Decision making in times of uncertainty (Stanford)

 

A new Insight from Stanford Business School tells us something we probably already know: that when it’s difficult to predict the outcome, people become less likely to take risks.

Researchers found that when faced with a choice between being given $100 or having a 50:50 chance of winning $200, most people chose the guaranteed $100. Similarly, when faced with the choice between losing $100 or having a 50:50 chance of losing either $200 or nothing, most people chose the certainty of the smaller loss.

“People,” the researchers explained, “really don’t like the complexity and cognitive load of making decisions under uncertain circumstances.”

“People really don’t like the complexity and cognitive load of making decisions under uncertain circumstances.”

In other words, when thinking becomes difficult, people tend towards what seems to be the more certain outcome.

And in a world where so much is changing all at once, this creates two problems.

The first is that the tried and tested options may no longer work: what seems to be certain might not really be certain at all — the world might not work that way any more. And that means that what seems to be the ‘safe option’ is actually leading us into a false sense of security that increases our risk.

The second problem is that when they choose what seems the more certain outcome, people and organisations are missing out on the opportunities that are also emerging during a time of change.

 

What Can We Do Instead?

There are three steps that we can take to address this natural human tendency.

The first is that we can help people to manage the discomfort they feel when faced with uncertainty and we can help them to make clearer sense of their situations. The tools of Chapters 1 and 2 of Inner Leadership do this.

Second, we can help people to identify the opportunities a situation brings and then choose the best way forward for them. Chapters 3 and 4 provide tools for doing this.

Third, we can describe our chosen way forward in ways that inspire us and other people to want to make it happen. This overcomes the uncertainty that researchers found was so critical in shaping the choices people made and the actions they took. Chapters 6 and 7 provide tools for achieving this.

 

Human beings do have a natural tendency to want to avoid risk. That’s just the way it is. 

And in a time of uncertainty and change this can actually increase our risk.

With the right tools and perspectives we can overcome our bias, reduce our stress, reduce our risk, and increase our opportunities, enthusiasm, and engagement. All which makes us antifragile.

Have you taken a decision recently where the outcomes were uncertain? Did you choose what seemed to be the safe option? Would it have been useful to have explored the opportunities more deeply?


Photo By Dean Hochman via StockPholio.net

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