Living in two world at once

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Anticipating Your Next Battle, in Business and Beyond

55 ratings

HEC Paris

Anticipating Your Next Battle, in Business and Beyond

55 ratings

In this MOOC, you will learn how to better anticipate the future, and reinvent yourself and your activity accordingly. By the end of the course, you’ll be able to account for the broader context and the possible convergence of long-term trends, and thus be able to develop a long-term, consistent strategy and vision, beyond mere day-to-day tactics. Thanks to this approach and mindset, you will become more agile and more resilient in a highly complex and uncertain landscape. In this class, you will not only learn the academic and theoretical aspects of strategic foresight, uncertainty and planning. We will also discuss very practical examples, ranging from a discussion on choosing the best outfit for a walk in the countryside to building a vision and strategy for a corporation as a CEO. In practical assessments, you will apply this broad approach to sample examples as well as to your personal and professional challenges. So if you are an entrepreneur, this course will help you identify the new ideas, the new business model and/or the new products that will help you remain relevant in the future. If you are a manager or an executive, by taking this course, you will be able to test whether your current approach and allocation of resources are appropriate given tomorrow's possible challenges. More generally, all kinds of decision-makers who look to think more strategically about their position and seek to improve it will find this course useful to think about the future constructively.

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Don't Let Risk and Uncertainty Impress You!

After having thought about the forces shaping the future, it is time to think about what is not fixed in the landscape, what is not pre-determined, what is unknown. This module introduces the concepts of uncertainty and risk. At the end of this module, you'll have a better grasp of the strategic implications of risk and uncertainty in terms of decisions in business and beyond. In particular, you'll consider how you can make yourself and your activity more flexible and agile, as well as more resilient.

What is uncertainty?2:25

Living in two world at once7:24

Flexibility v. Resilience : On Flexibility4:04

Flexibility v. Resilience : On Resilience5:15

Conheça os instrutores

Jeremy Ghez
Affiliate Professor of Economics and International Affairs
Economics and Decision Sciences

As the discussion in the previous video suggested,

uncertainty can reflect different realities.

As former U. S. Defense Secretary Donald Rumsfeld once put it,

“There are known knowns;

there are things we know we know.

We also know there

are known unknowns;

that is to say we know

there are some things

we do not know.

But there are also unknown unknowns

the ones we don't know we don't know."

Though the wording may seem complicated on the surface,

Rumsfeld’s approach to uncertainty is rather interesting.

Think about what known knowns are.

the facts,

the confirmed reports and pieces of information,

the data that any diligent observer has access to.

Examples include the exchange rate, at this very moment,

between the euro and the dollar, the identity of your

immediate competitors and rivals,

and the time of day in your most significant market.

Think about what known unknowns represent.

Those key variables

and indicators

that we know evolve all the time

and the questions to which we’ll have an answer to

at some point in time.

Examples include tomorrow’s exchange rate between the euro and the dollar,

the future sales of your star product

and the number of future competitors that you’ll be facing in a few years.

Addressing these questions

is like rolling the dice.

You have a certain probability of being right or wrong.

In economic theory, this is what we might refer to as risk.

The analyst can formulate different expectations

and assign a probability to each.

In other words, the doubt, in this case, is quantifiable.

Let’s think about this for a second.

What are the known knowns and the known unknowns

in your personal or professional landscape?

Pause this video and think about it for a moment.

I’m sure you’ve come up with different answers.

As we previously argued, the trick may lie in trying to

address this question regularly, at key points of your

personal and professional life.

Finally, think about what unknown unknowns represent.

These are the disruptive moments,

the strategic surprises

and the black swans.

By definition, it is impossible to say

what future unknown unknowns will look like,

they wouldn’t be unknown in that case.

But past strategic surprises include

Ulysses’ use of the Trojan Horse in Ancient Greece,

the Pearl Harbor attacks

and the 9-11 attacks.

Let’s consider this too.

Can you think of other past surprises like these?

Pause this video and think about it for a moment.

In economic theory, this is what we refer to as uncertainty.

It refers to the form of doubt

that can’t be measured in terms of likelihood (contrary to risk)

and to what is truly unpredictable.

Quite the opposite, in fact, of rolling the dice.

Ultimately, it seems that the challenge lies

in understanding what

in your landscape

relates to known unknowns

and to risk on the one hand,

and what relates to unknown unknowns

and to uncertainty on the other hand.

In fact, we do live, to some extent, in a linear world.

A linear world in which some events can be more or less predictable

though a margin of error can exist.

This is true when the causal link is clearly identifiable,

when there is such a thing as cause and effect.

There are numerous examples of this.

If I get on a bus and knock over a couple of elderly people,

I can expect at a minimum

people to look at me in a disapproving way.

Though the extent of the response from others is not fully certain,

I can formulate some reasonable expectations

about what those might be.

Similarly, meteorologists have developed sophisticated models

that are able to predict, with some level of certainty,

the weather in the short run and in the medium run

given current atmospheric conditions.

This does not mean that they always get it right,

but weather forecasts are becoming increasingly reliable.

One last example comes from demography.

Demographers rely on current age pyramids and projections

to measure the rate

at which populations are growing and ageing.

As a result, they are able to make reliable projections

about future age pyramids.

But the cleverest analyst needs to recognize

that we also live in a world full of surprises,

disruptive moments

and turning points.

The interactions, in this case,

are more akin to what happens

in a poker game than when you role the dice.

Indeed, bluff, personalities and a wide range of outcomes possible

render any extrapolation or prediction effort completely useless.

In that chaotic world, the complexity of the relationships

between different events and the significant number of stakeholders

make it hard to identify a causal link.

Forecasting what will happen is,

as a result,

a fool’s errand.

Remember.

It is by definition hard to give future examples

of these strategic surprises

since they are not known, by definition.

And you can always find an ex post explanation to most of these,

that is,

explain them after they’ve happened

like in the case of

outbreaks of epidemics

or revolutions like the Arab Spring.

Also remember the story of the turkey

in the previous module.

It is worth remembering though

that the true causal links are not necessarily

those that we can identify on the surface.

They might, in practice, be far more complex than what we think.

Author Nicholas Taleb

provides a nice summary of this discussion,

arguing that we live in two worlds at once.

He states:

“Humans simultaneously inhabit two systems:

the linear

and the complex (…).

The linear domain is characterized

by its predictability and the low degree

of interaction among its components,

which allows the use of mathematical methods

that make forecasts reliable."

He adds:

“In complex systems,

there is an absence of visible causal links

between the elements,

masking a high degree of interdependence

and extremely low predictability.

Nonlinear elements are also present, such as those

commonly known, and generally misunderstood,

as ‘tipping points’."

Let’s see if you're still with me.

What characterizes risk?

A – The causal link;

B – The fact that it is not measurable;

C – The fact that it is quantifiable;

The answers are A and C, of course.

Remember. Risk refers to

what is unknown but measurable and quantifiable,

when the causal link is clear.

It is the hallmark of the linear world.

How about uncertainty?

What characterizes it?

A – The complexity of the causal link;

B – The fact that it is not measurable;

C – The fact that it is quantifiable.

The answers are A and B, of course.

Remember, uncertainty refers to what is not measurable,

when probability distributions are unknown.

In the uncertain world, the causal link is not straightforward.

The bottom line? There is a difference between risk,

what we see in the linear world, and uncertainty,

what we observe in the complex world.

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