Radical uncertainty: just don’t get over it

In a new series of publications, we focus on decision making in times of crisis.

Mathematician and best-selling author Nassim Nicholas Taleb couldn’t have wished for a better illustration of his “black swan theory”. Although Taleb himself thinks it isn’t a black swan, there’s a good reason to disagree with him — the coronavirus pandemic is a type of animal that has never been seen before. With its enormous impact across the world, at all levels, the pandemic requires not only significant responses from individuals and governments, but an altogether different way of thinking about the future.

In our consultancy practice, we have seen all kinds of business leaders with a huge variety of approaches, but most of them still share one trait — they think about the future only in terms of risk, not uncertainty. What is the difference and why does it matter in a crisis?

Unquantifiable uncertainty versus foreseeable risks was once a fundamental distinction in the science of economics. However, this differentiation has gone out of fashion as more and more data has become available and researchers have developed increasingly refined tools with which to make predictions from it. At a certain point, it almost looked like even the most complex phenomena could be analysed and predicted by models and algorithms: market fluctuations, election results, military conflicts, climate change.

But lately, critical voices are beginning to gain ground in the social sciences. In 2016, Harvard University Press published a book by the sociologist Jens Beckert about the constant overestimation of the forecasting abilities of the markets. Academic and policy advisor John Kay, together with Mervyn King, the former governor of the Bank of England, just published a book that goes even further and introduces the concept of radical uncertainty. (Now that is good timing, isn’t it?)

If there is one lesson Covid-19 teaches us, it is that we need to start thinking about the future not just in terms of risk, but also in terms of uncertainty, and maybe not just any kind of uncertainty, but precisely this radical type.

What is radical uncertainty and how is it different from risk? In either case, we can’t predict the future. But the risk approach means you are treating the future as a set of certain possibilities that can be quantified (made into probabilities). Not to say this approach is unjustified — it is good enough for many applications, despite all our thinking biases that Daniel Kahneman has explained so well. Moreover, in domains that are rich in data, algorithms are not just good enough, they are much better than humans in their ability to make predictions. What is the optimal premium of a particular insurance policy? Should I remove my ovaries to avoid getting cancer? These decisions can already be outsourced to algorithms.

Where algorithms, cost-benefit analysis models and excel sheets are of no help is in dealing with uncertainty. Uncertainty occurs when it is not possible to compile a comprehensive list of future possibilities, or when there is no way to assess the probability of these scenarios. In its most challenging form — radical uncertainty — we don’t even know the parameters on which to build a model, or even a simple cost-benefit analysis. We don’t know what we don’t know — this is the definition of radical uncertainty.

On a brighter note, economists John Maynard Keynes and Frank Knight, who wrote about the concept of uncertainty 100 years ago, regarded uncertainty, not risk, as the lifeline of the economy. When markets are predictable, only modest profits can occur. Exponential growth demands extraordinary conditions. Those who can make sense of these extraordinary conditions are destined to become rich and be remembered, while peacetime managers rarely make it into the history books.

There’s more good news — we are all, in fact, pretty well equipped to deal with uncertainty. Come to think of it, many, if not most, of our real-life situations are more often comprised of uncertainty than of computable risks.

Let’s take an example, one that is much more common than leading a business or a country in the time of a global pandemic — the birth of a child. When you find out you are about to become a parent, there’s very little you know, except a very (VERY) roughly determined date of birth. During the course of pregnancy, you are handed down what seems to be a huge amount of information: whether you are carrying a single baby or multiples, of what sex, what is their chance of developing a genetic condition etc. However, the most important information is actually not provided. Nobody can tell you what your baby is going to be like. How will he or she change you? How will they change your relationship with your partner? What kind of parent will you be? Bringing a child into this world means sailing into uncharted territory. An uncertainty of the most radical kind, indeed.

Yet many of us, just ordinary people, accept this uncertainty and deal with it pretty well. It does not take a superhuman to succeed at uncertainty — our brains have evolved through solving these kinds of problems (and not computing risks), and are equipped to find a way. However, it takes courage to find this strength in the age of algorithms, models and excel sheets.

Brett Frischmann and Evan Selinger in their book “Re-Engineering Humanity” describe how intensive use of smart technology has an impact on our mind and behaviour. One of their grim findings is that reliance on various navigation apps makes us unable to navigate space on our own. And we’re talking about one of the fundamental human abilities here. What do they suggest to those who don’t want to lose this ability? Get lost! (As in, get lost in an unknown place.)Get lost and then find a way out on your own. It probably won’t be the fastest or the most direct route, but in finding it you will gain something much more important — the ability to deal with the unknown. With so many unknowns around us, be it climate change or political instability, we could really use some of these skills even after this pandemic is over. Especially if your job requires leadership and creative thinking, which is all about diving into the unknown.

What kind of leadership and consultancy is fit for radical uncertainty? Find out in the next article in this series.