Decision making in times of uncertainty (Stanford)

A new Insight from Stanford Business School tells us something we probably already know: when people can’t predict what is going to happen they tend to  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 $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 it’s difficult to predict what is going to happen, people tend towards what seems like the safer option.

But in a world where everything is changing this creates two problems.

The first is that our ‘safe’ options, our tried and tested options, might not work any more, because the world might not work like that any more. So in a changing world, what seems like the safer option may actually be lulling us into a false sense of security that increases our risk.

And the second is that when people choose what seems like the safer outcome (because that’s how the world used to work) they miss out on the new opportunities that are emerging.

 

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 how to stay more centred and grounded in the face of uncertainty and to make clearer sense of the situation. The tools of Chapters 1 and 2 show us how to do this.

The second is to get better at finding more opportunities in any situation and at choosing the best way forward for us, even when the situation is unclear and the outcome is uncertain. Chapters 3 and 4 give us the tools to do this.

And the third is to learn to describe our chosen way forward in ways that inspire us and other people to long to make it happen: because when all ways forward are uncertain in a changing world, the best route to success is to follow whatever brings the most inspiration to make it happen. Chapters 6 and 7 give us tools to achieve this.

 

Most human beings naturally try to avoid risk. That’s just the way it is. But in a time of change this actually increases our risk: by assuming that the world will still work the way it used to and by missing out on new opportunities.

By taking these three steps we can overcome our uncertainty, reduce our risk, and increase our opportunities, enthusiasm, and engagement. All of which will 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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