Reflections on Decision Making Under Uncertainty

28 Pages Posted: 2 Dec 2008

See all articles by Paul R. Kleindorfer

Paul R. Kleindorfer

University of Pennsylvania - Operations & Information Management Department; Paul Dubrule Professor of Sustainable Development & Distinguished Research Professor at INSEAD

Date Written: December 2, 2008

Abstract

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.

Keywords: Knightian Uncertainty, Management Decision-making

Suggested Citation

Kleindorfer, Paul R., Reflections on Decision Making Under Uncertainty (December 2, 2008). INSEAD Working Paper No. 2008/73/TOM/ISIC. Available at SSRN: https://ssrn.com/abstract=1310239 or http://dx.doi.org/10.2139/ssrn.1310239

Paul R. Kleindorfer (Contact Author)

University of Pennsylvania - Operations & Information Management Department ( email )

Philadelphia, PA 19104
United States

Paul Dubrule Professor of Sustainable Development & Distinguished Research Professor at INSEAD

Boulevard de Constance
77305 Fontainebleau Cedex
France

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