- There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know. -Donald Rumsfeld
- THE PSYCHOLOGY OF PERCEIVING UNCERTAINTY
Human beings are notoriously poor at estimating risk in the real world. We are bad at it even when we are not affected by bias. But, we are all affected by bias:
- Confusing Uncertainty and Risk: We often assume that the risk of uncertain events can be calculated or intuited. That isn’t true in most of the real world. And, to the extent that we use risk calculation to make decisions when dealing with uncertainty, we will make bad decisions. Think Fukushima.
- Eliminating versus Mitigating Risk: Especially in nonprofit and public organizations, there is a belief that by eliminating the possibility of risk through an HR policy or some threshold limit, that we have actually protected ourselves or the organization. For-profit organizations tend to look for ways to mitigate rather than eliminate risk since they have a better appreciation of how difficult a challenge any uncertainty actually is.
- Bias in Driven Behavior: Assessing risk and uncertainty when the person or organization is using driven behavior (sex, drugs, and rock and roll for people, hyper-focus in organizations (or cults) as a way to deny uncertainty, fear of liability or some other unseen threat) is guaranteed to give you a false sense of actual uncertainty.
- Prospect Theory: This is the name for the bias that increases commitment to an already losing strategy. Endless examples……
- Behaving as though the nonlinear world is actually linear. Examples are the belief in single causes, that effort is proportional to an outcome, that starting points that are close to one another should have closely linked outcomes. There are many more.
Knowing that risk and uncertainty are not the same and that we tend to bias our estimates of them is not enough to prevent the problems mentioned above. We have to actually build our ability to overcome the bias and reflect on our inability to estimate uncertainty in our strategy and our planning.