Environmental Risk and Uncertainty: Expertise Matters Most

The kind of expertise that matters most in risk and uncertainty is expertise in making decisions under uncertainty.

Expertise matters. Not subject matter expertise, say in something like rebuilding a high-performance motor or understanding the biochemical behavior of blue algae. The kind of expertise that matters most in risk and uncertainty is expertise in making environmental decisions under uncertainty.

Risk and Uncertainty Defined

I prefer economist Frank Knight’s 100-year-old definitions of risk and uncertainty. I have found them to be most understandable in practice, and they have stood the test of time.

Knight believed that risk was where knowledge was complete, probabilities could be determined, and outcomes predicted. Uncertainty, on the other hand, encompasses imperfect knowledge, unknown or unknowable probabilities, and unpredictable outcomes.

Knight believed that moving from a state of uncertainty (unknowns) to a state of calculated risk (knowns) was the key to making profit, of course, considering that in open markets the opportunities to outsmart others have a limited shelf-life.

Small Worlds versus Large Worlds

Thirty years later, statistician Jimmie Savage described two human-constructed realms where risk and uncertainty exist. In Small Worlds, we deconstruct larger problems into smaller states that allow us to isolate variables, assume variables act in highly independent ways, and minimize uncertainty. However, in Large Worlds we do not perfect understanding of cause and effect. We struggle with what to leave in and what to leave out of our predictions. Uncertainty reigns. And to make matters worse, the models and associated predictions in our decomposed Small Worlds do not aggregate perfectly back into Large Worlds.

In Large Worlds full of uncertainty, understanding what is left out (or missing) is more important than understanding what is included. This rings true in the advice that one of my political mentors once gave me when dealing with politicians – listen to what isnot saidrather than what is said. Savvy politicians and political experts do the former. Rookies and political hacks do the latter, and usually are greatly disappointed.

Risk versus Uncertainty

Expertise in decision making under risk is much different from expertise in decision making under uncertainty. In decision making under risk, information that creates knowledge may be available. However, we may not have the experience to assemble it, remove individual biases, communicate it, or use it effectively in group situations. There is an argument, and a good one, that inexperience in decision making is the primary reason we need risk models and risk frameworks.

Survival Matters Most

Expertise in decision making under uncertainty, knowledge is imperfect and modeling predictions of the future are highly inaccurate. Expertise – experience coupled with feedback and learning – produces bounded rationality. In other words, expertise dictates that there are simply certain things that we will do and certain things we will not do. No reliance on models here. No optimization here. Where uncertainty dominates, survival – of you and your “tribe” of loved ones – matters most. Enter the Precautionary Principle as a potentially desirable approach.

Decisions Under Uncertainty Are Different

Expertise in decision making under uncertainty is also a reason that risk managers – or managers of the knowns – are usually stuck in a world of compliance rather than value-added decision making in the C-suite. It is one thing to be a good risk manager, financial manager, statistician, scientist, or engineer working in small, decomposed worlds. Being a subject matter expert in a technical field, including risk management, is neither necessary nor sufficient for being a decision maker in situations dominated by uncertainty.

Environmental Expertise Matters

Bounded rationality for knowing what should be done and what should not be done is more important for decisions under uncertainty than relying on modeled predictions. Knowing what is missing is just as important as knowing what is included. Expertise matters.

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Gary Klein does a good job documenting how decision makers such as firefighters, medical professionals, soldiers, and others make decisions under uncertainty. Gerd Gigerenzer is an excellent reference for decision-making heuristics under uncertainty and has built an academic tradition around Herbert Simon’s discussions of bounded rationality. Nassim Taleb and Annie Duke also have good discussions in their current books, albeit from slightly different perspectives. And, of course, Knight is a worthy source of study on this topic.

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This article was first published by JD Solomon on LinkedIn.

Solomon, J. D. (2018, October 10). Risk and uncertainty: Expertise matters most. LinkedIn. https://www.linkedin.com/pulse/risk-uncertainty-expertise-matters-most-jd-solomon

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JD Solomon Inc. provides solutions for program development, asset management, and facilitation at the nexus of facilities, infrastructure, and the environment. Visit our Environmental page for more information.

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 JD Solomon's work connects technical disciplines with human understanding to help people make better decisions and build stronger systems. Learn more at www.jdsolomonsolutions.com and www.communicatingwithfinesse.com.