A leader’s guide to decision making under uncertainty

Uncertainty is normal for leaders of the high growth businesses that I work with. The Coronavirus pandemic has taken this to another level. Asked by clients for advice on how to navigate this crisis, I’ve pulled together thoughts and key resources into this guide. It draws upon evidence from behavioural and decision making psychology, the latest leadership thinking, and my own experience working at Her Majesty’s Treasury during the Great Financial Crisis and navigating the uncertainty of cancer.

I help entrepreneurs and investors navigate business and personal growth in a complex world. Sign up to my Monthly Newsletter: a curation of blogs, articles, books and podcasts about the future of leadership. Follow me on TwitterLinkedIn and Instagram.

Decision making under uncertainty: a guide for leaders

The psychology of decision making under uncertainty

Science can explain Why Uncertainty Is So Hard on Our Brain, including the impact of uncertainty on Anxiety and Decision-Making. The short version is that evolution has seen to it that humans don’t like it. Our ancestor’s ability to predict the whereabouts of local tigers (so as to avoid them) or wooly mammoths (so as to to be able to hunt, kill and eat them) significantly increased their chances of survival. Knowing how and why things happen and what is going to happen in the future is comforting. It creates an illusion of control.

Uncertainty has the opposite effect. At a neurobiological level, our limbic brain translates uncertainty into a strong threat or alert response, at the expense of our neo-cortex, the thinking part of our brain. Our feelings range from general uneasiness to outright anxiety and panic. Our ability to focus and make good decisions is impaired, which has obvious consequences for leaders.

1. Embrace a simple decision making framework

Running decisions through a framework is an efficient way to to alleviate the impact of stress upon our cognitive processes and remove common systemic biases which we’ll discuss below. Chip and Dan Heath’s WRAP decision-making framework, from their book Decisive: How to Make Better Choices in Life and Work (Amazon UKUS), works well in uncertain situations. This summary of the four villains of decision making – narrow-framing, confirmation bias, short term emotion and over-confidence – provides further context.

Widen your options

Narrow framing is “the tendency to define our choices too narrowly, to see them in binary terms.” Humans tend to do this anyway, but the cognitive impairment associated with uncertainty accentuates this trait. Take what time you do have to consider additional options, other than those that are immediately obvious.

Ask yourself: are there other options here? If I couldn’t choose any of the current options I’ve identified, what else could I do? This is called the vanishing options test; it forces you to come up with alternative solutions.

Reality-test your assumptions

In the traditional leadership paradigm, leaders were considered to be the experts with all the answers. We now know this to be a fallacy. Leaders lack a crystal ball, just like the rest of us. So it’s important that they reach out and rely on the diverse opinions of their team – more inputs lead to a less individually distorted view of reality. Intentionally taking other people’s perspectives stretches the mind and makes it possible to see new options, says leadership expert Jennifer Garvey Berger in her book Simple Habits for Complex Times: Powerful Practices for Leaders (Amazon UKUS).

Chip and Dan Heath remind us that “to make good decisions, CEOs need the courage to seek out disagreement” in order to weed out confirmation bias – the tendency to search for, interpret, favour, and recall information in a way that confirms or strengthens one’s prior personal beliefs or hypotheses – and over-confidence. They tell the story of Alfred Sloan, the former CEO and Chairman of General Motors, who once interrupted a committee meeting with the question “I take it we are all in agreement on the decision here?” All the committee members nodded. “Then I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement.”

Ask yourself: who have I not consulted with about this decision that could provide valuable inputs and perspectives? What might I be over-confident about?

Attain distance before deciding

Sloan’s illustrative approach makes sense when there is time to delay decision making to allow time for more creative solutions to emerge, as our brain subconsciously mulls over ideas. In crisis situations you don’t have that privilege. The risk is that short term emotions take over and cloud your judgement. That’s why, in all but the most imminent situations, you need to use what time you do have to consult with those around you. You should also stand back and take some deep breaths before launching into action. 

McKinsey’s first principle for Decision making in uncertain times is to “pause and take a breath – literally. Giving yourself a moment to step back, take stock, anticipate, and prioritize may seem counterintuitive, but it’s essential now.” 

Breathwork is so important that it is taught to emergency services and military personnel worldwide, as Lt. Col Dave Grossman explains in his book On Combat: The Psychology and Physiology of Deadly Conflict in War and Peace (Amazon UK, US). Bringing our autonomic nervous system, which includes the sympathetic nervous system, or fight or flight system, under some control allows us to think and act more clearly.

Ask yourself: have I taken necessary time out, as brief as it may be, to reflect on this decision? Am I diving in more quickly than I need to?

Prepare to be wrong

In crisis situations, decisions must be made on the basis that the outcome cannot be known with any degree of certainty. You can choose to bet-the-business or your career on a particular outcome, but if you’re wrong, you will almost certainly fail outright. So, what can you do to give your decisions the best chance to succeed? Here’s some suggestions:

Probability-weight your decisions – former world champion poker player Annie Duke explains:

Over time, those world-class poker players taught me to understand what a bet really is: a decision about an uncertain future. The implications of treating decisions as bets made it possible for me to find learning opportunities in uncertain environments. Treating decisions as bets, I discovered, helped me avoid common decision traps, learn from results in a more rational way, and keep emotions out of the process as much as possible.

Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts (Amazon UK, US)

Optionality – in Preserving Optionality: Preparing for the Unknown, the article’s author asks “how do we prepare for a world that often changes drastically and rapidly?” The answer, “we can preserve our optionality. 

Tren Griffin offers up more advice from Nassim Taleb about what optionality is and its benefits: “Being able to make decisions which do not require correctly forecasting the future is a wonderful thing”.

Reversible decisions – Go Fast and Break Things: The Difference Between Reversible and Irreversible Decisions:

Reversible decisions can be made fast and without obsessing over finding complete information. We can be prepared to extract wisdom from the experience with little cost if the decision doesn’t work out. Frequently, it’s not worth the time and energy required to gather more information and look for flawless answers. Although your research might make your decision 5% better, you might miss an opportunity.

Ask yourself: have I tested my options against the probabilistic outcome? Am I keeping my options opens where possible, or shutting them down unnecessarily? Is this decision reversible? 


2. Know when, and when not, to trust your intuition

Intuition (or gut feeling) is not a mystical sixth sense: intuition is nothing more and nothing less than recognition”. When we experience something either directly (first hand), or indirectly (we’ve read, heard or been told about it), our brains register the information and store it away in our subconscious. When we later encounter a similar situation, our brains pattern match the previous experience with the current one and reach a conclusion about how to respond. The information our brain is sending us may be right but it may be wrong.

According to Daniel Kahneman, one of the world’s leading experts on decision making and behavioural psychology, there are three conditions under which it is wise to trust our intuition:

1. The environment is regular, unchanging or slow to change
2. Situations in which we have had a lot of practice
3. We receive immediate and accurate feedback

Because of the first two conditions, trusting our intuition in rapidly changing, uncertain situations, of which we have had little or no previous experience, can be dangerous. As for the third condition, whilst we might receive fast feedback in an uncertain situation, it’s not necessarily helpful if we’re proved wrong (see ‘Prepare to be wrong’ above).

Other experts don’t agree with Kahneman. Gerd Gigerenzer argues that many results in behavioural psychology that appear irrational can be understood as sensible ways of coping with complexity. He promotes using gut feelings as Short Cuts To Better Decision Making (also discussed in this podcast). Another psychologist, Gary Klein, shares this view:

When we are faced with a similar problem, there is a good chance that the first solution we recognise is going to work. Why? Because in most settings we don’t need the best option – we need to quickly identify an acceptable option. Possibly there might be a better one, but if it takes hours to find and evaluate, then there is no practical benefit from searching for the optimal course of action. As the old saying goes ‘better is the enemy of good’.

The Power of Intuition: How to Use Your Gut Feelings to Make Better Decisions at Work (Amazon UKUS)

Ask yourself: What is my intuition telling me to do? Should I be trusting it right now?


3. When the time comes, act

When the time comes to act, that is what you must do. Waiting until you have more information to decide is a decision in itself, and more information does not necessarily lead to a better decision.

In 1974, the psychologist Paul Slovic fed 8 professional horse handicappers information about 40 horse races over a serious of 4 rounds. He asked them to predict the winner of each race and to state how confident they each were in their prediction. In the first round, with just five pieces of information, the handicappers were 17% accurate with a confidence rate of 19%. In the second round, they were given ten pieces of information. In the third round, 20 pieces of information. And in the fourth and final round, 40 pieces of information. The results? Their accuracy flatlined at 17% after the first round. They were no more accurate with the additional 35 pieces of information but their confidence nearly doubled, to 34%.

The additional information made them no more accurate but a whole lot more confident… Beyond a certain minimum amount, additional information only feeds what psychologists call “confirmation bias.” The information we gain that conflicts with our original assessment or conclusion, we conveniently ignore or dismiss, while the information that confirms our original decision makes us increasingly certain that our conclusion was correct.

This guide is intended to help you quickly filter your decisions and arrive at a ‘good’ decision. At the height of the Coronovirus crisis, Executive Director of the World Health Organisation, Dr Michael J Ryan summed this up eloquently.

Alternative wisdom comes from Joe Simpson, the British mountaineer recounts his decision to lower himself further into a crevasse in order to try and escape the mountain that looked certain to claim his life, he says:

You gotta make decisions. You gotta keep making decisions, even if they’re wrong decisions. If you don’t make decisions, you’re stuffed. 

Touching the Void (Amazon UK, US)

Ask yourself: do I have enough information to make a decision? What information would I like but either don’t or can’t have? Am I delaying this decision longer than I should be? 


4. Rise to the leadership challenge

Making sense of it all

Sensemaking is the process by which people give meaning to their collective experiences. It is the process of “structuring the unknown” by “placing stimuli into some kind of framework” that enables us “to comprehend, understand, explain, attribute, extrapolate, and predict”. Sensemaking is a core developmental skill for leading in complexity. Leaders must, in the words of Ron Hefeitz, be simultaneously on the dance floor among the action, and standing up on the balcony looking down at the dance floor to gain more perspective. 

We all make sense of the world differently. I’ve been struck during the Coronavirus crisis by the different ways in which we are all doing this; from outright fear and paralysis, to stoicism and feelings of not knowing what all the fuss is about. If you have found yourself struggling to make sense of it all, then you’ll understand how uncertainty disturbs our sensemaking process.

You are not alone. Your team is also struggling to make sense of it all. They are not making sense of this the same way as you are. Your fears are not necessarily the same as their’s. In times of crisis, it’s more critical than ever to take time to explore with your team how they are making sense of it all. With this understanding you’ll be able to support them, and make decisions based on their needs, more appropriately.

Ask your team: “how are you making sense of this?”

Communicate, communicate, communicate

We’ve already explored the importance of listening to and actively seek input from your team in order to aid decision making and decisive action. This is emphasised in the following Ben Horowitz quote from the article Crisis Leadership: 18 Questions to Ask Your Team to Thrive in Difficult Times, which also provides a wealth of additional resources on managing two way communication.

You have to be able, when making critical decisions, to be able to see the decision through the eyes of the company, and the company as a whole. Which means you’ve gotta add up every employees view then incorporate that into your own view, otherwise your management decisions are going to have very weird side effects and potentially very dangerous consequences.

Finding out information from your team is critical. But it’s also critical that they are getting all the information they need from you. Timely, clear communication is key in times like this. Let trust be your foundation. You can’t provide guarantees during uncertainty but you can provide reassurance.

Ask yourself: am I communicating my decisions, and expectations, with my team? Am I providing them with the reassurance that they need?

Stepping up

How you respond and lead your team through a period of deep uncertainty will define you as a leader for years to come. In Leadership in a crisis: Responding to the coronavirus outbreak and future challenges, McKinsey provide helpful guidance on the character expectations of leaders:

The best [leaders] will display several qualities. One is “deliberate calm,” the ability to detach from a fraught situation and think clearly about how one will navigate it. Deliberate calm is most often found in well-grounded individuals who possess humility but not helplessness. Another important quality is “bounded optimism,” or confidence combined with realism. Early in a crisis, if leaders display excessive confidence in spite of obviously difficult conditions, they can lose credibility. It is more effective for leaders to project confidence that the organization will find a way through its tough situation but also show that they recognize the crisis’s uncertainty and have begun to grapple with it by collecting more information.

Ask yourself: am I being the leader that I want to be; the leader that I would want to be led by? If not, why not, and what is within me to change and adapt?

Release the pressure

Leading through a crisis is really hard. Making quick decisions under conditions of deep uncertainty is scary. Taking responsibility for a team that is relying on you is exhausting. I’m already having coaching conversations with clients in which they are reflecting on their recent decisions relating to the handling of the Coronavirus crisis and feeling regret or remorse.

Legendary investor Howard Marks has some wise words of advice about decision making:

The correctness of a decision can’t be judged from the outcome. Nevertheless, that’s how people assess it. A good decision is one that is optimal at the time it is made, when the future is by definition unknown. [It is] one that a logical, intelligent and informed person would have made under the circumstances as they appeared at the time, before the outcome was known.

When all is said and done, it’s important to remember that you cannot be a perfect leader, making perfect decisions, all of the time. This seminal article In Praise of the Incomplete Leader emphasises this:

Most leaders experience a profound dichotomy every day, and it’s a heavy burden. They are trapped in the myth of the complete leader —the person at the top without flaws… It’s time to put that myth to rest, not only for the sake of frustrated leaders but also for the health of organizations. Even the most talented leaders require the input and leadership of others, constructively solicited and creatively applied. It’s time to celebrate the incomplete—that is, the human—leader.

Ask yourself: what have I done well through this period? What do I need to take a moment and give myself credit for?


If you enjoyed this, you might like:

My article about Colonel John Boyd, in which I discuss his OODA loop, another famous example of a decision making framework designed for use in fast moving situations.

I help entrepreneurs and investors navigate business and personal growth in a complex world. My clients are leaders in disruptive, high-growth technology businesses and the investment industry. Sign up to my Monthly Newsletter: a curation of blogs, articles, books and podcasts about the future of leadership. Follow me on TwitterLinkedIn and Instagram.