Category: Planning

(P4): Problems with Assessing Future Risk and Uncertainty

A swampy marsh with a fog making it hard to see any distance.

  • 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.

(P3): Compounding Error

A fully detailed fossil of a small crocodile-like dinosaur in a dark rock.
Death Of The Dinosaurs

There is a deep similarity between the way we have used fossil fuels and debt to drive our political and financial economies, respectively. And the results of this use are also very similar:

  • There are unavoidable limits to both. These limits are not just an amount (quantity in fuels and bubble size in debt), but that both become increasingly difficult to extract or expand as their use increases.
  • The habit of their use also makes it increasingly difficult to change their use or reduce the level of use. This is a species of addiction. If an addict community’s purpose is to facilitate the procurement and use of some drug, our habits in the use of fossil fuels and debt accomplish the same outcome.
  • Their use is always to allow short-term success and a parallel ignoring of long-term consequences.
  • When the consequences become too great to ignore, very significant costs are required to alleviate these accumulated consequences.
  • At the same time, the costs of dealing with the consequences of short-term, non-strategic use further undermines the original advantage of their use.

This cycle of short-term planning in the use of resources (fossil fuels and debt) and the lack of attention to consequences is fractal. That is, the errors occur systemically at every level. It is a characteristic of our complex adaptive social system, and it has as much to do with the momentum of our ever-increasing loss of control over our future as anything else that we believe to be wrong in our society.

We can’t use the way we created and maintain the degradation of our society to change that degradation in anything other than small ways (that is, in ways that don’t change the strategic degradation but may make it worse).  These small improvements will wash out in the same way that ripples from the splash of a small stone wash out in a river.

There is no logic model to resolve the forces driving our complex adaptive disintegrating social system. We need a strategy, not more short-term operational planning.

(P1): Driven behavior always biases risk assessment

Movie stunt of an actor leaping from one car to another in mid air. There is a tank crushing the car he is leaping from
What if this wasn’t a stunt?

Resources:

Some adolescent males reliably do very dangerous and stupid things that violate common sense. A meaningful number die as a result. They do so because they are driven to show off. They don’t think about getting hurt or dying, they don’t assess the cost of their death on those who care about them, they don’t pay any attention to who else will be hurt. They do this because they are driven to take risks and pay no attention to the actual uncertainty of injury. In the decision-making moment, they have no common sense.

Lest you think that this is only an issue for teenage boys, let me remind you that all driven behavior whether toward or away from something (drugs, sex, rock and roll, mountain climbing, extreme sports, casual investment, gambling, and all the subsidiary behaviors that go along with driven behavior, as well as all fear-driven choices) reliably produce an ignoring of risk and uncertainty or severe underestimation or overestimation of it.

This lack of respect for real uncertainty and the acceptance of the real uncertainty in life becomes especially damaging when the decision makers have no “skin in the game”, which is to say when someone else pays the price for their decisions. There are so many examples of this, and there are so many new ones that surface every day, I won’t bother to give examples.