The role of conviction and narrative in strategic decision making

9 min read

1 day ago

Abstract image of a woman controlling cloth blowing in the wind

If you’ve been following these posts, you may have noticed the word conviction comes up quite a bit. In the particular case of navigating radical uncertainty, it’s the battleground between biases and heuristics (how we make irrational choices and act on flawed judgments) and naturalistic decision making (how these ‘flaws’ enable us to navigate complex, real-world situations)

Before we get into strategic decision making and the role of conviction, let’s revisit the ‘confidence and intuition’ debate.

As we briefly covered in a previous thread, we see in this 2010 interview between Daniel Kahneman and Gary Klein that the two are at odds on the topic of confidence — specifically, overconfidence.

They both agree that overconfidence is detrimental, but Gary Klein, echoed by Gerd Gigerenzer and supporters of ‘Ecological Rationality’, makes exceptions for high-validity environments (e.g. medicine, coaching, aviation) where leaders have deep domain expertise. The most common example was highlighted in Malcolm Gladwell’s book ‘Blink’ about a firefighter who intuitively made a snap decision to evacuate a building by ‘just knowing’ the floor might collapse.

Regardless of this disconnect between over-confidence and intuition, these topics have been covered by countless books authored by various researchers across economics and behavioral science — Richard Thaler, Cass Sunstein, Herbert Simon, Tali Sharot, and Richard Zeckhauser to name a few.

Through this research, we know a great deal about how individuals make judgments and choices — even in some limited real-world scenarios where information and time are limited (e.g. the firefighter example), but this still doesn’t effectively represent ‘radically’ uncertain environments.

Other researchers, practitioners, and academics in the overlapping worlds of strategy and decision making warn against directly translating learnings from decision making observed in a lab to real-world strategic decision making.

Much mischief can be wrought by transplanting this hypothesis-testing logic, which flourishes in controlled lab settings, into the hurly-burly of real-world settings.

— Phillip Tetlock

In his book Left Brain, Right Stuff, Phil Rosenzweig argues there are a few primary factors unique to strategic decision making — Influence, Competition, Feedback Loops, and Conviction:

  • Influence: How we act and intervene can influence the outcome (He argues we often have more control than we may realize)
  • Competition: In this environment, success is relative, not absolute
  • Feedback loops: Time to learning is often long and lagging
  • Conviction: Perception and credibility are important

He argues these are the primary factors that cannot be duplicated in a lab and are even difficult to observe in real-world situations — especially since the context for each decision is often unique.

Many of these factors feel intuitive — but what is conviction? How is it different from the overconfidence behavioral scientists warn of, and why is it important in this environment?

First, we can try to make a distinction between the environments:

  • Normative Environments: where there are clear actions and subsequent outcomes that are designated as good, desirable, or permissible, and others as bad, undesirable, or impermissible. We have a clear idea of what ‘should be’ vs what ‘shouldn’t be’.
  • Radically Uncertain Environments: where outcomes and utility are unknown, the relationship between actions and outcomes is not stable, and many potential options/scenarios can’t be effectively modeled or predicted.

We might say that these normative environments are high validity, but uncertainty can vary. For example, poker and warfare are high validity environments (where one right or wrong move influences the next and feedback loops are tight), but also highly uncertain environments — luck plays a significant role.

Most research observes situations on some spectrum of these ‘normative environments’, but these don’t effectively model radical uncertainty — a low validity environment that’s also highly uncertain (business, politics, or something like space exploration)

We use the term radical uncertainty to refer to equivocal situations in which uncertainty about the outcomes of actions is so profound that it is both difficult to set up the problem structure to choose between alternatives and impossible to represent the future in terms of a knowable and exhaustive list of outcomes to which to attach probabilities.

David Tuckett, Milena Nikolic: The role of conviction and narrative in decision-making under radical uncertainty

So how do we think about strategic decision making in these environments of radical uncertainty? Strategy, management, and leadership practices have been widely explored and debated, but as neuroeconomics and the study of decision making is still a nascent field, relatively little work has been done on the subject of strategic decision making in complex, uncertain environments.

“Radical uncertainty cannot be described in the probabilistic terms applicable to a game of chance. It is not just that we do not know what will happen. We often do not even know the kinds of things that might happen.” — Mervyn King, Economist: Radical Uncertainty

In the work that has been done, it’s evident that conviction plays a major role in our ability to operate in these environments and inspire others to do the same.

We’ll dig into a few of these studies that explore this phenomenon, but first, we just covered this foundational argument around confidence (and overconfidence), so how do we differentiate conviction?

Because they are easily conflated, it’s helpful to clarify confidence and conviction:

  • Confidence: The state of feeling certain about the truth of something.
  • Conviction: a firmly held belief or opinion

The primary difference is that confidence is relative to certainty while conviction is based on beliefs — regardless of evidence or probabilities. If we’ve learned anything so far, it’s two things:

  1. The pursuit or illusion of certainty is paralyzing and dangerous
  2. Strongly calcified beliefs and assumptions are the enemy of progress

“When I find new information I change my mind; What do you do?” — John Maynard Keynes

In tech especially, we glorify overconfidence — “Strong opinions, loosely held” (a popular quote by Jeff Bezos) exists in some fashion in many ‘company principles’ — but this way of thinking can have detrimental effects if it’s giving a hall pass to overconfidence.

In short, it assumes we’re good at challenging our beliefs, objectively processing information, and viewing reality for what it is.

But we’re not. By default, we anchor to our initial assumptions, intake and share information through a strongly biased filter, and construct our subjective reality in real-time.

So we need to find a sweet spot and put guardrails in place that combat overconfidence, challenge assumptions/beliefs, and actively avoid the comfort of the status quo (or regression toward the mean)‍

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