Risk can be quantified, uncertainty cannot. But paying attention to one’s doubts in business can inspire imaginative thinking
By Charles W. Calomiris. He is a professor at Columbia University.
He reviewed the book Uncertainty and Enterprise: Venturing Beyond the Known by Amar Bhidé.
Excerpts:
"Named for Frank Knight, the University of Chicago economist, Knightian uncertainty refers to situations in which the probability of success is unknowable due to the novelty of an enterprise’s product, service or strategy for producing and distributing it."
"Named for Frank Knight, the University of Chicago economist, Knightian uncertainty refers to situations in which the probability of success is unknowable due to the novelty of an enterprise’s product, service or strategy for producing and distributing it."
"Imagination is uniquely useful for navigating business decisions. It is provoked, Mr. Bhidé tells us, by doubts. “Doubts can be about anything that we . . . have not seen or cannot logically prove.” When we confront our doubts, we try to find ways to resolve or limit them. That is the process that gives rise to imaginative thinking. This formulation reminds me of the evolutionary biologist Stuart Kauffman’s conception of innovation as a capacity beyond deduction, induction or abduction."
"A primary function of entrepreneurs is to take “responsibility for uncertainty” by establishing means to identify and respond to it with a variety of specialized skills, which produce “groundedly imaginative” justifications capable of persuading financiers, customers and employees that an enterprise’s strategy makes sense."
"Like [Nobel Prizer Winner Herbert] Simon’s concepts of “bounded rationality” and “satisficing,” Mr. Bhidé’s “functional reasonableness” admires the application of reasonable (as opposed to optimal) processes for reaching practical answers with “relative confidence.” Mr. Bhidé teaches us not to expect the most interesting problems to be resolved by precise calculations or optimization algorithms."
"different degrees of uncertainty should give rise to enterprises that differ in size, governance structure, funding sources and decision-making processes. Uncertainty is a guiding light for understanding what is essentially different about firms along these dimensions."
"Firms operating at the high-uncertainty end of the spectrum don’t simply pioneer new products or services or rely on new patents. Their central commonality is operating in “unsettled markets.” Such enterprises can often trace their higher growth and profitability to an ability to adapt to changes, and not to any preparatory research about opportunities."
"early-stage VCs [venture capitalists] do much more than provide funding; they recycle their networks of experienced early-stage company managers. It’s not that experienced managers have seen the particular problems that new businesses are facing; rather, it’s that they are familiar with the necessary processes of what Mr. Bhidé calls doubting, imagining and justifying."
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