‘Uncertainty’ has always been a part of our lives. It has gained a mainstream presence in the last few years. I have spent a lot of time on the topic trying to build mental models around it. I have read multiple articles on uncertainty and ambiguity with approaches to handling it. But these articles define uncertainty at a very abstract and macro level which is not useful for people and in day-to-day life. Also, there is always a negative undertone attached to it whenever it gets discussed.

I want to share my perspective across four key points:

1. Common situations.
2. How to think about uncertainty and ambiguity? and the role of the education system.
3. Disproportionate returns in an uncertain environment/situation.
4. Practical framework for taking decisions in uncertain situations.

Common situations

• Should I choose career A vs career B?
• Will it be better to focus on Project A vs Project B?
• Will a startup make sense in Industry A vs Industry B?
• Should I raise funding or bootstrap?
• Should I stay in City A vs City B?
• Is college A better than college B?
• Should I go to the office or work from home?
• Should I hire Candidate A vs Candidate B?
• How will the macro environment shape up?
• Will inflation remain at elevated levels?
• Will central banks further increase interest rates?
• Should I take a variable rate vs fixed rate mortgage?

How to think about uncertainty and ambiguity? and the role of the education system.

Uncertainty and ambiguity are the core ingredients of decision-making. If there is no ambiguity in life, will it not get boring? I think it will be very boring if there is nothing to choose from. Will you like a sports game if the outcome is pre-decided before the game begins? Also, is it always important to take a decision, some times a decision has to be taken to defer a decision in uncertain times?

I understand that it is uncertainty can be unnerving and not always good. I also understand that markets do not like uncertainty but hey, let’s think about your personal life and the situations mentioned above. You can not leave them out of your life. These are a part and parcel of life. Hence my point- uncertainty is not always bad, it is a part of life.

The reason we hate uncertainty and run away from decision-making is the way our education system is designed. The syllabus is already defined, and the path to success (which is doing assignments, writing exams, and scoring well) is pre-defined. I am not criticizing the education system but pointing out the reasons why people hate ambiguity in their lives, and why people run away from decision-making or take sub-optimal decisions.

Acknowledging that ambiguity is not always negative and you(we) have not been trained to handle is the first step to conquer it.

Disproportionate returns in an uncertain environment/situation

Most of the disproportionate returns have been made by decisions made during the uncertain environment. Some of these decisions are made by choice, some are mere luck.

• Investment in technology stocks when no one believed in the technology growth.
• Learning skills/coding/programming languages which are now in demand.
• Getting a fixed-rate mortgage just before the interest rate hike cycle.
• Choosing to live in a city where a large corporate has now planned to set up its headquarters and factories.

The above decisions could have been taken with due diligence or might have been luck but all of these had disproportionate(exponential) returns.

Similarly, most of the wealth destruction also happens during uncertain times.

If we know that uncertain times can lead to disproportionate outcomes, it is important to embrace it and try to get the most out of it.

Practical Framework for taking decisions in uncertain situations

Here is a practical framework I generally use:

1. Acknowledge: Always keep it on top of your mind that you are not trained to solve for ambiguity and uncertainty.
2. Identify: Identify the uncertain situations. Every situation is not ambiguous. Do not make your life miserable by thinking that you are always in uncertain situations.
3. Understand Impact: Not all situations have a career-defining impact. Key decisions like career choice, investments, choosing a life partner, etc (you get the drift here) are the ones that have an impact on your life and require thought compared to choosing between red vs white shoes for a party.
4. Get to know the timelines: Once a decision is classified as important, it is time to understand the timelines of decision-making. Putting decisions on hold/leaving them to faith is the instinct in these situations. Stick to the timelines and decide within the timelines.
5. Get relevant information: Information arbitrage is real. Relevant information can be your friend in reaching the right decision. The more relevant information you can get on the situation, the better your decision.
6. Consult: Always check your important decision with neutral experts and mentors. In the age of the internet, we often forget to get a perspective from folks around us.
7. Repeat: Repeat the cycle until you get to the right decision.

It is not necessary that you will get the right answers the first time around but by being conscious and following a process you will help you get better at it.

Embracing ambiguity is not a choice but a necessity. By reframing uncertainty as an opportunity, and cultivating a growth mindset one can position themselves at the forefront of change. In a world where uncertainty is the new norm, those who embrace ambiguity will not only survive but thrive, unlocking their full potential and achieving remarkable success.

Disclaimer:https://vinaysachdeva.com/disclaimer/. The opinions expressed in the blog post are my own and do not reflect the view(s) of my employer.