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When faced with uncertainty, how should leaders react?

by Jul 12, 2020Blog

I saw this in Harvard Business Review and it made me tilt my head a bit.

Data driven decisions. We all collect it, store it, build charts, graphs and dashboard and alerts with the data these days.  All In the quest of the holy grail of a better, sounder “right decision”. Are or we just rationalizing?

” But what if rather than trying to be right, you could be less wrong over time?”

“When faced with uncertainty, how should leaders react? Should they make a big bet, hedge their position, or just wait and see? Investors and traders might be adept at managing risk and unforeseen events, but in other industries, leaders can be blindsided by the unknown. We naturally tend to see situations in one of two ways: either events are certain and can therefore be managed by planning, processes, and reliable budgets; or they are uncertain, and we cannot manage them well at all. Fortunately, there is another approach.”

Consider Thomas Bayes, an English statistician and clergyman, who proposed a theorem in 1763 that would forever change the way we think about making decisions in ambiguous conditions. Bayes was interested in how our beliefs about the world should evolve as we accumulate new but unproven evidence. Specifically, he wondered how he could predict the probability of a future event if he only knew how many times it had occurred, or not, in the past. To answer that, he constructed a thought experiment.

Imagine a billiard table. You put on a blindfold and your assistant randomly rolls a ball across the table. They take note of where it stops rolling. Your job is to figure out where the ball is. All you can really do at this point is make a random guess. Now imagine that you ask your assistant to drop some more balls on the table and tell you whether they stop to the left or right of the first ball. If all the balls stop to the right, what can you say about the position of the first ball? If more balls are thrown, how does this improve your knowledge of the position of the first ball? In fact, throw after throw, you should be able to narrow down the area in which the first ball probably lies. Bayes figured out that even when it comes to uncertain outcomes, we can update our knowledge by incorporating new, relevant information as it becomes available.

Read more the Full Article develop a probabilistic approach to managing uncertainty

Developing a probabilistic mindset allows you to be better prepared for the uncertainties and complexities of the Algorithmic Age. Even when events are determined by an infinitely complex set of factors, probabilistic thinking can help us identify the most likely outcomes and the best decisions to make.