lot, but let's say, whatever. We've got a hundred thousand

Spencer: It's easy number

Aaron: and yeah. And, the question is, well, you know, there are these two projects that, are possible ways of spending this money.

Spencer: Yeah

Aaron: And, so then I go to, Matt versus Sally, who are really pitching their different projects. And so Matt says, that the value of this project is, two hundred and fifty thousand dollars, and Sally says, "Well, the value of this project is three hundred thousand dollars." Right? Like, again, this is sort of abstracted a little bit, but it's like, my projected returns to the company are this amount. that would be the thing you want them to report truthfully, and they have expertise in this thing. You can't go through and do the analysis yourself and determine, everything yourself. and so the question is, how do you try to ensure that they're just telling the truth? And so the, theoretical answer here is that you wanna set this up so that if Matt over-reports and says, "Oh man, this thing's worth six hundred thousand dollars," when really he knows it's about two hundred,

Spencer: Yeah

Aaron: then he's gonna have to bear some sort of a cost for over-reporting. And so your point is like, well, someone's gonna have to adjudicate this. And the actual answer is that if you set this up right, you don't. because if you've set it up right,

Spencer: The truth

Aaron: the truth

Spencer: will set you free.

Aaron: Is the most valuable option. Yeah, sure. I mean, if you're Matt and Sally. Uh, but, in this very specific case where there's these two options, you can just do a second price auction, right? And again, like this is not to get too theoretical, but the... it's illustrative to say how this would or could in theory work is that you essentially have both people submit, we call it, a blind bid, so they don't get to see everybody else's bid, right?

Spencer: Yeah

Aaron: And the rules of the game are if you win, as in if your bid wins, then you get paid what the second bidder offered I guess I'm thinking of it like in, in, in an auction,

Spencer: If you're buying,

Aaron: something and I'd say

Spencer: yeah

Aaron: if you're buying, what you'd say is, well, you... If you win the bid, then you pay what the other person offered.

Spencer: That's right

Aaron: so it'd be sort of the reverse, where it's like, if you win the bid, then you're going to go to what the other person reported to in terms of either the, money you're gonna be allocated or in terms of whatever, right? the point here is that you can actually show that this is gonna encourage the truth, because if I overstate the value of this thing, then I may end up having to, bear the brunt of costs that, I didn't actually want, In other words, that I come out behind as opposed to ahead. I think for me, the important takeaway is that you want to be able to, I mean, that's a highly theoretical version of this, but I do think that in, spirit, you can actually try to get people to absorb the negative externality from, either misreporting or not telling the truth. You want them either absorb that negative externality of, not telling the truth in terms of overstating things, or you want them to absorb the positive externality of, stating the truth if it's like bad news. y- that-- in my mind, that, would be the, goal. And how you go about doing that, again, I think there's a lot of different ways. Ray Dalio's is the most immediate example that comes to mind

Spencer: Yeah. Have you ever played Spades?

Aaron: Oh yeah.

Spencer: Yeah. So if I were to, if I were to try to tell this theoretical story of Spades, which, I mean, I think we played here in South Louisiana, but also in the Army we played, people played Spades. But you basically have to bid your hand, So I- you get dealt a hand, I get dealt a hand, me and you are teammates, right? And, I'm gonna tell you, we gotta say it out loud before the game begins. that's 13 tricks to be had, right? I think, totally. And you play in groups of two, so me and you are on a team, and then we're playing two other folks. But if I bid that I'm, you know, "Hey, I'm gonna win three tricks," Three of these. And you say, "Hey, I'm gonna bid two tricks." And, if we get to five total, then we perfectly bid our hand, right? And I'd be like, "Oh, I can trust Aaron. He bid two and he got two." and you would say, "Hey, I can trust Spencer. He bid three, he got three." well, you can sandbag the hand, too, And there should be a penalty for overbidding your hand, So if I said I could make three and I made four, and if I say if I could make two, I made four, or if I made, bid three and I made six, it then becomes pretty apparent that I'm sandbagging my hand, Or the other side of that is that I keep making a bid and I can't do it. I never make my hand. So you start to feel me as a partner, Aaron, or me thinking you as a partner, like, "This cat doesn't know what the truth is. He can't figure out what the cards that have been dealt to him are gonna result in." Now, one or two here or there, but the point I'm getting to is that it's a, that's a very similar, I think, simplification of, this idea. And what's providing, as we try to get to truth, we're trying to elicit truth, is that you build trust in my awareness of what the reality's gonna be by seeing me consistently bid my hand correctly. Is that a fair comparison to a very hard concept?

Aaron: in a way, I, think that trust takes time to develop, which is why, a lot of times we think of this in very sterile terms. But, your reputation can become that sort of an externality wh-where you're internalizing either the good or the bad. You're internalizing it because your reputation, shifts to that. So, in my line of work, There are people who are good at overselling an idea, And, the first couple times you meet with them and you see this and like, "Man, this is really cool," and then you watch the paper sort of like peter out. Um, but they keep pushing and they're able to sort of like really sell it. But over time, that reputation gets around

Spencer: Yeah

Aaron: where um, maybe this person is much more comfortable hiding certain results or whatever in order to boost the, value of this paper. and, so that reputation definitely does get around. But the problem is that it, just takes time. I will also say that if you are able to constantly find, new people to work with, again, in an industry like this where you can have new co-authors all the time, then that reputation doesn't spread as well. so again, it depends on if you wanna wait for trust to develop, then you need to be in a situation where there are lots of opportunities for that trust to develop. But if you're in a situation where there aren't a lot of these opportunities, there's not a lot of these interactions that are gonna help, really establish that connection, then you're gonna have to think a little bit more strategically in, in how you set this up.

Spencer: Yeah.

Aaron: I mean we could even talk about contract bidding

Spencer: Yeah

Aaron: and all that stuff. but again, that, that's, a lot less about leadership in my mind and a lot more about, setting up appropriate contracts and setting up appropriate auctions. But for me, the, goal is to just internalize both the positive externalities and the negative externalities. You want people to share in the appropriate costs so that you can reach a better, more efficient equilibrium

Spencer: I think it's applicable everywhere when I think about the mechanism of it. that person said they could do this, and man, they just did it, Or don't think about that one. Think about the other one. This person keeps overbidding what they say they can do. I can't trust them. It's just bad information. Or they're underbidding what they're saying. Like, it's just bad information. There's no consistency in the outcome. They say one thing and another thing happens. They say one thing, another thing happens. Like consistency builds trust, and I think the trade-offs that we face, represent the prices, as you were just mentioning, like an auction, every time someone bids higher, I have to bid higher. Bid higher, I bid higher, in the buy sense of it. We use the reverse of that, and it works both ways. every one of those times it happens, it's a trade-off. I either don't get it or I bid higher, right? So it's always a trade-off, and that sets a relative price. but when I think about, the consistent cost of something, or the consistent standard of something, I think about that in terms of somebody has to adjudicate what is fair or what are the standards of the organization, I just watched that Saban documentary, Aaron, and if anybody's listening out there, I, I love a good team sport and, our college football world, we're kinda all drunk on it a bit, But if you watch Nick Saban, he said, "Hey, we're gonna do ten perfect... We're gonna run ten tens." Ten tens. What was the cost of ten tens? Well, the cost of ten tens was actually twenty-six tens, 'cause they couldn't run it perfectly, But he has to adjudicate what is right and what is wrong, and I think, the shared standards and shared equilibrium in relationships that are facing these trade-offs are providing information. Everybody learned a little bit about who each other was in running those twenty-six, and everybody learned a little bit about what Nick Saban's expectations were in running that twenty-six, and that influenced the next allocation. So the quality of information and the trust that we forgo comes, in some sense, the consistency of the what is fair and what's not fair. It gets really turbulent and non-laminar, like a turbulent flight, whenever we don't understand what the relative wind is. We don't understand the consistent trade-off that we're facing, So to me, and again, like you said earlier, it makes perfect sense to you and it makes perfect sense to me. I just wanna make sure that we're stating it in a way that... 'Cause everybody understands, I think, free markets and how prices are set. But I also think we understand how to be in a relationship And how prices are set. I think they both apply. and it's just a little bit harder to get to better information when we're talking about the currency of commitment. But then I also think human beings are very good at understanding how you're committed to me by watching what you do, And watching what I do for you. so it's not a perfect... You keep giving me 75%. It's not perfect, I got it. But, in terms of eliciting truth and getting to good information so that you can make good allocations, I think that's the partly the mechanism that we're trying to explain. So I don't know

Aaron: I think it's, it's a constant problem

Spencer: Yeah

Aaron: as, we get more and more information readily available. social media provides way more information about markets and what people are interested in than before was even really imaginable with standard television. people are much more comfortable now setting up all of their interactions digitally so then everything can be tracked and, accumulated. and so there's less of a push now to get more, just raw data and more of a push to understand how do we streamline this in a way that's useful for people. and the other thing that's really throwing a wrench in this is what AI is gonna do, cause now it's entirely feasible to have endless streams of data and then just have AI just chug through it, and suddenly what seemed like an impossible amount of information becomes totally usable.

Spencer: Yeah

Aaron: but again, I, am a a lot less interested in, the managerial issue of, like, how do I set up an appropriate dashboard for me to monitor things, and much more interested in these relationships of how do I, like you said, establish this relationship and understand our commitment to each other. That's the information that I think a leader always has to be able to, to get also provide to people.

Spencer: Yeah

Aaron: so

Spencer: What's interesting about the AI thing is that it may call you out when you violate what it thinks the rules of the game are. when it sees a spreadsheet that has a cost estimate on a project and a spreadsheet that has a cost estimate on another project, it'll tell you where they're different, and it's gonna ask, "Hey, which one of these is right?" So it's like, I don't know, monetary policy. As long as the Federal Reserve's running it or as long as we're running it, then we have some freedom to do this thing, Like we have some freedom to operate in producing more money or taking money out of the overall system to try to control interest rates, To, attempt to, the overnight rate at least. we can affect other parts of the curve, but that idea is that we have that ability. I think AI is gonna call us out in a way that Bitcoin calls us out. Like blockchain technology, You can't lie to the blockchain, It knows exactly what is out there and what exists. I can't create more, and I It can't take some away, So it's stuck there, and you're stuck with the reality of the blockchain. Maybe I'm speaking about it wrong, but I,feel like one of the benefits of AI will be, or I think one of the benefits of AI is that it's gonna call you out if you say that truth and honesty is a core principle that you wanna have in your organization, and it starts finding violations of those, of the truth and honesty. Do you think that's a possible outcome?

Aaron: I mean, yeah. but the other thing is a lot of times it's just curiosity, It's like I don't know how to proceed if you tell me one thing here and a different thing there. Like, in a lot of ways I feel like it's agnostic, but just the, contradiction itself, because the AI is literally trying to mash everything together, the contradiction itself forces y- it to be like, you just gotta tell me what you want. and I feel like i- in a way, that sort of illustrates the actual problem of dishonesty, within an organization, where in the end, if you have contradicting numbers or if you have contradicting signals that you're sending to people, it's not just that it's dishonest, it's also just that it's like, well, how are people s- supposed to proceed if there's this m- mushy, messy information going out there

Spencer: Yeah

Aaron: There are things about, you know, when leaders provide, say, like a memo, but no policy guidance on it, Like, so there's a, memo, and it's short, and it's terse, and it says a thing that sort of, not inflammatory, but, it would be or could be a big deal. but then there's no clarification. There's nothing there. It, leaves everybody just wondering, what, what are we, what are we supposed to do with this? do you want us to just take initiative and start making stuff up? And, so I, I feel like, sending conflicting signals is similar. sending ambiguous orders, or being inconsistent in how you approach a problem. all of these things are gonna mess up the information that's a- that's available and how people are supposed to act

Spencer: Yeah Yeah. no, I totally get it. um... Remember that video we had at one point, we got on a slide deck somewhere, about the capuchin monkeys that,

Aaron: Oh gosh, yeah

Spencer: I think it's a study from Stanford, but you hit-- you give the dude a rock, he gives you a grape, And

Aaron: Well, this, it's like the, yeah, yeah. So the rock goes in the cage. The monkey's job

Spencer: you got... Yeah.

Aaron: is to give the rock back, all right? And the reward

Spencer: Yeah.

Aaron: for the rock is, a cucumber for one

Spencer: Oh, that's right.

Aaron: right?

Spencer: Yeah

Aaron: then the other monkey does the same task but gets a grape, which is apparently way more valuable for the monkey

Spencer: Way more value. He wants to fight

Aaron: And, so I'll never... Like, it is one of the most visceral things to watch that monkey, you know, like grab the, the cage

Spencer: He's shaking, yeah. Yeah.

Aaron: and shaking and then like reaches its hand out

Spencer: Yeah.

Aaron: like banging on the table, like what is this

Spencer: Yeah.

Aaron: Um,

Spencer: Yeah. he's trying to figure it out. he even

Aaron: that,

Spencer: he even takes the rock and goes, "Wait, is this the same kind of rock that that dude got

Aaron: Is this a different rock? Yeah. Is this the wrong kind of rock

Spencer: 'cause that dude is getting a grape, and I'm getting a cucumber. But my point is like, I,guess that mechanism is alive and well in all of us, so that what's fair and how do we adjudicate, and how that information is passed is apparent to all of us.

Aaron: the adjudication itself is sending information, is your

Spencer: Absolutely, yes. Yes.

Aaron: and so when You have this unfair, like the monkeys where it's like, "I'm adjudicating the value of your work with a cucumber and the value of your work with a grape

Spencer: Yes

Aaron: And then like suddenly you're in this world where it's like, what is valuable?

Spencer: And then how does the AI try to take that kind of hypocrisy and make sense of it? It can't. It takes human intervention. maybe it ca- I don't know. I don't know. I, I don't know where it goes. I think that's gonna be very interesting to watch. Um,

Aaron: I mean an example of this that just comes up comes up. I grade, quizzes or whatever, like so much grading. and what I've started doing is AI is really good at reading handwriting better than

Spencer: Yes.

Aaron: especially student scrawling,

Spencer: Yeah.

Aaron: you know, these equations and erasing and rewrite

Spencer: Yeah, junk.

Aaron: but that's actually legible

Spencer: It's good for me. This is good for me. Nobody else can read it. Yeah

Aaron: Yeah, but, um, and so it's useful. And so then, I'll enter my grades, and I'll go through and I'll grade the stuff, and then I'll just have the AI look over and be like, "Hey, you know, what do you think of this?" Or, "Does this seem appropriate?" Or whatever. And immediately without hesitation, it'll automatically just find all the places I was inconsistent. So if, for the same error on this one student got a different score, it... And it's just immediate.

Spencer: Yeah

Aaron: and so suddenly it's like it forces you to really deal with some of these inconsistencies. what AI will do truth-telling hypocrisy I I think it you know I don't know

Spencer: I don't know either, but I, it's absolutely gonna kinda hold us to that standard more, right? Pretty brave of you, and honestly, you're really protecting the students by giving fair treatment and letting the AI help you,

Aaron: like sure but at the same time I'm like Johnny over here is a jerk Why doesn't he just get a C I'm just kidding I don't

Spencer: No.

Aaron: I don't have any Johnnys in my class I'm just kidding

Spencer: I think we do want the human element. I'm arguing for the human element. I'm just saying it's gonna be hard You're gonna have to figure out why. Okay, let's just take it to baseball. This is a perfect example, I think. So in baseball right now, it really bothers me that we have the technology to go, "Yes, that was definitely a ball. Yes, that was definitely a strike." And we got the poor umpire sitting behind watching 100 mile an hour Major League pitching, and we all got the information, and he don't. and then he gets challenged by the catcher, who's got probably better information than most, I used to catch. I mean, like, you know where it's at. Or the pitcher or the batter. You can challenge, right? Are we really interested in what the truth is, is the question. If we are, and the AI is good enough, the technology's good enough to tell us that's a ball, that's a strike, 'cause when you challenge, that's where we're going. why have the umpire there? Ca- can the umpire go, "Yeah,

Aaron: It's 'It's the umpire, the umpire's union

Spencer: it might be"? But, but, but when Spencer's ma- Like, dude, Spencer... I'm not a Major League... I don't know. Pick a guy. Or you're like, "Uh, hey, this batter I really don't like. I'm gonna..." Or maybe, "I gave him one. I'm gonna give, take one away." Do we wanna pull that out will become the question. But what we're really doing is setting the prices every time we make a trade-off. Every time we make a trade-off on an action, just like your auction, we're setting relative prices, and we're also getting some information about, what's fair, what's expected, when actual hits, right? So, like, somebody's gotta adjudicate that. And sometimes it can be the actual truth, the actual reality of what's in front of you, but our consistency's gonna be challenged, 'cause the AI is gonna be able to see it. but these models are getting better at figuring out if you've graded somebody unfairly

Aaron: Oh yeah I mean like you should have seen myself twist twisted up in knots trying to I'm an economist I don't grade essays very often But there's just whole notebooks full of journal entries And it's like we And then it's like Okay here are the 15 inconsistencies What are the rules you want I'm like Oh my gosh How am I supposed do this

Spencer: Yeah Yeah

Aaron: But again like the overarching point here is that the information that you get from these, inconsistencies, it matters, you know? And so I, think what's hard to formalize this a little bit is when we talk about information, there's so much included.

Spencer: Mm-hmm.

Aaron: And,

Spencer: Yeah

Aaron: you know I'll never forget, talking about soft information and the value of getting that one-on-one interaction to actually get this more of a soft information. And it illustrates how much information we are constantly absorbing all around us all the time. There's so much that we're not really, consciously chugging through, We're, but we're absorbing it. you can't formalize all of this

Spencer: Yeah

Aaron: and so this. is where I come back to, being in the office all the time is, there's value also in just seeing like, when is my, boss stressed, or when is he overwhelmed, which never happens. I've got fantastic bosses. They're never overwhelmed. Uh, They don't listen to this. You know, it's like another example is that I work on an academics timescale, which means any form of writing is expected to take weeks at least, okay.

Spencer: Yes.

Aaron: It doesn't matter if it's a one-page thing, if it's, three paragraphs. it is gonna take at least, I expect, a week. And sometimes, I'll be asked like, "Hey, can you look over this and give some feedback on it?" And, I'm thinking, "Okay, yeah, I'll get to it like Monday," and then by the time I get to it, they're like, "Well, we already sent it." Like, what are you talking about

Spencer: You're like, "I'm a deep thoughts reflective guy. Don't send me that for immediate turn."

Aaron: if you want, if you want me to, you know, do my thing, it's gonna take some time

Spencer: Yeah

Aaron: No, no, no. But, I started just saying like, You just gotta tell me when you want it. if you want it now, I will do it now. If you want it next week, I will do it sometime next week."

Spencer: Yeah

Aaron: know? But, but the, the main thing is that, again, there's this information asymmetry in terms of what the expectations are. And I'm in a great place. Like this was easy to sort of sort out. But, this sort of thing is gonna happen all the time where we fail to communicate some of these important, details because we just assume that our urgency or our priorities are aligned. And so there needs to be some sort of a communication there that informs, you know, I've got 30 different assignments that have to be graded before tomorrow. that's not a realistic case, like my students can wait. But, you know what I mean. Like there's, being able to inform. It's like, well, yeah, but you also gave me these 15 other priorities, like where does this fit, right? Like think that, all of this is just gonna come back down to have you established a culture that is clear about what are the signals we're sending to each other, what do they mean

Spencer: Yeah

Aaron: what are the priorities that we have? And it's also appropriate to bring up those priorities to show the contradictions in what's being asked. if you're not allowed to go back and say, "Hey, but you also gave me these five other things that are due like now," what's the order you want? if you can't do that, then that, that's a failure of information. there's an issue of how the incentives are set up for information to actually flow.

Spencer: Yeah. I think it gets better over time, Like you probably know the person who you didn't get the thing, back to in a week, now you probably know when they tell you something, they want it on a m- a shorter timeline, or at least they need to tell you, "What time do you want it back?" Because, there was an assumption made about a future expectation that y'all had to figure out, Like the priority when this big snow hits up at West Point and me and you are working in the same building, and, if you live north, you're gonna fight your way and put yourself in danger to get to West Point. And we're not offering you housing at West Point. You're forced off of the academy. They may have a few folks living there now, I don't know, but generally people are forced away. When I tell you, "Hey, don't risk coming in, this is that time, and I'm telling you, take this off. You're not coming in." But the young officer's like, "Dude, we're coming in. this is what has to happen." And he lives a quarter mile up the road. He can walk to work. It's a different thing for me, right? I've seen somebody go off the road, and I've had to try to go recover people off of, what is that, 218? I don't know what the name of that road is.

Aaron: Yeah, I know it's bad

Spencer: Pick a road. They're all bad roads. the trade-off I'm making and what I want everyone to know is that your life and your future is more valuable than this one class that we can give a drop for, and you can make it up. I promise you, you can make it up. Or if we can't make it up, I'll go in there and teach the s- what's the class? we have a backup plan because every once in a while we know the government shuts down and civilians don't get paid, and I don't want you to come in if you're not getting paid. So that means we as uniform wearing members have to be prepared to teach our, civilian's class. But when I do that, what I'm doing, I know, but when I... I'm just leveling the bubbles so that everybody understands what the priorities are and how you should act, And once you live through one snowstorm and I'm still your same boss, then you know my priorities are. It should not be hidden. They should be consistent, and they should be, predictable. And where things are predictable, we can make better allocation decisions. I'll give you one more example, and I'll shut up. And this I think It's taught in every business class in the world, We're gonna compound dollars forward, we're gonna discount dollars back. Let me just take the discount side. We're gonna do a net present value of something. Every time we try to tell a kid to do a net present value of something, we wanna take future cash flows and bring them back to time now. And how do we do that? Well, we take those future cash flows, and then we consider some uncertainty, We have to consider, what's the inflation gonna be? What's the opportunity cost of me not having this money? I'm gonna give it to you, or I'm not gonna have it. So an opportunity cost. What are the other places? And then finally, what's the risk, of you even paying it back or this cash flow even happening? The point is this, when you do that in the math and in the denominator, the uncertainty gets greater, the present value gets less. So one goes up, one goes down, and we're doing that all the time. If there's no predictability in my life, if I don't have predictability from the leaders around me, then it's hard for me to invest in any future. When it's inconsistent and turbulent and I don't understand what the next year is gonna look like, there's no way in the world you can ask me to plan for anything. It gets harder and harder because of this lack of consistency, this lack of understanding, this bad information that exists in the relationship, And I think that's apparent everywhere, in our lives.

Aaron: like, like information, not just about the current ongoing stuff in a work environment, but information about, what is it that you want to accomplish and what is it that I can accomplish here? we recently did, call them a leadership challenge in my class, and the scenario was just, you know, it was pretty made up. well, it was entirely made up, but, it's also not terribly realistic. But the idea was that you've got this commander who is facing a problem where too many of their good officers leave earlier than their less good officers.

Spencer: Mm-hmm

Aaron: and so the question is what can you do? And there's limits to what he has control over and stuff.

Spencer: Yeah

Aaron: But the reason I bring this up is that one, one student, talked about how... given the scenario, if you're a high quality officer and you're fairly certain that you can make a lot of money outside the Army, whereas, one, you know exactly what your earnings are gonna be in the Army. But, I remember thinking like, "Okay, yeah, so like leaving the Army is more uncertain than staying in the Army." he wrote it the opposite. He said, "Staying in the Army is more uncertain." I'm like, "What? That doesn't make any sense 'cause your pay is perfectly predictable. I don't even know what you're talking about

Spencer: Yeah

Aaron: But he's like, "Well, you don't know where you're gonna live,

Spencer: Yes.

Aaron: and

Spencer: it's not your pay. Not your pay, but another benefit. Okay. Yeah.

Aaron: It's not your pay it's all the other stuff

Spencer: Yes. Yes. Yes

Aaron: Where you're gonna live? It's what jobs are you gonna have? What roles are you gonna be able to get to? there are jobs that people want more than others, obviously.

Spencer: Right

Aaron: And so, in the scenario, there wasn't a clear path

Spencer: Yeah.

Aaron: professionally. The, way you were rated was inconsistent or, you know, okay. But the point was, though, that he, brought up different issues that I hadn't really considered about, like it's not just the pay that people are worried about. it's the inconsistencies in job progression. And we see this in other places too, where there isn't information about what your future can look like here

Spencer: Yeah

Aaron: or what your future can look like with us,

Spencer: Yes

Aaron: lack of information itself, just the uncertainty, immediately is costly. Like, there's no way around it. I mean, there's like tenure for professors. there's a reason it's part of the system, is that, you work and work and work to hit that, and then there's sort of this certainty about what your life is going to look like.

Spencer: Mm-hmm

Aaron: But, anyway, I think the, information bit of this it's really important because it is going to inform the other things too, as you've said, these are all very interconnected, like, information's going to inform you how you can actually motivate people,

Spencer: Yes

Aaron: Understanding what it is that they're trying to pursue, trying to understand what their career objectives are, that makes it super sterile. But, understanding what they want out of life makes it easier to actually

Spencer: right

Aaron: help them see what you're asking them to do is part of that.

Spencer: Yeah Yeah

Aaron: but then also, how you're gonna allocate things and, so again, we often think about allocation as an issue of, time and money. that's what people really wanna, focus on because those are some of the most scarce resources. but, having the right amount of information of, Not just what your resources are, but information about what it is that everybody on your team is trying to reach and, information about how they're gonna do that. The one thing that over the last few episodes that really struck me was that there are a lot of different things that go into the allocation decision that I hadn't really considered. You know, in my head it was always just time and money were the biggest ones, and I still think that they are, but there are other binding constraints too. There are other things that you have to allocate carefully. it was Geoff, Geoff Kent who had brought this up, about needing a break from responsibility for a minute. I think, people talk about how, you remember as a kid where you looked up to the grown-ups and like, "Man, you don't have to go to school. You get to buy your own cars. you can go out to dinner whenever you want." Like, man, being a grown-up's just gonna be the most amazing thing ever. And then you have all these dumb adults talking down at you like, "Oh man, it's never as good as it is right now." And I'm like, "Dude, you don't know what you're talking about. I still gotta go to school. I don't have any money. I don't get to do anything I want without permission," right? like it just seems so stupid to me. and then you become an adult, and it is great, But at the same time, it's costly because each and every year brings on additional responsibility. I'll never forget the, first time, I was newly married, and, maybe I brought this up in a previous episode, but, I damaged my stupid car. I backed up with the door open and hit a pillar in a parking garage or something. And so it was finally like the first time, the absolute first time that I was actually going to file an insurance claim. And suddenly it just like dawned on me. "I am in charge of this now." maybe that sounds silly, but it wasn't that complicated or whatever. Like it was fine, but more and more you realize I am responsible for dealing with this whole problem. Not just the money side of it, but also like I've gotta deal with the phone calls and make sure the paperwork's in place, and I've gotta... so it's this responsibility.

Spencer: Yeah

Aaron: it also reminds me like everytime you purchase something, every time you own something, you become responsible for it. Like

Spencer: Yeah

Aaron: I,

Spencer: that's right.

Aaron: I know we've talked about this too, right? Like, you're either gonna have to, throw it away, fix it, or I don't know. I can't remember what the third one is

Spencer: Throw it away, fix it, store it.

Aaron: Or store it

Spencer: Inventory costs. Yeah, there's a third... Yeah, yeah, absolutely.

Aaron: Look in my basement and you'll see, you'll see how costly this is if you go down to my basement. so but it's responsibility, right? Like, so every time, we acquire something, in my mind it's like I am now responsible for this

Spencer: That's right.

Aaron: I am now responsible for that. every time I buy a plant, you know, like look at my stupid plants. every time I get a plant, it's like I am now responsible for this. And I've started slowing down. I'm like, you know, Jamie wants to have all these flowers all over and all this stuff, and I'm like, "That sounds lovely, but it's more responsibility." And it sounds dumb. So, so you could keep going on like this, right? Like you just more and more and more, everything you own, everything you create becomes responsibility. Your kids obviously are an enormous responsibility. And there comes a point where that resource is limited, and so acquiring more things, a bigger house or whatever it is, like every time your adding to this responsibility. And I wonder, just as when I was a kid, I thought adults were stupid for saying my life was great. I think like sometimes when you look at people who are abundantly wealthy and you watch their lives fall apart in a way that you just can't comprehend, 'cause you're just like, "Man, if I had that kind of money, all my problems would be solved."

Spencer: Yeah

Aaron: but I wonder if it's actually more about this thing of like suddenly as you acquire more things, you acquire more responsibilities. As you become more, high profile, you become responsible for how people respond to you or how you respond to people in the street, I really do think that this answers a lot of these other questions of, why does it seem to get more difficult as you become more, in- independent, but also, more empowered in a way. and I think that it comes down to responsibility is not, infinite. Like your ability to take on responsibility is finite

Spencer: Absolutely.

Aaron: and it grows with time. But I still think that, recognizing within your team, it's not just jobs and tasks that are limited. It's not just time. It's just how many things, you put on someone's, their responsibility list,

Spencer: Yeah. We all have a scope. if you start to expand the scope too great, I think there's an, span of influence on, your command. This is why these commands are set at different levels, a commander, a brigade commander, their span of influence, as we've heard, y- your soldiers won't recognize your voice in the dark, right? So, like, your span of influence as you get up higher gets, it's lower and lower because it's poor information. It becomes harder to transmit it. Jay Powers told you that, right? He said he had his three priorities, and then those three...

Aaron: he just like hammered them home all the time, and he still runs into this dude

Spencer: Yeah, and the dude's like, "Wait."

Aaron: didn't know he's the one sending that message

Spencer: Yeah. What is that? It- we talk about that all the time. Was it innovations? Yeah.

Aaron: why's everyone talking about this

Spencer: Yeah, it was one of Jay's top priorities. but when I think about responsibility I feel like, there's a trade-off, it is scarce. You have to think about your responsibility. if you're willing to be responsible, which I think is a, critical characteristic of a good leader or a good person, like what's connected behind that is that you are responsible, you're willing to take responsibility, so you're willing to take, on the cost of when something fails, So the word right behind that one, I hate to go to it again, is commitment. the more and more I commit to... Because, are you a high-commitment person or are you a low-commitment person? in a high-commitment organization with high-commitment people, you have to match that commitment. You have to get to an equilibrium, a match in that commitment. You gotta be committed to it, right? Well, that means you gotta be responsible for it, there's a trade-off. And it's interesting, you're not there yet, but I've just come through it, Jill and I sold everything after that boat, man. We weren't committed. We weren't committed to that couch that's right here behind me. We didn't have it. We got rid of it. We sent it all to our girls. Our daughters owned all of our furniture that we had previously. So we had, our responsibility went down to, burp, just that boat.

Aaron: just feeding yourselves

Spencer: just the boat and me and her, And then what's funny is, you know, that failed. We got rid of the boat, took a haircut there. It was a sunk cost. We bought that car, and then we just started driving. But we didn't have nothing. We had this one little storage area. Our inventory cost, number three, our inventory c- cost was really low, too. So we had all this flexibility and very low commitment, and maybe that means we were responsible for really nothing. And then what starts bumping up against, like, do you have any purpose? What's your meaningful purpose? Are you now irrelevant? What have I done here? And like I don't wanna over-commit to something, like say, "Yeah, I'll do that," and then I'm stuck in it. I was really afraid to give away my flexibility in exchange for my commitment to your organization. And it still exists today, and that you may, you're not fighting this yet. You're not there. You still got three kids at the house. but our kids are all out chopping their own wood. they don't need me. They don't need us. we're here to help, but, that idea, of having so low a commitment was less meaningful to us, so then it started affecting what's our purpose. You know? Like, what are we here to do then? Are we here for just And I told, I'm like, I told her, I'm like, "You're my purpose," and I was hoping she would say, "You're my purpose." But, we needed more than that. Which is wonderful.

Aaron: Don't set yourself up for that Spencer

Spencer: I know. But that was wonderful because she, Jill was absolutely right in that, we had been in high commitment organizations our whole lives, and the density and viscosity of those relationships still existed, but more in a friendly kind of nature, right? We weren't sharing the adversity that we were before. so I mean, that's tied in, like s- all the way back to scarcity. What you're saying is that responsibility's scarce. You have a, a finite amount of responsibility. You can take too much, you can push too much onto another person, and then you burn them out. The time value of time, as Yankovich said. Or you could have no responsibility, no commitment, and feel no purpose. that's another side of it. I, the more I come to the value of equilibrium and, seeking the outcome and the production function that you want, and then exchanging the, making the trade-offs to get to that thing, that outcome that you see, that leader's vision. Like you said, leaders create something that is, wasn't there before. those people are deciding what fair is. They're defining what the relative prices are. They're adjudicating balls and strikes and, that's something really s- there's something really human about that. To be able to take all this in and then make a decision that seems fair. what's fair in my family may not be fair in other people's families. what's fair in our community may not be what we assume fair in the other. So the problem is that the balls and strikes, the batter's box, the strike zone changes maybe a little bit. but our measurement techniques are almost always the same. I'm, saying, like, once you set it, then you gotta hit it. If you don't call balls and strikes fairly, then there's no consistency and there's no North Star that you're aiming at. And then it's even hard to define hypocrisy because we don't know what the outcome even is. So all of that to say that free markets do it very well with dollars. I'm arguing that it also happens very well, better than we think, with the currency of commitment in organizations all over the world. yeah.

Aaron: I, I think the, The other part of this that, I mean, comes back to those monkeys, uh,

Spencer: Who doesn't love a good grape? Everybody loves a good grape, man

Aaron: I don't know anybody who doesn't like grapes. I'm sure they are there.

Spencer: Yeah,

Aaron: Please email us if you don't like grapes

Spencer: yeah.

Aaron: We would like to talk. but, you know, the question I raise with students about this is why, does that monkey care so much

Spencer: Seriously?

Aaron: Like nothing has changed about the cucumber. The first time it did it and got the cucumber, it was totally happy with that. what is it about us that cares so much about, about fair?

Spencer: Yeah

Aaron: And I think, I probably spend more time thinking about this than maybe an economist should. Uh, but

Spencer: Maybe not. Maybe economists should be thinking about this more. So go ahead.

Aaron: Well, yeah, But like what you said there is it's disorienting, you have a model of how the world is supposed to look, and then suddenly you're confronting the fact that it's

Spencer: Mm-hmm.

Aaron: not looking like that. You know

Spencer: Yeah.

Aaron: It's not working the way you thought

Spencer: Yeah. Yeah

Aaron: uh, like the way I describe it to students is, we need to operate within some sort of fuzzy version of the world that we keep in our mind. And so when we are faced with a situation that doesn't fit in that model, that's ambiguity. It's not uncertainty in the sense that, oh, that was a surprising outcome. It's like, I don't know the rules of the game anymore

Spencer: Yeah

Aaron: I don't know why that guy's getting a grape and I'm getting a cucumber,

Spencer: Yeah.

Aaron: but man, it pisses me off

Spencer: you could say that's a low probability outcome, and you'd be fine with that. Like, oh man, that happens every once in a while, Or you might say It's an average. It's in the middle of the, uh... We call it the mean. That happens. It's an average, happens more than anything. And you would accept it's on the tails, But this ambiguity thing is totally different

Aaron: Right. It's suddenly I don't know the rules of the game. My mental model of how my life and world function is no longer accurate. That's what triggers the anger of the monkey, it, it sets off your, amygdala. It just starts pumping cortisol through you

Spencer: Yeah

Aaron: you. know, I mean, like, you see this in my son dude, he will catch you on the slightest, stupidest thing

Spencer: Yeah.

Aaron: but the minute there's

Spencer: Yeah.

Aaron: his eyes are just gonna go,

Spencer: Yes

Aaron: you know? And you're just like, "Yeah, that thing's firing."

Spencer: Yeah

Aaron: is so, so pumped up over this. and again, this is the connection to the whole model, is that it's about that ambiguity that is different from uncertainty. It's the ambiguity that's suddenly confronting how you try to plan your life, Like, from moment to moment, how you're functioning, suddenly that model isn't accurate

Spencer: Dude, maybe we just walked into it a little bit. I see information and motivation in the middle, allocation, execution on the sides. But motivation has been a, been a bit nebulous to me. In the motivation, the, monkeys, or your son's, like, immediate... or I heard it the other day, if there's plenty of mafias in the world, a c- somebody said the E4 mafia or the warrant officer mafia. the folks that are really controlling things, they're aware of what's happening. They realize you just gave a grape to another person, and I received a cucumber for that same work. and why is that? And is it in the motivation? I feel like I keep saying this term, and I feel like it has a lot in it. It say, you can't fake genuine. and maybe I should be saying... I'm really, when I say genuine, I'm talking about, consistent care and a common and accepted signal that is true. it's genuine, you know? So we've talked information a lot, but inside of the motivation, and there's plenty of theories out there, Maslow's, Vroom's expectancy theory. there's a bunch of motivational stuff out there. There's emotions in that thing, too. I don't know if we control our... We don't really decide to be emotional about. We're emotional first, and then we decide how to control it, maybe. some of us are better than others. But there's something visceral about, that monkey. There's something visceral about you cut in line, But if you're at the airport and somebody has the Clear app, they cut in line, but they paid for it. We're kind of all right with that. But if somebody cuts you, that's a visceral thing. I don't know. Let's... The motivation piece. Keep going. Yeah. I'm sorry

Aaron: Well, when those people, those clear app people come through, I'm sitting there with my, TSA PreCheck. You know, there was a time when I was special, and you go to the, Newark Airport, and the TSA PreCheck line is bigger than the regular line

Spencer: Yes

Aaron: And then, and then I've got these clear whatever

Spencer: Look just getting

Aaron: walked up, escorted to the front. You know, it's just,

Spencer: That demand curve is amazing to watch, 'cause Jill and I

Aaron: I can't handle it

Spencer: Jill and I still don't have TSA PreCheck, nor do we have CLEAR. And what we watch is that everybody's jumping off the interstate when there's an accident, and it frees up the interstate 'cause everybody just jumped off on their Waze app. And, it's pretty amazing to watch. and CLEAR people move out when that line gets bigger, and more of them flow out of the line, and it frees it up for us. I mean, there's a real market going on right here in front of me. But yeah. But we, we... You believe in, you-

Aaron: I just want you to know it's a, it's a class thing, you know? like my son, I think he got it from me

Spencer: The question is what is fair? and I think we have some sense of fair. Like, I mean, we just went to the Bruno Mars concert. our tickets were not first-row tickets. But I know that the people in the first row paid a lot more for those seats than we did. So, my level of commitment to Bruno Mars

Aaron: Oh,

Spencer: was fixed.

Aaron: But did they parade them up? Did they, escort them past you and then put them not just in the front seat, but, they didn't even have to check in? They didn't even have to go through any line. They were just escorted because they paid an extra 100 bucks. I don't know. I, it doesn't sound like that's what happened.

Spencer: This is

Aaron: Maybe I gotta get off this Clear thing

Spencer: this is deeper than I thought. You have a real problem with it. Now, listen, and I tell Drew, I was like, "You know what? The cost of TSA PreCheck, there's a number there, I think. There's a small monetary number.

Aaron: It's also time

Spencer: It's time and it's bureaucracy. You gotta get through it, do the paperwork. It was available. I mean, I have a military ID, and I still... I don't know. To me, even, jumping on... When I was in uniform, I would never jump on a plane in front of other people. I'm like, I wouldn't let the cadets do it either. I'm like, "Listen, we're here to protect these people, not to take their luggage space in the airplane. you sit down. We're gonna wait our turn." for whatever reason, my level of fair on that was I appreciate the invite, and we would have people come tell us. The agents would come say, "Hey, y'all can get on." I'm like, "We're here to protect, sir. we won't put ourselves in front of the population that pays us to protect them." I mean, that sounds silly, but, but, but there is a market for the front row. There is a market for buying your way forward. I mean, the toll road, same thing. there's a market for, you get on the toll road, and you get the expressway. somehow or another, I'm good with that. not somehow or another. I know I'm good with that. so but again, it's just, it's setting what is fair. What is fair and motivation. Yeah. Yeah. Yeah.

Aaron: I usually think of motivation in terms of how well have I aligned an employee's goals, and I don't mean like goals like very specific. I mean, like, as they live their life and try to pursue something, they are operating on some vision of what it is that they want. It could be fuzzy, but the point is that they're moving towards something. And motivation fundamentally has to come from how much does this task or this ask or this requirement or this responsibility, how well does it actually align with where that person is trying to go

Spencer: Yeah

Aaron: so that's a very, like, abstract view of what is motivating because that can, come from money, right? if, if I pay that person enough for whatever task it is, you know, more and more people are gonna be willing to do it because even though they may not like it or it's not something productive to them, the money does lead them towards what they're pursuing in some sense, but all the other types of motivation fit in there too, of like, if we're gonna make this sort of a hostile work environment, suddenly that motivation's gonna disappear because being there is not moving them towards what they want, they don't wanna live a life where every day they go into work and they feel, either

Spencer: Friction

Aaron: unwanted or uninvited, right

Spencer: it's costly. Yeah

Aaron: even when that hostile work environment is there for literally no reason, right as in it's costless, literally costless to remove that hostility, you are immediately demotivating people. It doesn't, it doesn't matter what the incentive structure is. It doesn't matter what the pay is. Whatever it was before, the minute you say, "We actually don't really want you to be here,"

Spencer: Oh, yeah

Aaron: In some form or another, it doesn't matter, whatever form of hostility we're talking about here, it is immediately demotivating. And so again, this is where, motivation stands on its own in the sense that it is entirely about aligning the objectives of your team with their own objectives within the appropriate sphere, right? we can get back to, you need to get information about that. You need to have information about what they want and all that stuff.

Spencer: Yeah

Aaron: You need to actually be able to send them the information that you care,

Spencer: Mm-hmm

Aaron: right, and that you're trying to help them align that. You need to be able to, allocate the appropriate amount of time to understanding that but also the appropriate amount of responsibility for them to achieve what it is. so when we talk about empowering employees and giving them autonomy, right? it's all fitting into this thing of like- I want to be able to, help you grow that muscle of responsibility, and this is because I believe that this is the direction you wanna go in with your life, and so we're gonna align these things. So, so anyway, like that's, how I, I like to think about motivation

Spencer: And I think, God, it's been in so many movies. I mean, like know yourself. when Luke Skywalker goes into, I don't know which one it was, but when he goes into the cave and, he's dreaming and, uh, he goes into this cape

Aaron: Second one, Empire Strikes Back, just, just to be clear

Spencer: And he fights Darth Vader. It's before he knows it's his, dad or whatever. He fights him, and he knocks off the face of the mask. Well, who's there? Who does he see? And he sees himself. It's Luke behind the mask, know yourself. Simba, The Lion King, The Matrix, the Oracle with Neo. where else? There's so many of these where it's know yourself and know your own motivation. that's one of the critical, critical pieces, I think, people can get to on their own. Now, The question is this: Are you courageous enough to look in the mirror and receive back what it's telling you? Do you have the humility to receive it? And, um, sometimes it may take some adversity to get to know yourself, That's what I believe. But, um, what, everyone else needs to know about this motivation when you think outside of that is that people self-select to what they enjoy doing. there has been more and more talk in the organizations that I run around now is the old generation, new generation kind of thing. You know, like, "How do you motivate these young guys?" it's the old generation. it's a story as old as time.

Aaron: It's, it's, always been around

Spencer: Yeah. "They're not motivated," blah, blah, blah. But, for the younger folks out there, for anybody out there, I think one of the, the bit of uncertainty, we're talking about uncertainty inside of information and motivation. The bit of uncertainty that you can remove is about yourself. And, and the way to think about that, I think, and this is what... God, I hate to bring up Saban again. But he didn't start it. It's really John Wooden. John Wooden started this, the process or whatever. if you go through and do something and you feel friction, like you were just explaining, it wasn't satisfying for you, that's telling you something about who you are, right? So when you self-select into things where you feel good about the effort you gave and the outcome that popped out or the people you're around, that's information too. It's information about what motivates you. And even if you lose, even if the outcome is something that's different than you wanted, and you can look backwards and go, "Well, we left it on the field today," then you should be happy with that. That's still a win. You may have lost on the scoreboard, but if you put in max effort, okay? There's always gonna be a bigger dog in the fight. But if you can look back and go, "I put in max effort," and you enjoy that, then you've learned something about your motivation. I don't know what your motivation is, but what you're saying is if you can align individuals' motivations towards a collective outcome, that is the team's outcome, that is the community's outcome, that is a family's outcome, then you've done well. It's hard to do.

Aaron: I mean, that's, leadership

Spencer: That's leadership

Aaron: when, people talk about leadership and you ask them, "What is leadership?"

Spencer: Yeah.

Aaron: And like, you know, you're doing... It's like leadership is bringing together all these resources and combining them in a new way.

Spencer: Yeah

Aaron: And people, I'm not saying people are just resources, but I'm saying that their motivations and their aspirations and their dreams are all part of these materials that you've gotta craft together

Spencer: Yes. Yes

Aaron: It's not obvious, it's not immediate, and it's not easy. It doesn't happen on its own. It happens when you allocate time and energy to saying stuff like, "Hey, Aaron, if it's snowing like crazy, don't come in." Even though I swear Spencer I would never, I would never have brought it up with you

Spencer: No

Aaron: And also, I don't think if I was in your shoes, I would've even... I would've been like, "Oh, sure, this guy's like, you know, just different

Spencer: Well here, but the problem is this, you crash or something goes wrong, and now I'm looking back going, "I should have told Aaron not to come in here." Anyway, go ahead. I'm sorry,

Aaron: Okay, but, but,

Spencer: Yeah.

Aaron: but, the point-- all of this just comes together for me in that that is, the function. That is the purpose, right? You create something from, all of these different... it's such a broad array of resources and, things that people are trying to muddle through. life is, is complicated in this sense. There's so much

Spencer: yeah

Aaron: out there. so anyway, I find motivation, I think this comes from studying it so much in grad school, my whole dissertation, all this stuff about motivation. I'll never forget, working on this whole theoretical model, and then I was also doing this research on, incentive performance, pay. And I was up there presenting, and it was mostly just, education science PhD's so it wasn't actually economists.

Spencer: It's hard, Yeah

Aaron: And I was up there talking about this whole thing, and one person's just like: "Well, you're assuming that teachers care about money." And I was like: "Are you crazy? Who, who doesn't care about money?" if I was paid a million dollars to increase that student's test score by one point, I assure you, I would find any way possible, other than cheating, to help that kid do it. I would be at his house every night. I would just-- I would make sure he does better," right? And I mean that's actually where I got this huge insight about how people are allocating their time.

Spencer: Yeah.

Aaron: what I learned from this, though, is that we can, get away entirely from this extrinsic and intrinsic motivation. I personally have the hardest time defining for you whether or not something is intrinsic or extrinsic because like if you're paying me money and it leads to my goal, that, seems sort of intrinsic, right? Like there's things I want out of my life.

Spencer: Yeah

Aaron: so instead, we can think about it doesn't matter, extrinsic or intrinsic. The whole point is that recognizing how you're aligning all this stuff

Spencer: That's right.

Aaron: But

Spencer: What's the package look like? In my dissertation, compensation was one of the content dimensions I looked at. We looked at military officers. The worst information ever, Aaron. military officers don't even know how to think about compensation. it's really weird. at least the audience I was, you know, doing this research on, compensation was not, one of the things that kept them. And I'll go back to the young officers you were talking about You're giving away some information when you self-select to enter a hard to hard thing, to go into a life and death situation or whatever, or you want to go into that training. you're self-selecting into this thing, and, ultimately we have them. We have them because they self-selected to be an airborne ranger and choose the hardest thing whatsoever. Now, as soon as the friction starts and we're not meeting their expectations, they start to look outside, And they're highly talented. And it wasn't the pay they were looking for, but because you failed them on all the content dimensions that they wanted, the opportunity cost starts to grow when they see the other person that got out and is making four times or three times what they're making, And that's how we lose a lot of talent. It's really dysfunctional turnover if we're not doing our part. And I, I love the idea what you're saying, that it's hard to separate intrinsic and extrinsic motivation. It's a package deal. there is a lifestyle that comes with every industry and every career out there, and if that's not the lifestyle you want, if there's friction and you're out of equilibrium in your daily life, well, you need to look at a reallocation of what you're doing, your time, talent, and effort, and what the future is that you have in front of you, and that takes courage and humility and knowing yourself. and then once you get that, knowing each other, knowing somebody else's motivation, like you said, aligning them towards this outcome. If the outcome may change, what if the organization you signed up for said they believe in these ideas, and then that starts drifting away from the ideas that you signed on to? we call it loyalty, but loyalty is a crazy kind of term, kind of like pride, right? you have to be careful. What are we loyal to? What do you have pride in? can you subordinate yourself to the overall mission if you don't agree with it? It's hard to be selfless to an overall mission if you don't agree with it, Or if it's changed in a way that you don't agree with it. So that, I,

Aaron: I

Spencer: yeah

Aaron: Thayer, way back in the day, how he left the Army

Spencer: Yeah.

Aaron: he resigned over a disagreement about, about how West Point was gonna be managed and stuff. the one thing that sort of like... I'm thinking back over the episodes,

Spencer: Yes

Aaron: And um, one of the things that I think I also liked most that relates to what I brought up from Geoff's episode was how, Jay Powers had said something to the effect of, good leadership is taking something off of someone's plate

Spencer: Yeah.

Aaron: rather than delegating it

Spencer: Right

Aaron: We often think about leaders just being delegate, delegate, delegate. I'm just like sending off all these emails and stuff. but I think his point was, part of being a good leader is being able to remove that burden of responsibility from somebody. But anyway, so we had, Pat Work coming, and

Spencer: General Pat Work. Yeah.

Aaron: Yeah,

Spencer: Yeah, no,

Aaron: he's coming up to visit and, and talk with our class and, he got stranded in the airport. Am I right?

Spencer: Yeah.

Aaron: just one of the airports down there. He got stuck

Spencer: Yeah.

Aaron: in it overnight.

Spencer: White Plains. I

Aaron: Or he,

Spencer: I mean, it's across the river, but it's a little bit of a cost. Probably an hour drive, 45 to an hour, Yeah

Aaron: But, for whatever reason, he's like, "I don't wanna burden Spencer with the fact that I'm kinda stuck here overnight." it was... A- again, it's just one of those examples where It's gonna stick with you. I'm, I don't know if he meant it this way. I'm sure he didn't. I think he's just, really didn't wanna wake you up at 1:00 in the morning to come get him, right? But... you're over here thinking like, "Man, this guy's a general." But not just that, he's a friend, you know? And like, absolutely, and I would, like, any of us would absolutely, 100% be thrilled to just do something kind and go bail him out of being stranded in an airport overnight. if you ever slept in an airport overnight, it's terrible. You don't wanna be there. that, for me, the way he said it was, "I don't like to make my problem someone else's burden." And, that's what Jay Powers, I think, was also saying slightly differently. But that, yes delegating is an important thing to do 'cause you can't do all the things yourself. but at the same time, he was really saying that removing that burden from somebody is relieving. it's sort of freeing. It gives them the energy and things to, focus on, what's most important. after this conversation, what I think would be a great thing to just start looking at and thinking about is what is something that I can take off of someone else's plate?

Spencer: Yeah

Aaron: instead of I'm gonna, focus on myself and just really hammer in, I'm gonna wake up at 4:30 now instead of 5:30 or whatever, right? It's that instead what is a burden, or I should say a responsibility, that I can just take off someone's plate?

Spencer: Yeah

Aaron: and you'll notice that it, it changes that relationship. for me, over the last four episodes, those are the biggest things is understanding

Spencer: Yeah

Aaron: that there's, constraints to the responsibilities you can take on, and I will note also that you can develop your ability to take on responsibility. We grow in that. But then also seeing that the next thing to do is to say, "Maybe I can help my team out by taking off responsibilities where appropriate."

Spencer: doing less better helps people focus on what's truly important, and if you've expanded their responsibility to too great that they're starting to do things poorly, then, that's real trouble.

Aaron: ev- even if they have the time, right?

Spencer: yeah

Aaron: I want to be very clear. Even if they have the time to manage all this stuff, that doesn't mean that it's not costly still

Spencer: Right, and the reality is, Pat was a general, still a general, and I thought, he's got all these folks with him and all the rest, that he wouldn't surely be staying in the airport. 'Cause what could have happened, Aaron, is that if I was friend enough, I would've checked in and made sure he made it to West Point, and I failed him there. And that- that's the other side of it where I'm like, "Man, I should've checked in to make sure Pat was good." But again, he's moved around with an entourage normally, but he actually came by himself that time, and Pat's surely seen worse conditions than that. But I'm with him. I believe in that. I'll shoulder the burden. But he didn't do it at the compromise of the mission. if it would've been that the mission wouldn't have been done, Pat would've spoke up. he would've been subordinate. He was subordinate himself to the mission, and he stayed in that airport. But I totally agree with you on Jay's idea, Jay Powers, that sometimes the best way to w- to solve your own problems is to try to fix somebody else's. if you think about Ranger School, when people talk about Ranger School, they always say, "Your Ranger buddy earned your tab, and you earn your Ranger buddy's tab." And that's a relationship that we know each other so well, we're gonna take care of each other. And that's when the information becomes really, really good, when you don't have to feel sorry for yourself because you got a teammate that's good enough and knows you well enough that they're gonna take care of you before you start feeling sorry for yourself. that is really, I think, some of the best teams I've been on. that's a really, um, fulfilling and satisfied position to be in a relationship.