Decision making in times of uncertainty (Stanford)

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

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.

The researchers explained:

“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 like the safer option.

But in a world where everything is changing, all at once, this brings us two problems.

The first is that our tried and tested options may no longer work: the world simply might not work that way any more so what seems like the safer option could be leading us into a false sense of security that actually increases our risk.

The second problem is that when people choose what seems to be the more certain outcome (because that’s the way things used to work) they miss out on the new opportunities that are emerging in a time of change.

 

What Can We Do About This?

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

The first is to learn to manage and reduce the discomfort that uncertainty can bring and then make clearer sense of the situation. The tools of Chapters 1 and 2 of Inner Leadership show us how to do this.

The second is to get better at finding more opportunities in any situation brings and choosing the best way forward for us. Chapters 3 and 4 provide tools for doing this.

And third, we can learn to describe our chosen way forward in ways that then inspire us and other people to long to make it happen. Chapters 6 and 7 give us tools for achieving this.

 

Most human beings have a natural tendency to want to avoid risk. That’s just the way it is. But in a time of change this actually increases our risk.

By taking these three steps we can overcome the uncertainty that researchers found was so critical in shaping the choices people made. We can overcome our biases, reduce our stress, reduce our risk, and then increase our opportunities, enthusiasm, and engagement. 

All of these make us more antifragile.

Have you ever taken a decision where the outcomes were uncertain? Did you choose what seemed like the safest option? Would it have been useful to have been able to explore the opportunities more fully?


Photo By Dean Hochman via StockPholio.net

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