Want to keep learning?

This content is taken from the University of Groningen's online course, Decision Making in a Complex and Uncertain World. Join the course to learn more.

Skip to 0 minutes and 10 seconds In this lecture, we deal with a question of how to deal with uncertainty.

Skip to 0 minutes and 18 seconds Many consequences of our actions and our decisions are not certain. We have to make a decision between risk and uncertainty. Under risk, probabilities can be calculated. This is impossible under uncertainty.

Skip to 0 minutes and 37 seconds Uncertainty has always existed, and will always exist. Uncertainty is inescapable for human beings. How do we deal with that? There are several mechanisms.

Skip to 0 minutes and 54 seconds First one is that we assume that the future is like the past. And then we apply, for example, probability theory, or we calculate models the basis of past experience.

Skip to 1 minute and 10 seconds But that’s not always possible, and it’s by far not the only response to uncertainty. Rules, norms, and conventions create conditions for order, which is an abstract set of possible outcomes.

Skip to 1 minute and 28 seconds They describe what not to do, or what to do, and they make possible that there’s a whole set of possible outcomes. But not everything can happen. So they create a certain order. For example, in traffic, we have many rules. A very important one is, of course, the decision to drive either on the right side or the left side of the road. But that decision and that rule creates a certain pattern. If you look at traffic, it’s not random. It has a certain pattern. But there’s a lot of variation within that pattern. That’s what we mean by an abstract set of possible outcomes, an abstract order. Part of the rules and norms in society are ethics and morality.

Skip to 2 minutes and 22 seconds Rules to tell you what should be done, and, more often, what should not be done. Also, these rules, ethics, and morality create an order. Make life predictable, to a certain extent.

Skip to 2 minutes and 40 seconds What we do is we try to imagine the future. We build a limited number of scenarios to focus our thinking about the future and the actions to be taken on that basis.

Skip to 2 minutes and 58 seconds We create buffers and redundancies to create response time to unfortunate events and surprises, and also to create resilience and to ensure continuity and survival. The first, for instance. Think about dikes that we build to be protected again storms and floods that we cannot fully predict. In cars, we have airbags. So these are examples of buffers. The same goes for the financial sector. Banks hold capital and liquidity to be protected against events that you cannot predict and that you cannot foresee. Redundancies. If you look at an airplane, it has more than one engine. You have fuel tanks that can contain more fuel than you need if everything goes as expected, but it doesn’t always goes as expected.

Skip to 4 minutes and 6 seconds A further mechanism to deal with an uncertain environment, an uncertain world, is alertness. To be sensitive to what might happen, both in positive and negative things. So, both sensitive to opportunities and in threat. Be alert in an environment where you may be surprised.

Skip to 4 minutes and 34 seconds We experiment or stumble on other their ways of solving problems, of other ways of doing things. So-called trial and error. And learn from the errors and continue to do what worked. This is the mechanism of evolution.

Skip to 4 minutes and 56 seconds In economics, it is represented by competition, entry of new firms, and exits through mergers and acquisitions or bankruptcies.

Skip to 5 minutes and 11 seconds In a world where you will be surprised, in a world with uncertainty, in our world, leadership and entrepreneurship are important. Leadership to choose direction, and entrepreneurship to dare to look into the unknown future. The unknown and unknowable future.

Skip to 5 minutes and 38 seconds We have developed so-called institutions, organisations, or things that have a certain function in our daily life, in our daily decisions, that help us to deal with uncertainty. Think about language. Think about markets. Money. Contracts. Legal systems. Also, history and historical awareness and culture. Let me give one example of how an institution may help us to deal with uncertainty. Look at money. Why is money so important in an uncertain world? Because it gives you flexibility. It allows you to postpone decisions, not to commit yourself, and to be very flexible if a new opportunity arises or if a threat occurs. Money allows you to very quickly move from one activity to the other.

Skip to 6 minutes and 45 seconds It is an institution that we have stumbled upon that helps us to deal with an uncertain world.

Skip to 6 minutes and 53 seconds A social system is complex and open-ended because of uncertainty. It has no knowable endpoint. No knowable point of risk. No equilibrium.

Skip to 7 minutes and 10 seconds It is in constant flux and change within an overarching abstract structure.

Skip to 7 minutes and 22 seconds Describing and analysing situations of uncertainty, like describing and analysing complexity, require specific language, specific methods, specific science.

Skip to 7 minutes and 38 seconds In this lecture, we have briefly dealt with the mechanisms that mankind has developed to deal with uncertainty. To deal with the fact that you cannot know the future.

How do we deal with uncertainty?

This lecture explains which mechanisms we use and apply to deal with uncertainty. As you will see, some of these mechanisms are regularly used in everyday life. Others can be learned and applied by yourself.

Share this video:

This video is from the free online course:

Decision Making in a Complex and Uncertain World

University of Groningen

Get a taste of this course

Find out what this course is like by previewing some of the course steps before you join: