Lack of knowledge, chance, path dependence and ideas for dealing with them

Photo by Dioboss, CC BY-NC-SA 2.0 

There are many uncertain things in the world. Especially, if we consider from the subjective viewpoint of a person. First, she can only know so little about what exists. Second, there is luck. Third, the world is very complex so 'small' choices can lead to big outcomes.

This is the situation we have to cope with and I believe that learning to tolerate uncertainty can be very beneficial. For example, so many good things can happen just because you are in the right place at the right time. Often the cost involved in being at places is so small that it is very worthwhile to try out things and see whether they lead anywhere. In many things there is much more upside than downside potential.

In the survey we conducted with Tommi Pajala (see, earlier post) we saw that people felt uncertainty to be one of the most significant challenges related to their important personal decisions in 2015. In this post I will continue to discuss (what I believe to be) the three major sources of uncertainty: lack of knowledge, chance and path dependence.

I explain these concepts using a simple example. Guy is at a party next to a girl he is attracted to. The girl has already formed an initial impression of Guy. However, as Guy does not know this, he is uncertain about whether he should approach the girl. This lack of knowledge fortunately can be reduced. Guy can, for example, go to a common friend and ask what she thinks.

Lack of knowledge is relevant mainly before one makes his decision. Once Guy has made up his mind and asked the girl for a date, the outcome is out of his control, and will be determined partly by chance. The girl might accept, she might be too busy or maybe she has just met someone else. More generally, I view chance as the kind of uncertainty that we cannot reduce. Throwing dice provides the purest example.

Path dependence is in action after the initial consequences of a decision have taken place.One facet of path dependence is that small decision can set the course of events on a completely different path than if the decision was not made. In the context of our example, it is easy to imagine that, if the girl accepts Guys date proposal (and couple of other things fall into place) the small decision might lead to big things.

What does all of this matter? All the thinking about this topic has led me to the following conclusions:

One should be smart about reducing lack of knowledge. Discovering new information takes up your scarce resources. Prioritize!

Identifying opportunities with little downside and lot of upside potential is particularly useful. This is the case in almost all decisions where you do not need much commitment to find out if things work out or not.

Early steps matter a lot. Small things can lead to big things.

And finally, uncertainty is an unavoidable thing in life. One should not be afraid of it.

Edit (29.4. 21:40): Added "almost" to the third last paragraph.

Seminaari data-analytiikan soveltamisesta

Olen mukana Suomen Operaatiotutkimusseurassa järjestämässä toukokuun lopulla (26.5. kello 13.00 alkaen) seminaaria Data-analytiikka kasvun ja kannattavuuden moottorina. Aihe saattaa kiinnostaa joitain blogini lukijoista. Tapahtuma on opiskelijoille ilmainen.

Itseäni data-analytiikan ja päätöksenteon yhteys kiinnostaa useastakin syystä. Muutama näistä on,

• Data ei tee päätöksiä. Päätöksentekoon liittyy faktojen lisäksi aina päätöksentekijän tavoitteet tai arvot. Arvoja ja tavoitteita on monenlaisia.
• Data voi johtaa harhaan. 
• Kaikesta ei ole dataa, olemassa oleva data voi olla valikoitunutta. Esimerkiksi kurssipalautteessa korostuvat ääripäät. 
• Datan tulkinta vaatii lisäoletuksia. Jos tietty asiakasryhmä kuluttaa tuotetta X määrän Y niin onko tämä paljon vai vähän? Onko parantamisen varaa vai ei?

Tervetuloa!

Decision research perspectives to sustainable consumption

I re-discovered a presentation which I gave at the Aalto Media Factory (my first paid lecturing gig!) in 2012 titled "Perspectives to sustainable consumption from research in behavioral decision making and decision analysis". I went through the material and still found it current so I decided to share it with you.

The presentation is available here.

Ideas and claims about decision making (collected edition)

A collection of ideas and claims published earlier on this blog. Clicking the picture will lead you to the original post.

Obvious solutions have already been found. However, they can be based on assumptions that do not hold. Questioning those assumptions is an effective means to developing new creative solutions.

Being creative at Systems Thinking Applied meeting.

If one doesn't know what she's after, she may well end up in wrong places.

Structure of the system in which one is acting determines the effects of her decisions. What should fundamentally matter, are the consequences to things that one values.

Career related choices are among the most important decisions for young educated people.

Decision making should be value-focused. Structuring values may help at becoming a better decision maker.

Should you make the decision now or delay it? 

Decision trees provide a valuable tool for structuring one's thinking about a decision. The ease of reversing a decision plays a major part in deciding how to deal with electromagnetic hypersensitivity.

Importance is only half of what should count in prioritization. 

Studying while working may enable better learning.

Threats to educational equality in Finland can be analyzed by considering the likelihoods and impacts of those threats.