Tag Archives: risk

Working with Ambiguity at Work

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“Leading during uncertain business conditions” and “tolerating ambiguity” are explicitly-sought skills in Silicon Valley position descriptions.
These competencies are crucial to navigate frequent, sometimes surprising restructurings and layoffs.

Rolf Wank

Rolf Wank

In contrast, employees outside the U.S. enjoy greater job certainty and worker protection in some countries, as outlined in Ruhr-Universität Bochum researcher Rolf Wank’s survey of typical German employment relationships .

He summarized “work-arounds” to Gremany’s current system that might require employees to develop skills in working with more ambiguous employment agreements.

Frank Shipper

Frank Shipper

Tolerance for Ambiguity has been measured in a scale developed by Frank Shipper of Salisbury University, adapted from earlier work by Stanley Budner, then of New York State Psychiatric Institute.
Similarly, David Wilkinson of Oxford drew on his background in UK military and police organizations to propose Modes of Leadership based on varying developmental, perceptual, and cognitive styles of ambiguity tolerance:

  • Mode One – Technical Leaders manage ambiguity by ignoring, denying, or creating premature, inaccurate or false “certainty”
    They tend to be risk averse and are more directive in leading others
  • Mode Two – Cooperative Leaders seek to “disambiguate uncertainty” and build teams to mitigate risk
  • Mode Three – Collaborative Leaders prefer consensual alignment among team values and execution goals through explicit team discussion
  • Mode Four – Generative Leaders use ambiguity to find opportunity by drawing on “emotional resilience” and continuous learning.
David Wilkinson

David Wilkinson

In 2008, Wilkinson began investigating two additional leadership modes for inclusion in this framework.
He also posited an “ambiguity continuum” among risk, ambiguity, vagueness, uncertainty and chaos.

Creative scientists and artists have long understood the importance of the ambiguous “incubation” period when solutions germinate.

Albert Einstein

Albert Einstein

Albert Einstein, known for his breakthrough insights in physics, argued for imagining solutions when the present situation is unclear:

°         Logic will get you from A to B. Imagination will take you everywhere

°         Imagination is everything. It is the preview of life’s coming attractions

°         Imagination is more important than knowledge. For while knowledge defines all we currently know and understand, imagination points to all we might yet discover and create

Richard Diebenkorn

Richard Diebenkorn

Painter Richard Diebenkorn of UCLA echoed Einstein’s sentiment in several entries in Notes to Myself on Beginning a Painting, in which he coached himself to risk, tolerate uncertainty, and persist in the search for solutions: 

°         Attempt (sic) what is not certain. Certainty may or may not come later. It may then be a valuable delusion.

°         Do search. But in order to find other than what is searched for.

Rainer Maria Rilke

Rainer Maria Rilke

The spirit of Diebenkorn’s advice to himself was codified decades earlier by poet and novelist Rainer Maria Rilke in his oft-quoted Letters to a Young Poet.

…Try to love the questions themselves…
Don’t search for the answers, which could not be given to you now, because you would not be able to live them….
Someday far in the future, you will gradually, without even noticing it, live your way into the answer.

Both creative artists and business leaders recognize the crucial importance of working with and through ambiguous conditions to produce breakthrough solutions.

°         What approaches help you tolerate ambiguity?
°         How can ambiguity tolerance be increased?

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Genes and Neurotransmitters Influence Investment Risk-Taking: Implications for Taking Career Risks?

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Camelia Kuhnen

Camelia Kuhnen

Brian Knutson

Brian Knutson

Camelia Kuhnen, then of Stanford with her Stanford colleague Brian Knutson and Vanderbilt’s Gregory Samanez-Larkin posit a small but meaningful genetic basis to risk-averse financial investing, providing a biological basis for findings that women hedge fund managers outperformed male counterparts.

Volunteers with two short serotonin transporter genes (5-HTTLPR) reported that they tend to worry, and this pattern was associated with chosing less risky investment choices.

Gregory Samanez-Larkin

Gregory Samanez-Larkin

“Short allele carriers” also showed higher levels of the personality trait “neuroticism,” but no significant difference in cognitive skills, education, or financial status.
Kuhnen estimates that less than 30 percent of variance in risk-taking is attributable to short 5-HTTLPR, and the remaining difference is derived from experience, culture, education, and social environment.

Kuhnen and Knutson reported the neural basis of financial risk taking using event-related fMRI.
They observed that the nucleus accumbens was activated before volunteers made risky choices and made risk-seeking mistakes.
In contrast, they found that the anterior insula was activated before risk-free choices and risk-aversion mistakes.

They proposed that different neural circuits are associated with differing emotions as volunteers anticipate gain or loss associated with financial choices.
This emotional activation “signature” can lead to specific investment choices, favoring or avoiding risk, and may lead to investing mistakes.

In unpublished research, Kuhnen found that short-allele carriers showed increased anxiety before making a decision in a trial-and-error risk discovery task, but reacted no differently than long-allele carriers when they observed a negative outcome.

She noted that volunteers differ in how they anticipate and react to a potential decision before they make it rather that in their reactions to actual outcomes of investment decisions.

Joan Chiao

Joan Chiao

Kuhnen, now at Northwestern collaborated with Northwestern colleague Joan Chiao to investigate the impact of both the 5-HTTLPR gene and the DRD4, gene, which regulates dopamine transmission.
These genes and their related neurotransmitters have been linked to emotional behavior, anxiety and addiction.

Their research replicated Kuhnen’s earlier finding that individuals with two short 5-HTTLPR alleles take 28% less risk than people with other combinations, and they demonstrated that the double DRD4 7 allele carriers took 25% more risk than people with other combinations.
They conclude that serotonin is associated with risk-averse investment choices, whereas dopamine is associated with riskier choices.

Kuhnen and Chiao argue that risky investment behavior shares commonalities with other risky behaviors like drug use, gambling, unsafe sex, dangerous physical and social pursuits, and more.

-*How do you determine the right amount of risk to undertake in career development and financial investing?

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Beware of Seeking, Acting on Advice When Anxious, Sad

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Just as wise grandmothers advise, it’s best to avoid decisions when upset, anxious, or sad.

Maurice Schweitzer

Maurice Schweitzer

Maurice Schweitzer and Alison Wood Brooks of Wharton and Harvard Business School’s Francesca Gino validated Grandmother Wisdom in eight experiments that demonstrated anxiety’s impact on lowering self-confidence, impairing information processing, and impeding ability to distinguish advice from neutral advisors and those with a conflict of interest.

Alison Wood Brooks

Alison Wood Brooks

They found that people experiencing anxiety tend to seek advice and act on it, but they are less able to differentiate poor advice from valid recommendations, and these results are applicable to making decisions about crucial medical treatment, financial investments, or even guidance counseling.

Francesca Gino

Francesca Gino

The team evoked anxious feeling among volunteers by presenting potentially frightening film clips and music, and asked them to judge a person’s weight based on a photograph or number of coins in a jar or solve a complex math problem.

Participants were offered money for correct judgments, and the opportunity to receive advice from others when they were uncertain.
Those who heard the scary music or saw the alarming film clip rated themselves as less confident of their decision, and were more likely to ask others for advice.
These effects were not observed when volunteers were shown a film clip that could provoke anger.

Schweitzer, Brooks, and Gino concluded that people vary in their receptivity to advice based on:

  • Advisor’s characteristics, such as expertise, consistent with Cialdini’s observation

    Robert Cialdini

    Robert Cialdini

  • Perceived difficulty of the decision
  • Decision maker’s emotional state when receiving advice

The researchers advised decision-makers to:

  • Monitor their internal states for anxiety
  • Use feedback from multiple sources when making important decisions
  • Work toward developing increased self-confidence
  • Evoke calm state, often possible with systematic breathing or mindful attention and equanimity
Catherine Hartley

Catherine Hartley

Catherine Hartley, then of New York University and Elizabeth Phelps of New York University contributed to the neuroeconomic analysis of anxiety’s impact on decision- making when they reported that brain structures responsible for regulating fear and anxiety are also involved in economic decision-making under uncertain conditions.

Elizabeth Phelps

Elizabeth Phelps

Specifically, the amygdala is crucial in learning, experiencing, and regulating both fear and anxiety and it is also implicated in decision-making in situations of potential loss.
The prefrontal cortex is specialized in controlling fear and is also involved in decisions containing risk elements.

Hartley and Phelps suggest that techniques for altering fear and anxiety may also improve economic decisions-making.

Rajagopal Raganathan

Rajagopal Raganathan

Rajagopal Raghunathan, then of New York University and Michel Tuan Pham of Columbia University demonstrated the same connection between anxiety and making decisions about gambling and job selection.

Michel Tuan Pham

Michel Tuan Pham

They conducted three experiments and found that sad individuals select high risk / high-reward gambling and job options, whereas anxious individuals are biased in favor of low-risk / low-reward options.

Raghunathan and Pham posit that anxiety tends to motivate people to reduce uncertainty whereas sadness moves people to replace rewards.
They suggest suggesting two different decision biases related to mood states.

Raghunathan and Pham add to Schweitzer, Brooks, and Gino’s recommendations for mitigating decision bias:

  • “Monitor feelings”
  • Consider alternate options
  • Speculate on future moods and preferences if each option were selected: “What would I feel better about . . .?”

-*How do you mitigate the potential decision bias when anxious or sad?

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Pattern Recognition in Entrepreneurship

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Steve Blank

Steve Blank

Steve Blank, serial entrepreneur (E.piphany, Zilog, and more) and Stanford consulting associate professor, argues that entrepreneurs need two types of “wisdom” or cognitive processing:

  • Pattern recognition based on a “constrain stream of data processing in the background”
  • Epiphanies that “serendipitously snap together”, outlined in Four Steps to the Epiphany.

He provides examples of pattern recognition in each of the four phases toward “epiphany” in building a business:The Four Steps to the Epiphany

  • Customer Discovery, which assesses market potential and customer preferences
  • Customer Validation, in early sales
  • Customer Creation, including strategy definition, startup launch, and iterative product  experimentation
  • Company Building, which prepares to “Cross the Chasm” in Geoffrey Moore’s model.
    Robert Baron

    Robert Baron

    Crossing the Chasm

Robert Baron of Renssalaer Polytechnic Institute echoed Blanks emphasis on pattern recognition in his Academy of Management Perspectives article,

“Opportunity Recognition as Pattern Recognition: How Entrepreneurs “Connect the Dots” to Identify New Business Opportunities” which he said enables entrepreneurs to evaluate:

  • Economic value
  • Newness
  • Desirability

by comparing existing “mental models” or cognitive prototypes and real-world exemplars to new offerings.

Soren Kierkegaard

Soren Kierkegaard

He quoted Danish philosopher Soren Kierkegaard, “…I should …wish…for the passionate sense of the potential, for the eye which. . .sees the possible…”

Venessa Miemis

Venessa Miemis

Venessa Miemis says that pattern recognition is a critical skill for in intelligent decision making, and cites Tor Nørretranders’s The User Illusion-Cutting Consciousness Down to Size to point out that most cognitive processing is outside of normal awareness.

In fact, his research suggests that over 99.99% of the processing in the brain happens at a subconscious level, and is therefore beyond our “control.”

Tor Nørretranders

Tor Nørretranders

She added to Blank’s description of “processing in the background” that synthesizing past
experience, intuition, and common sense and sorting out the “noise” can equip people with relative accurate “best guesses” about future occurrences.

The User Illusion-Cutting Consciousness Down to Size-Tor NørretrandersHowever, if the filter is overzealous, individuals may overlook opportunities because “cognitive dissonance” makes it uncomfortable to integrate information that doesn’t fit with an existing mental model.

Another cognitive bias is overlooking the potential impact of “wild cards” refer to low-probability, high-impact events.

Nassim Nicholas Taleb

Nassim Nicholas Taleb

Nassim Nicholas Taleb introduced the related idea of black swans: unforeseen rare, difficult-to-predict, high-impact, rare events – such as financial crises, natural disasters.

He observed that these occurrences are often explained away when hindsight reveals individual and collective “blindness” to uncertainty and its large role in these rare historical events.
His book recent book, Antifragile: Things that Gain from Disorder, posits that randomness  enables strengthening processes under pressure and can catalyze positive change.

AntifragileHe celebrates volatility as a sign that recalibration may be more achievable than after long periods of stability enable risks to accumulate until a catastrophe.

Applied to career choices, he argues that a seemingly “secure” corporate job disguises dependency on a single employer – often an “at-will” employer, though he discounts the value of “economies of scale” in this work arrangement.

As a result, the unlikely possibility of unemployment leads to cataclysmic reduction in income.
In contrast, occupations with variable earnings, like sales or professional services, acclimates the individual to cyclic or unpredicted income reductions, and practice enables mitigation planning.

This perceptual bias impairs people’s accurate anticipation adaptation to changing.

Pattern recognition can be increased by mindful attention to thinking processes, and frequent self-reminders to scan for perceptual bias and unconscious cognitive processing.
However, other people’s unconscious cognitive processing can be an advantage for marketers, according to Douglas Van Praet, who suggests taking advantage of these via six steps to robust marketing in Unconscious Branding: How Neuroscience Can Empower (and Inspire) MarketingUnconscious Branding

  1. Interrupt the Recognized Pattern
  2. Create Comfort
  3. Lead the Imagination
  4. Shift the Feeling
  5. Satisfy the Critical Mind
  6. Change the Associations
  7. Take Action.

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