I spent a fascinating three days at the STEPS Politics of Uncertainty Conference in July and in the last few weeks have been mulling over what I have taken from the rich conversations we have had. I spent much of my time in a stream focused on uncertainty in the context of finance and banking.
I learnt a lot from the discussions, especially from others from very different academic backgrounds to my own. One of my key takeaways from these discussions came from multiple discussions about international development approaches to supporting developing countries that face uncertain natural hazards such as flood and drought. Just as, in developed countries, there has been an increasing trend of ‘financialization’ in which governments shift uncertainties to individuals by replacing solidaristic protections such as state pensions with market driven solutions.
A few words about definitions: Inevitably given the very wide range of disciplines and backgrounds at the conferencethere was no consensus definition of uncertainty and this word was being used with a wide range of meanings. For some, risk and uncertainty were the same thing, others made a clear distinction. Some used risk and uncertainty as terms primarily associated with dangers and hazards, others associated them equally with opportunities. So, in this blog post, I want to be clear about how I will be using ‘uncertainty’ ‘risk’ and associated terms. Drawing on Frank Knight’s discussion, in the 1920’s, of the distinction between risk and uncertainty, I will take risk to refer to situations where the range of possible outcomes is known and there is sufficient information to assign meaningful probabilities to these outcomes. In contrast, by uncertainty, I mean those situations in which the range of possible outcomes is at least partially unknown and in which there is no meaningful basis to assign probabilities. I take risk and uncertainty to both be concerned with potential hazards but also with potential opportunities.
In International development there have been moves to replace more solidaristic approaches to natural disasters with marketized insurance approaches. It struck me in these discussions that important elements of the politics of uncertainty here are the way in which in this process of financialization: a) uncertainty creates opportunities for rent extraction for powerful economic actors whilst b) shifting hazards to the least powerful.
Uncertainty, emotions and narrative
One theme which I felt was largely absent from discussions in the conference was the ways in which we engage emotionally with uncertainty.
In my own research I have carried out multiple studies of financial behaviour including with traders in investment banks and wider publics and have long been fascinated with how people think about uncertainty in the context of financial decisions, and in their emotional reactions to these uncertainties.
In the face of uncertainty, many traders develop illusions of control, comforting but poorly founded beliefs that defend them against the anxiety provoked by uncertainty. Other research also suggests that those traders who deal most effectively with uncertainty are those who understand and work with their emotions more effectively.
More recently I have been working as part of a national research network concerned with decisions made in conditions of radical uncertainty (CRUISSE:Challenging Radical Uncertainty in Science, Society and the Environment). The network brings together a very cross-disciplinary group of academics and senior practitioners from industry, government and the third sector.
As part of this work (in collaboration with David Tuckett) I have been drawing on the work of other network members to look at the role of emotions and narratives in strategic decision-making. This builds on my work on emotions and decision-making and work by David Tuckett and colleagues that pays particular attention to the ways in which finance professionals faced with uncertainty construct ‘conviction narratives’; emotion infused stories about the world which help them construct the conviction needed for action. An important facet of this work has been the attention they pay to the mindset in which people approach threats and opportunities; noting the tendency to polarise to information about either threats or opportunities and to split off and repress emotions about the other pole.
This relates to points made by Richard Bronk (another CRUISSE member) at the conference. In his work with Jens Beckert, Richard points to the role of imaginaries and fictional expectations in engaging with an uncertain world. Faced with uncertainty, and sparse relevant data amongst too much data to ever process, humans develop shared stories about the world which help us engage with the future and the likely outcomes of our actions. Whilst informed by our understanding of the world these shared stories have a fictional quality. This point, about the fictional nature of our stories, about an uncertain future echoes an observation made by George Box the famous statistician
You have a big approximation and a small approximation. The big approximation is your approximation to the problem you want to solve. The small approximation is involved in getting the solution to the approximate problem.
As Richard Bronk notes, these narratives about the future are no less useful for being fictional but tend to be harmful if their provisional nature becomes misunderstood as objective reality.
My own and other’s work on emotional engagement with uncertainty suggest that such fallacies of misplaced concreteness (as Alfred North Whitehead described them) have their roots in defensive avoidance of the anxiety invoked by uncertainty. The consequences include inattention to alternative perspectives and information (including weak signals) which might otherwise provoke reassessment or abandonment of a chosen course of action.
As we continue our work, we are paying particular attention to understanding the role of mixed emotions and constructive doubt and the individual and organizational conditions which support them, as a route to avoiding getting locked in to strategies which become increasingly untenable as time and events unfold.
The stories we tell ourselves about futures and the impact of our actions in them are important acts of imagination which enable us to act, despite uncertainty. However, they can also become over-comfortable refuges from the anxiety provoked by uncertainty and a route to disregarding important information and perspectives which challenge our certainties.
An earlier version of this blog appeared on the website of the Social, Technological and Environmental Pathways to Sustainability Centre (STEPS) at Sussex University.
Emotional Finance 