Decisions while facing uncertainty

“One critical limit of our mind is our excessive trust in what we believe we know and our apparent incapacity to acknowledge the spread of our ignorance and incertitude of the world we live in.”

Daniel Kahneman

“Thinking fast and slow”

(Free translation)

Uncertainty!

No need to explore this fact further. Our understanding of the world has always been subjective, superficial, and anthropomorphic (our human way of “interpreting” what is). Poor projections regarding the future are still today (despite our growing use of the so-called non-organic intelligence) hazardous to say the least. We have always lived in a world loaded with uncertainty.

Leaders muststill make decisions and they do it according to the two well-recognized processesi.e., the rational (based on logic) and the intuitive (based on hunches) ones. Both of them are based on the accumulation of experiences that have always been a source of learning. The famous “trials and errors” approach is still our basic human way to learn.

Rational decisions

“No rational argument will have a rational effect on a man who does not want to adopt a rational attitude”

Karl Popper

Here is an example of a systematic and logical way to use “Rational Thinking” to make decisions. It is called PROACT.

PR stands for “Problems”: What are the main problems (Focus on 3) I am facing right now?

O is about the transformation of the problem into a series of objectives

What should I focus on (3 priorities) to make the difference?

Ameans the identification of the various alternativesavailable to achieve the identified objectives

 What are my options?

C is for the analysis of the positive and negative consequences of the selected ways to move forward

Checking on the potential consequences of the various options

T is simply about the trade-offs that lead to the final decisions

What are the pluses and minuses of the alternatives?

It is quite clear that the rational approach has multiple advantages but also some major shortcomings.

Advantages

Rational thinking offers some obvious advantages. One of them is that a good understanding of a given situation and the listing of possible actions leads to some logical decisions that have a very good chance of success.

Disadvantages

Scholars in Decision making have pinpointed three major problems with the logical strategy:

  1. It is slow:It is slow: Not so good in afast-changing environment.
  2. It does not consideror underestimate all those unpredictable events (called hazards) that could impact the decision process and jeopardizethe implementation phase.
  3. It is in most cases based on models (experiences, research, theories…) from the past which can be most probably inadequate in the new environment (Leaders like to use what worked in the past and deliver good results). We call this the trap of success!

Intuitive decisions

“I never made one of my discoveries through the process of rational thinking”

Albert Einstein

Intuitive thinking is fast and spontaneous. It does not require any special (conscious and deliberate) effort. It is natural and seems right without any special validation.

Intuitive thinking is about trusting our instincts and the ability to put things together almost in an unconscious way. It is based on the accumulation of experiences, the integration of learnings and ideas (gestalt), the trust in past successes, and the trust in a good feeling regarding what is right and wrong.

Advantages

 It offers a series of advantages:

  1. It is quick.
  2. It provides self-confidence to the decision maker who feels good about the decision to be made.
  3. It does impress the non-leaders who are watching the decision-making process.

Disadvantages

The disadvantages are numerous: It can be superficial, not quite in the line with the requirement of the new situation at hand, and much more important it has no validation (“Off the top of my head” can be very misleading). It can bevery risky and…totally wrong.

Tentative conclusion

The use of both processes is critical: intuition to make fast decisions and rational thinking to validate intuitive ideas.

It is also clear that one cannot separate the two processes. In most cases, they go together and are in an ideal situation supporting each other. One must also pay attention to the personalities of the decision-makers as well as the team and organizational culture. They do obviously influence the decision-making process. We must also consider the past experiences of the people involved with their biases and preferences.

We could say (in line with some current scientific probing) that the short term is more loaded with hazards and unpredictability and therefore is more open to the application of rational thinking whereas the long term is more determined and will require some unexpected adjustments and more intuitive thinking. Or…is it the reverse…?

What about the Indecision?

Hesitating and not being able to make up one’s mind is typical of indecision. Frankly, this behavior can be quite effective if it is based on a voluntary decision i.e. the situation is not clear, options are not identified yet, the moment to act is not right,and better to wait a while before deciding on what to do.

The drawback of such a leadership attitude is that it can be perceived in a very negative way (the leader is lost, incompetent, and cannot think on his or her feet).

On the other hand, no decision (even procrastination) can be perceived as a smart move (“wait and see” first before deciding), a sign of wisdom (no rush here), and a very good illustration of self-control.

Sometimes patience pays off…. Right?

Flash Survey

We asked Mr. Artem Konstandian (Member of the Board of Directors, Unibank, Armenia) to share his opinion on the points presented in the article:

Leadership is always about taking decisions facing uncertainty. You don’t need any leadership to solve maths problems. You still might require intellect, effort, perseverance,and even talent. But leadership is a different story.

To take any decision you need initial information. And here lies one of the most important problems- the correctness of the information, which is the basis for the decision. When you lack information, your rational thinking or intuition can still help you to take the right decision. When information is not correct, it doesn’t make sense to rationally reflect,but your experience and intuition can help you to identify the problem.”