All around us, companies capitalise on our need for certainty.
Equity research analysts predict corporate earnings. Algorithmic traders forecast stock price trends. Financial advisors project our future investments. We like the confidence that comes with certainty when we engage an expert. As Daniel Kahneman reminds us in his book Thinking, Fast and Slow: 'An unbiased appreciation of uncertainty is a cornerstone of rationality—but it is not what people and organisations want.'
This desire for certainty is embedded in how we are wired – it is a universal human bias.
We must ask ourselves whether being dogmatically certain can impair our judgment. It can even be detrimental when it comes to making complex decisions and solving large-scale problems, particularly in uncertain times like these. Might it be more beneficial for companies if leaders could admit to their ignorance and doubt? If so, what is the role of professionals in exploring these situations and the emotions associated with them?
The brain and certainty
We are hard-wired to seek certainty due to the brain’s unique capacity for prediction. When we can’t predict the outcome of a situation, the brain goes on alert. The emotional part– the limbic system – is activated. This system is like a hyper-vigilant watchman scanning incoming stimuli and deciding whether they are familiar or strange, certain or uncertain, friend or foe. When it perceives something as uncertain, a host of uncomfortable emotions such as fear, stress, unease and anxiety emerge and flood our physiology. In this state, we simplify our information processing to think faster and resolve the uncertainty. It is a systemic error in our thinking that affects the judgments and decisions that we make; also known as a cognitive bias. Uncertainty is more than just the degree of not-knowing. There is an emotional component to it that is critical to our decision-making. The feeling that arises from uncertainty, namely doubt, can either work for us or against us.
The four horsemen of uncertainty
In 2015 my colleagues at Saïd Business School interviewed over 150 CEOs for The CEO Report. With the UK transitioning out of the European Union and COVID-19 creating profound change and upheaval all around us, their insights seem more timely and relevant than ever.
When it comes to uncertainty, CEOs expressed a 'full palette of emotions from anxiety to excitement.' We know that these emotions can play out in a myriad of ways in their judgment and decision-making.
In dealing with uncertainty, some CEOs recognise the complexity of the issues but are caught up in angst, such that they continuously search for counterfactuals to speculate about how their decisions might turn out. Or they can become so focused on being right that they unknowingly look for evidence to confirm what they already believe. This can lead them to myopia and cause them to make hasty decisions or miss opportunities.
At the other extreme, CEOs who might not fully grasp the intricacy of their situation can become paralysed by continually second-guessing themselves, overthinking and over-analysing such that they waft between their alternatives and never commit to a decision. Perhaps, most dangerous of all are the CEOs who have an excessively positive view of their abilities and their company’s strength. The hubris-infected CEOs are fearless and brazen.
Former Chairman and CEO of Lehman Brothers, Dick Fuld’s misplaced confidence led him to believe in the unlimited potential of his company and not take into account how defaults on mortgages would affect his bank's financial position. The 2008 financial crisis revealed how a fearlessness in decision-making could lead to poor judgment, poor decision-making, poor governance, and poor leadership and management resulting in the downfall of several financial institutions that thought they were too big to fail.
It is paramount for CEOs and their leadership teams to recognise these aspects of their behaviour when they're confronted with uncertainty. It is too early to judge CEOs’ responses to the pandemic, but no doubt, we will see who are the clear winners and losers in the coming 12 to 18 months.
'While we are all too familiar with the risks of decision-making biases, it is fascinating to see how CEOs are using doubt as an antidote,' says Professor Michael Smets, lead author of the CEO Report, 'They suspend themselves in a tension between fearlessness and anxiety to avoid extreme reactions and make better decisions. Paradoxically, the more CEOs doubt themselves, the more confidence they have in the final decision.'
The power of doubt
CEOs who incorporate doubt into their decision-making add another layer of vetting to their process. Those with a willingness to embrace uncertainty and leverage the power of doubt can improve their judgment and make higher quality decisions. The insights captured in this report five years ago about how CEOs harnessed doubt are remarkably prescient and even more relevant and pertinent today.
Professor Tim Morris, principal investigator of the CEO Report says: 'We found that doubts are for the C-Suite what nerves are for elite athletes; if you can harness them, they become a positive force for better performance. If not, they derail you pretty quickly.'
In times of crisis, there is no blueprint for CEOs to follow, so it is difficult for them to forecast the outcomes of their decisions. They have to navigate the ambiguity relying on their curiosity and common sense, acknowledging that both are shaped by the emotions they experience in the face of uncertainty. CEOs who reported anxiety about their insufficient knowledge recognised doubt as a positive force to the extent that it instilled in them an 'honest humility about what they’re capable of knowing and an insatiable sense of curiosity.' CEOs who can reframe doubt as curiosity were more inclined to ask questions such as: What am I missing? How do I need to reframe this problem? Or, who has a different perspective? When doubt is used in this deliberate way, we adopt a learning and growth mindset.
Curiosity is about seeking out new knowledge and experiences, and it motivates us to learn. It is a fundamental element of our cognition and a useful function that we have to guide us through uncertainty. Curiosity can counteract and protect the mind from the number of potentially harming biases. By taking another view about the situation, perhaps focusing on a different aspect of it, or putting it in some greater context that changes its meaning, we can elicit different emotional responses to uncertainty.
Some CEOs in our report approached doubt on a more personal level by proactively seeking out diverse conversations and gathering information from a broad selection of sources for continuous learning. CEOs can benefit significantly from the varied opinions of those outside their organisation and industry. By designating panels or group members, and entrusting them to ask pertinent questions, CEOs will be offered different perspectives and alternative angles to explore. Outsiders can help them to see their own biases and balance their emotions more effectively. Even more critical, cross-discipline and cross-functional collaboration allows CEOs to be better systemic thinkers. Insights from multiple sources enable them to scan their environment to predict how trends and contexts may intersect, interact and change direction. This kind of ripple intelligence prepares them to anticipate disruptions, gives them time to plan and protect their companies against unexpected events.
Covid-19 has created a level of openness and collaboration that has not been experienced before in financial services. At UniCredit, CEO Jean Pierre Mustier has encouraged informal dialogue with people outside his organisation by inviting his fellow CEOs to reach out to him and put their teams in direct contact with those in UniCredit to exchange, help and learn wherever possible. The clear message is that companies like UniCredit can only master this extraordinary challenge if CEOs collectively come together to cultivate their doubt for continuous learning.
The pandemic has created discontinuity by abruptly dislocating entire economies, shuttering much of the world’s economies and triggering a global economic recession as a result of the lock-down. Further, it is forcing the inevitable digital transformation of many companies while threatening the survival and solvency of many others. The fallout from the pandemic also highlights the interdependence risk of globalisation as many companies across many industries rely on the modern global supply chain.
Successful CEOs will be those who can anticipate and devise adaptive mechanisms to confront the discontinuity – those CEOs who, in effect, can harness and cultivate doubt to lead in a changing world. Considering the scope and scale of the pandemic has not been experienced before in modern times, CEOs who try to use past methodologies to guide their thought processes are likely to err in their decision-making. However, CEOs who are attentive to their doubts and remain curious will be able to use more relevant and novel reference points to pivot quickly. An agile CEO can pay more attention to and recognise weak or emerging signals and shift strategically, more readily.
At UniCredit, Mustier emphasises the need for CEOs to think and act differently: 'when you have a big shock, usually people think in terms of continuity, in a linear evolution; but you need to think in terms of discontinuity. Your behaviour needs to handle discontinuity; otherwise, it won't work. Crisis management has always shown that, when you have a big crisis, if you anticipate and manage discontinuity, then you're OK.'
As such, attentiveness to our doubts should help us recognise those moments when we should let go of linear thinking and accept discontinuity to forge a way forward.
Doubt is generally viewed as a negative trait, yet in times of uncertainty, it is emotionally and intellectually essential. CEOs who incorporate doubt into their decision-making process can question and test their environment and traverse the currents of the market they operate in and add another layer of vetting to their process. While we have an innate and primal urge to seek certainty, our certainty can be deceiving and can sometimes have us drawing a wrong conclusion. To counteract this hidden mind trap, we can harness our doubt and cultivate it to awaken our curiosity, use it as a source for continuous learning and as a catalyst for agility, to explore other possibilities freely. Those with a willingness to embrace uncertainty and leverage the power of doubt can improve their judgment and make higher quality decisions.