Decision making in times of uncertainty (Stanford)

Two large arrows point in opposite directions

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 $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.” When the alternatives become too difficult to think about, people tend towards what seem to be the more certain outcomes.

In a world where so much is changing and uncertain, this creates two problems.

The first is that the tried and tested options may no longer work: what seems to be the ‘safe option’ may not really be safe at all. It might fit with the way the world used to work but that isn’t necessarily how it works now or how it will work in future. This ‘safe’ option then leads us into a false sense of security which actually increases our risk.

The second problem is that this approach means people and businesses are missing out on the opportunities that are also emerging in a time of change.

 

Solutions:

There are three steps we can take to address the inherent, human bias the researchers found.

First, we can help people to manage the levels of discomfort they feel when faced with uncertainty, and then make clearer sense of their situations. The tools of Chapters 1 and 2 of Inner Leadership enable this.

Second, we can help people to identify the opportunities a situation brings and choose the best way forward. Chapters 3 and 4 provide tools for 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 critical, and Chapters 6 and 7 provide tools for achieving this.

In a time of uncertainty, human beings have a natural tendency to want to avoid risk. But this can actually increase our risk. With the right tools we can overcome our bias, reduce our risk and our stress, and increase our opportunities, enthusiasm, and engagement.

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


Photo By Dean Hochman via StockPholio.net

Leave a Reply