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 thinking becomes difficult, people tend towards what seem to be the more certain outcomes.

But 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 the ‘safe option’ might not really be safe at all, because the world might not work that way any more. The supposedly ‘safe’ option is then actually leading us into a false sense of security that increases our risk.

The second problem is that this ‘safe’ approach means that people and organisations are missing out on the opportunities that also emerge during times of change.

 

Solutions:

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

First, we can help people to manage the discomfort they feel when faced with uncertainty, and help them 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 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 so critical. Chapters 6 and 7 provide tools for achieving this.

Human beings have a natural tendency to want to avoid risk. But in a time of uncertainty and change 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. This makes us antifragile.

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


Photo By Dean Hochman via StockPholio.net

Leave a Reply