March 19, 2024

Making Decisions in Uncertain Times

Tough Decisions
“In a crisis situation, decision making is hampered not only by greater uncertainty, but also because the time-frame we have in which to make decisions is shortened.”

Complexity and Information Overload - The Enemies of Rational Decision Making

Two of the greatest enemies of effective decision making are complexity and information overload. In the current environment, we risk being overwhelmed by both.

Complexity is higher than ever because of the continually evolving nature and interconnectedness of the macro and socio-economic environments, heightened geo-political risks and the growing involvement of technologigal developments in these arenas. All of this creates much uncertainty about the medium and longer-term outlook and muddies the waters for policy responses

Information overload is a feature of 21st century life as rapid advances in technology and social media massively increase the flow of information that we are subjected to[1]. Information overload can be defined as having more information than we are capable of processing in the time available to do so. In a crisis situation, the phenomenon is exacerbated because the time frame in which we have to make decisions is often shortened.

When we suffer from complexity and information overload, we experience cognitive stress. To try and relieve this we resort to what behavioural scientists call heuristics. These are short cuts, tricks or rules of thumb that enable us to make decisions rapidly when under pressure or when we have reached the limits of our cognitive or analytical capacity. Many common heuristics are based around forms of pattern recognition. These can be extremely effective when patterns are recurring and consistent, but when the situation is changing, they may lead to errors of judgement or systemic biases.

Even Expert Decision Makers are Fallible Under Pressure

A recent study[2] showed that financial market professionals, when overloaded with information, shifted from an analytical decision process to a more intuitive process and that when this happened, their performance in a simple recall task deteriorated. The study also revealed something fascinating about more experienced decision makers. Compared to inexperienced participants in the experiment, the more experienced decision makers started out with a more intuitive and less analytical process. Years of experience had seemingly made them more confident in their pattern-based judgement, and perhaps given them a greater repertoire of patterns against which to make comparisons. However, as soon as the environment became unfamiliar, these patterns failed, and their performance deteriorated as much as that of the inexperienced decision makers.

This means that when operating in a crisis response situation, the leaders of organisations, experienced decision makers and so-called “experts” can be just as vulnerable to systemic cognitive biases and simple errors of judgement as the less experienced. Organisations need to recognise this risk and prepare themselves by improving decision processes. There are three effective tools they can use:

Three Steps to Better Decisions in a Crisis

1. Educate decision-makers in the basic cognitive decision processes. Giving people an understanding of the established patterns in human preferences across different time periods, risk profiles, and social interaction and helping them to recognise known cognitive biases can significantly improve decision making. Organisational decision processes can also be improved by building an effective choice architecture and by establishing behavioural norms which mitigate the risks of groupthink and leverage the different skills and perspectives of a team.

2. AI can play a signiifcant role in improving decision making, when it is used to inform human judgement and choice. AI-based tools can process vast amounts of information very quickly, countering the issue of information overload. They can also solve for complexity by rapidly identifying patterns in even the largest data sets. It is important, however, to use AI in conjunction with the human capability for inferential thinking in all but the most certain decision-tasks.

3. Scenario planning[3] is one of the most effective tools there is for improving decision making under pressure. Effective scenario planning leverages the advantages of heuristic decision making. If we can free ourselves from the anchors of our current thought patterns and views and consider multiple, plausible, future states, we are creating patterns that we can fall-back on under pressure in the future.

“Forethought we may have, undoubtedly, but not foresight.”

— Napoleon Bonaparte

The scenario planning process allows us to consider many possible future outcomes, so long as they are plausible. Removing the shackles of trying to assign probabilities to outcomes allows us to focus on those which will have the greatest disruptive or transformative impact on the organisation or industry in question. If a future path is relatively certain, or it is easy to assign a probability to, it should not, theoretically, be exposed to our heuristic decision processes. These events fall into mainstream strategy and can be subjected to the normal tried and tested analytical processes.

Equally, it is often not the once-in-a-lifetime outliers which cause the biggest problems. These events, out in the tails of the distribution, will happen occasionally, but if they are entirely unexpected, they usually allow us to look at them through a relatively uncluttered lens. The problems arise when we get unexpected outcomes to expected events. When an event is anticipated, we have set expectations about the outcome, we have already made assumptions and judgements and we become anchored by these. We look at the unexpected outcome through the lens of our prior perspective.

A global economic recession cannot be described as a tail-risk event, and just about any contingency planning process worth the name will have discussed a future global health crisis as a possibility, let alone the risks of an escalation in armed conflict, with its implications for global trade and supply chains.  What will cause the greatest disruption, however, is ineffective decision-making in the heat of the moment: Attempts to model future developments on irrelevant past events, polarisation of views leading to decisions being made with only a fraction of the available information, and high levels of emotion attached to these polarised views. These are the hallmarks of increased complexity and information overload.

The current business environment is tough and there will be many more twists in the tale. The implications for the workplace, people's wellbeing and the economy will play out over many years. However, organisations and individuals can prepare themselves if they begin right away. Not by trying to predict the most likely course of events, but by mapping interconnectedness and identifying as many of the plausible disruptive outcomes as possible, then exploring what they can do, should any of these patterns play out, and shoring up decision making processes so that they do not panic when events take an unexpected turn.

[1] In 2018 it was estimated that 90% of the world’s data had been created in the previous two years.

[2] The paper, entitled A Study of the Effect of Information Overload on Financial Market Decision Makers, was written by the author of this piece in conjunction with the London School of Economics and Political Science.

[3] There are a number of scenario planning methods and tools. MindAlpha uses the Oxford Scenario Planning Approach (OSPA) which we believe to be the most effective, most robust  and most rigorously researched process there is.

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