What is uncertainty in decision making condition?

Managers make several decisions during the course of business activities. Sometimes they are sure about the future conditions but sometimes they have difficulty estimating the future conditions. It is important for the manager to know in which condition the decision is to be made. A decision made relating to the situation helps to adjust to that situation. There are three conditions of decision-making. They are:

Let’s take a deep look,

Certainty condition of decision making is a situation where a decision-maker is conformed to what will happen when a decision is being made. It is a condition where the future is 100 percent sure.

The future situation is conformed because of the availability of reliable information and their cause and effect are known. Due to known conditions, there are no conflicts in decision-making. Similarly, it saves time in decision-making.

As we know, to make a decision we choose the best course of action from available alternatives. Here one best alternative is selected and its outcomes are also known which provides the optimum outcomes.

This condition exists in routine decisions such as day-to-day activities, payment of wages, salaries, etc. Another example is when a person is going to buy a car, he can collect all the relevant information about that car, and he gets confirmed what type of car he is buying.

Therefore, it is easy and simple to make a decision in the condition of certainty and there is less chance of ambiguity.

Condition of Risk

In the condition of risk, the decision-maker is aware of alternatives but not of their outcomes or consequences. Here the future condition can not be estimated correctly. It is a condition where the future is sure but less than 100 percent.

There are chances of both conditions either the decision which is made leads to success or leads to failure. In other words, there is a 50/50 between success and failure.

Due to the incomplete information, it is difficult to predict future conditions for the manager. So to get full information he can collect the required information through research, knowledge, experience, and other available information. After collecting the information it can be analyzed through judgment and statistical analysis and the alternative which has the highest expected outcome can be selected.

It is quite difficult and time-consuming to make a decision in a risk condition as compared to the certainty condition. And, there is a chance of ambiguity and impractical decisions.

Condition of Uncertainty

Uncertainty is a situation where the decision-maker has very little information available about the alternatives. Which is not enough to take an action plan.

Due to the unavailable information, the manager is unaware of the situation he is facing, he is unknown of the consequences associated with the alternatives. Uncertainty arises due to lack of information, the introduction of a new product or service, adoption of new technology, etc. It creates difficult to understand the environment, predict the future and make a decision.

Thus to make a good decision a manager must collect the relevant information as fas as possible. Because of not enough information statistical analysis is not possible here. Qualitative tools such as judgment, intuition, and experience play a vital role in the collection of information in an uncertain situation.

After that decision can be made in the condition of uncertainty, but, there is more chance of an ambiguous future and more possibilities of error.

Therefore we may conclude that, in the conditions of decision making, the errors can be ranked as:

• Certainty – almost no future error
• Risk – there can be future error
• Uncertainty – chances of high error

• 5 Types of Decision (Decision-Making) In Every Organization
• 
• In "Management"

Conditions for decision making are common for all individuals. Decisions, however, are subject to conditions of certainty. That is, any decision will vary in the extent to which the decision-maker knows the outcome of the decision. In management, these conditions are best understood in the context of how managers make each decision.

Certainty

A decision that is relatively certain can be made based upon the desired outcome. For example, a decision to loan or borrow money can be based on a specified rate of interest. This decision is based on the relative certainty of the amount of money that will be generated or expended by the decision.

Uncertainty

Uncertain decisions have either a probable or completely unknown outcome. If a decision has a probable outcome, a manager can make a decision based upon the desired result. Approaches to uncertain decisions might include the: 

• Expected Value, 
• Maximax, 
• Maximin, or 
• Minimax.

Complete Uncertainty 

A completely uncertain outcome is when the value or probability of occurrence cannot be accurately assessed. In this type of situation, managers must make a decision that is not based upon the probable outcome. This may include operational ability, resource allocation, superior/subordinate buy-in, etc.

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• Global recession
• Loss of liquidity leading to a credit crisis
• Regulatory risk attributed to a changing policy environment
• Major country/economy failure
• Natural disasters/catastrophic weather
• Financial market instability
• Terrorist acts
• Accelerating technological change
• Aging population trends in developed economies

An increasing sense of uncertainty reflects a changing environment that will impact the choices we make. Recognizing and accommodating these changes provides the opportunity to increase decision making effectiveness.

Reality: Decision making always involves uncertainty

Even the simplest decisions carry some level of uncertainty. In choosing a cup of coffee, there will be at least the possibility that the coffee doesn't taste good, is not hot, or will not provide the usual pleasurable feeling. Complete certainty would imply carrying out a fixed procedure or algorithm, not making a choice.

Seldom are decisions made with absolute certainty because complete knowledge of the alternatives is not possible or practical. There is also a distinction in levels of uncertainty. In "precise uncertainty" probabilities for solution outcomes can be known or gathered, such as in games of chance. Other risks, such as some of those suggested in the bullet list above, will often have probabilities that are not knowable.

Why does it seem like uncertainty is increasing?

Events globally and locally, along with a high level of media attention, are revealing some of the risks and uncertainty that underlie decisions that impact our perception of security. In reality, there is no permanent security in this world. Choosing not to take risks does not secure one from changes that can take place in the environment, economy, technology, society, or government.

Obvious emotions of fear and anxiety arise whenever we are separated from things that make us feel secure. People experience these emotions, particularly separation anxiety, when they move away from homes and loved ones at many stages during life. It should be expected, and acknowledged, that we will have fear of failure, loss, or rejection when we take on risk or uncertainty. Losing a sense of control over your life can be unsettling.

How should we change our decision making when uncertainty increases?

Recognizing that uncertainty brings some level of separation anxiety can help reveal some ideas for managing decision making in uncertainty. Here are some ideas to consider for times of high decision uncertainty.

1. Reduce the time horizon for decisions. Build a bridge to the future by taking smaller steps, keeping something familiar and secure with each step.
2. Learn as much as possible about options before choosing. Knowledge makes the new seem more familiar, reducing separation anxiety.
3. Avoid unneeded risk. When the environment is providing lots of uncertainty, defer risks that are in your control. For example, when there is economic uncertainty, postpone taking on debt for buying a new car.
4. 
   Take one risk at a time when feasible. Combining risks from multiple decisions (e.g., choosing to get married and change jobs at the same time) can create confusion, increase stress, and make it difficult to learn from unsuccessful outcomes.
5. Determine the worst case scenario. Fear of loss is higher when it is unbounded. Knowing the worst is survivable can ease this fear.
6. Clarify the uncertainty. Estimate the negative and positive consequences of the risk or uncertainty. Knowledge of the potential gains and losses can encourage taking risks for good opportunities.
7. Know your goals and values. The underlying premise of effective decision making is that the decision maker knows their needs and desires. Risk becomes unbounded when this is not the case.
8. Invest in keeping options open. Having a wide range of options increases flexibility to accommodate an uncertain future. Options can be reduced as knowledge is obtained.
9. Avoid emotional risk taking. Take risks for the right reasons based on clear, calm, and rational thought.
10. Manage decisions adaptively. Increase monitoring and appraisal for decision making in uncertainty. Readily adapt as new knowledge is uncovered.

The recurring theme for uncertain times is gaining knowledge. Knowledge provides the basis for security and familiarity. Decisions provide the framework for gaining the knowledge that will reduce uncertainty and enable change.

Feeling anxious? It's probably time to make some decisions.

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