Reflections on Decision Making Under Uncertainty

This paper begins with a review of the early literature on management and finance in areas of deep uncertainty (the case of so-called Knightian uncertainty). I consider the differentiating features of uncertainty, separately, for individual decision making (which has been the focus of most research on the subject) and for the organizational or management level. Coping with uncertainty from a management perspective is perhaps best thought of in terms of the metaphor of an explorer entering uncharted terrain. That individual would do well to prepare mentally for surprises, to be agile and unencumbered by heavy baggage, to have increased acuity and perhaps communication capabilities to home base, and in general to have developed the ability to react to unforeseen and unforeseeable exigencies as they arise. This anthropomorphic metaphor of the prepared, agile explorer is helpful in describing some of the research on these questions and the initiatives being implemented in various organizational contexts to cope with the far side of deep uncertainty and complexity that is unfolding before us in the current economy. These questions on management and strategy under conditions of extreme uncertainty are illustrated in areas from lean/agile supply chains to scenario planning.