Your example sounds very reasonable to me, but do you think that this is ever taken too far?
Coming to the US as a student from Europe (not the UK), I noticed that some instructors (mostly TAs) took this effort to give a "positive" response to any answer in class to quite an extreme. I can think of many instances where a student's answer showed a very serious lack of understanding, and the instructor would say something like "okay, that would be one way to think about it, but how about... " without every correcting the student.
Two negative consequences I saw were 1) a lot of missed opportunities for correcting students' misunderstandings 2) students seemed overly sensitive to any kind criticism (I had a German friend who was a TA and had quite a bit of trouble with this)
Again, none of this is incompatible with your advice, I just wanted to take the opportunity to see if anyone has noticed this as a common problem.
The trick is telling them they're wrong without making it sound like you are calling them stupid.
My question in the 'serious misunderstanding' realm would be whether this is a problem that this individual student is having, or is it a common misunderstanding across the class? In the latter case, I turn the question back out to the class, eg, "Who thinks that's the right answer, who thinks it's Something Else?" And then we demonstrate the the individual student isn't alone in the Serious Misunderstanding, and provide a bit of personal buffer between the response and the correction.
I want students to come away with a self-description of "I have lots of ideas, and they need to be carefully checked because sometimes they're wrong," as opposed to the incredibly prevalent "I'm bad at math."
The best way to do this is to try to identify the good part or motivation in a student's statement, regardless of anything wrong that might be in there too. Provide positive reinforcement on that part, and then turn the question back to the group again, with that extra foothold that the first student provided.
Example: Me: "If we wanted to look at every relationship between these objects pairs of these objects, how many relationships would we have?
Student A: "N squared!"
Me: "Sure that's a good start; there's N squared possible two-ples you can form. But I think you may be overcounting a bit; can anyone suggest a way to cut it down?"
Student B: "You don't need to pair objects with themselves."
Me: "Great; so how many are we at, then?
Student B: "N^2 - N".
Me: "Awesome; I feel like we can still cut it down more. Any more ideas? Anyone want to try a small example?"
etc etc...
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Other bits of advice that come back to me with some writing:
* Provide seeds for ideas, and let the students fill out the flesh.
* Keep the conversation moving around the room. Try to engage a variety of voices.
* Provide at least some positive feedback for everyone who participates. Modulate for effect: eg, bigger praise for more complete, well communicated answers, or for people contributing for the first time.
* If the Super Student blurts out the final answer, take it back to the class and ask if anyone can explain it in more detail.
* Choose good questions. It's easy to ask a question that only you know the answer to... Mix up easy and hard questions, and use the easy questions as a way to 'onboard' quieter students.
Do it well, and there's always going to be enough hands to avoid cold calling. If I genuinely get no hands on a question, it generally means I've asked a bad question; rephrase and ask again. (And on day one, I have a dumb joke where I have everyone "raise your hand if you have a hand" and then do 'reverse' hand raising...)