Tyler Reed blogs about entrepreneurs having to make decisions with limited information.
It’s almost all unknown
I don’t disagree. It’s just that almost every meaningful decision ever made is made without all the information.
Unknowns can be categorised a hundred different ways. One way is to think about:
- Unknown past information
- Uncertainty around the current situation or position
- Unknown future outcomes
Even a game like chess, where the past history of the game is easily known by good players, the current position is clearly visible and all the possible moves are knowable, it is not possible have all the information about how your opponent will react to your move.
How to deal with decision making under uncertainty – part 1
Tyler suggests that gut-based decision making can be effective much of the time – and it can. It there genuinely is no time for anything more than an instinctive reaction, you probably are best going with your gut.
Even if you have plenty of time, listening to your guy to formulate an idea is a great idea. Insight comes partly from experience and the reinforced neural pathways of our learning brain. If you stop with the gut though, you are missing out. There is a tremendous amount of research showing how ridiculously badly our instincts perform in many areas, particularly those relating to uncertainty and complexity!
The way to use your instincts is to create hypotheses or theories to test and evaluate with real information and analysis. Prove that your instinct is right and you’re good to go. Try really hard and not disprove it, without coming up with better ideas, well maybe it’s worth giving it a shot anyway. Realising that your immediate feelings were deeply flawed? Priceless.
How to deal with decision making under uncertainty – part 2
Tyler also gives four suggestions if you don’t want to merely follow your instincts blindly.
- Stop and Think
- Ask for Advice
- Give it Time
- Relax and Have Fun
These probably aren’t the four worst ways to make decisions, but they’re certainly not the best.
Stop and Think is merely an invitation not to follow your gut. No news here.
Ask for Advice is actually pretty good. It’s just not the correct first step though (more on that in a moment).
Give it Time can also work, but on its own its just a different way of using your instincts. You’ll never know if, how or why you changed your mind. You also put yourself at extreme risk of confirmation bias.
Relax and Have Fun certainly sounds like a good idea, although whether it will give rise to good decisions depends very much on the time of industry and type of problem. In the same way that brainstorming is a good method for marketing and social appeal of ideas (it was invented by Alex Oxborn, an advertising manager) but not great for most other problems, relaxing and having fun offers no real promise of sophisticated decision making with uncertainty and complexity.
How should you make decisions with limited information?
I’m not going to say there is one correct way, but the following points are helpful:
- Work out, very specifically, what problem you’re trying to solve or what question you’re trying to answer. Sometimes framing the question clearly can provide its own insights. Further, if you are to work collaboratively with others, or seek advice, you’ll have to have a very clear idea of what you’re trying to achieve. Communication is critical to teamwork.
- Work out what information you have, what you need, what you could get, where you can get it and what the costs might be of obtaining this information. Now you can ask for advice because you know what you’re asking for.
- Use your instincts and initial thoughts and feelings to generate some avenues of investigation or hypotheses to test
- Actively work to generate new ideas and possible solutions or lines of investigation. Here, brainstorming might be useful as one method. Consider similar problems, examples or analogies from other people, other organisations, other industries, other countries and cultures, other time periods. This is where you get to be creative. Don’t worry too much about whether or not the ideas are workable – that comes later.
- Categorise and prioritise the information, questions and hypotheses. As you finish generating ideas, you need to start synthesizing the ideas into useful units.
- Critical evaluate the ideas, using logic, analysis, modelling and frameworks. Evaluation here requires both sides of the coin. What are the problems, the flaws, the risks, the reasons it can’t work. Then, what can we change, tweak, fix or improve to get around these problems or otherwise improve the scenario.
Throughout, ensure you keep the big picture in mind, that you remember what you’re trying to achieve. The dangers of under-analysis are only trumped by too much, misdirected meandering analysis. Keep it focussed.
The steps above don’t necessarily have to be done in order, and typically each step can be revisited several times during the process. These ideas borrow heavily from Edward de Bono’s Six Hats of Thinking.
The point here is that complexity and uncertainty requires a more, not less, structured approach to use as much information as possible and to avoid many of the heuristic mistakes humans make. This is true in general, but even more so if you need to work in a team or need to convince external parties of your process to lend credibility to your decisions.