Decision making in times of uncertainty (Stanford)

Two large arrows point in opposite directions

A newly published Insight from Stanford Business School tells us something we probably already know: 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 taking a 50:50 chance of winning $200, most people chose the guaranteed $100. Similarly, when faced with the choice of definitely 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.”

For people and businesses trying to succeed in a time of change this creates two problems.

The first is that when people are asked to make choices with uncertain outcomes (which increasingly is all the time) they are likely to be biased towards what seem to be the more certain outcomes. The alternatives are too difficult to think about. But this means that people are missing out on the opportunities that are also emerging.

The second problem is that during times of change the options that seem to be ‘safe’ are not really safe at all. They fit with the way the world used to work but that is probably not how the world works any more, or how it is going work in the future. The ‘safe’ options are not as safe as we think, and that leads us into a false sense of security which actually increases our risk.

Solutions:

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

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

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

And third, we can describe our chosen way forward in ways that inspire us and other people to want to make it happen, overcoming the uncertainty we feel. Chapters 6 and 7 provide tools for achieving this.

During times of uncertainty, human beings have a natural tendency to avoid risk. But with the right tools we can overcome that bias, reducing our risk, increasing our opportunities, and at the same time reducing our stress and increasing our enthusiasm and engagement.

Have you taken a decision recently where the outcomes were uncertain? Did you choose what seemed like the safer option? Would you have liked to explore the alternatives, either to find the opportunities or be sure you were making the right choice?


Photo By Dean Hochman via StockPholio.net

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