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Develop a "Probabilistic" Approach to Managing Uncertainty

https://hbr.org/2020/02/develop-a-probabilistic-approach-to-managing-uncertainty

hbr.org

Develop a "Probabilistic" Approach to Managing Uncertainty
Executive Summary When faced with uncertainty, how should leaders react? Should they make a big bet, hedge their position, or just wait and see? We naturally tend to see situations in one of two ways: either events are certain and can therefore be managed by planning, processes, and reliable budgets; or they are uncertain, and we cannot manage them well at all.

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Data and how it frames your thinking

Data and how it frames your thinking

What’s more important than how much data you have is how it frames the way you think.

Some leader when they're under pressure to appear decisive, approach complex situations with simple rules or analogies, selectively using data to justify poor judgment calls.

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Thomas Bayes'd thought experiment

Thomas Bayes'd thought experiment

He wondered how he could predict the probability of a future event if he only knew how many times it had occurred, or not, in the past. Bayes figured out that even when it comes to uncertain outcomes, we can update our knowledge by incorporating new, relevant information as it becomes available.

His theorem describes the probability of an event, based on prior knowledge of conditions that might be related to the event.

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Importance of using probabilistic thinking

Data can be imperfect, incomplete, or uncertain. Most of the time, there is more than one explanation for why things happened the way they did; by examining those alternative explanations using probability, you can gain a better understanding of causality and what is really going on.

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The human mind is naturally deterministic

So thinking probabilistically takes some getting used to. We generally believe that something is true or false.

Our instinct for determinism may well have been an evolutionary innovation. To survive, we had to make snap judgments about the world and our response to it. However, the deterministic approach won’t help us make good decisions in complex, unpredictable environments.

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