Learn a new word Thursday: Knightian Uncertainty

Welcome back to the latest installment of 'Learn a new word Thursday' where I share with you some small, but hopefully interesting and relevant word or concept that since it is new to me, must be new to (many of) you as well.

Submitted for your consideration today's word/concept: Knightian uncertainty.

From your pals at Wikipedia:

In economics, Knightian uncertainty is risk that is immeasurable, not possible to calculate.

Knightian uncertainty is named after University of Chicago economist Frank Knight (1885–1972), who distinguished risk and uncertainty in his work Risk, Uncertainty, and Profit:

"Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated.... The essential fact is that 'risk' means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomena depending on which of the two is really present and operating.... It will appear that a measurable uncertainty, or 'risk' proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all."

Did you catch the distinction laid out there, between 'risk', which can generally be measured and estimated (and therefore planned for); and 'uncertainty' of the kind that is not measurable at all, the so-called 'Knightian' uncertainty.

For example, we might be able to assess the 'risk' of any given commercial flight arriving more than an hour late say, but we have no real ability to estimate the likelihood of any given route being profitable in say, 25 years time. 

Let's read that again just so we are sure it sinks in, a measurable uncertainty...  is so far different from an unmeasurable one that it is not in effect an uncertainty at all.

So the lesson here is to be a little more careful, and a little more precise when tossing about terms like 'risk' and 'uncertainty.' If you can measure it, can draw some reasonable conclusions about the likelihood of an occurrence (or failure for something to occur), and can get smarter over time from these practices, then whatever it is probably isn't 'uncertain' at all. 

And the interesting thing from an HR and talent management perspective is that with the rise of more sophisticated technologies for assessment, competency, skill, and massive amounts of actual workforce data upon which to test our theories, more and more 'people' decisions are becoming much less uncertain and simply more risky.

Which doesn't sound like much of an improvement until you realize that just a few years ago just about every people-related decision was an uncertainty. Perhaps even a Knightian uncertainty.

Do not attempt

Did you watch any TV over the weekend?

Of course you did. We all did. And please no comments along the lines of 'I don't even have a TV' or 'I only stream Hulu to my iPad'. If you are one of those people, you are still the outlier, still the exception, still kind of annoying.

So over the weekend I caught a new (I think new) commercial from the good folks over at Jeep. The spot (embedded below, email and RSS subscribers will need to click through), was one of those artsy kinds, with lots of quick cut scenes of people out and about in the woods or on trails or climbing up things, a soundtrack of an old Bob Dylan song with his typical incomprehensible lyrics, and an overall message of 'When you were young, you could do anything, be anything, go anywhere. Now you are older and you think you can't do all the crazy, adventurous, exciting things you used to do, (or wanted to do, but never got around to them before you took a boring office job, signed on for a (too big) mortgage, and became 'responsible.' But you still can do these things, well, if you drive one of these cool, off-road capable but probably won't see any terrain more dangerous than the mall parking lot on Black Friday, new Jeeps!

It actually is a decent commercial as these things go, and in its final, dramatic, inspirational image we see someone about to embark on a base jump, leaping off a canyon or ridge of some kind, about to hurl his or her mini-parachute in the air that will ostensibly help guide them down to safety below. The voice over reminds us that 'You can still throw yourself at the world head first again' while we see from behind this amazingly exciting, probably dangerous, and likely something 99% of us would never try, leap off of a perfectly good mountain.

But as we watch that tremendous leap of faith and adrenaline and courage, and internalize that since we are listening to an old, obscure Bob Dylan track that this must be cool, a tiny disclaimer appears on the screen. 

Do not attempt.

No, this amazingly exciting (potential) life and set of adventures we portray in our Jeep commerical, they aren't really meant for you to try. (We really just want you to buy a Jeep. And be careful.).

And we don't want to be held responsible just in case anyone watches our little minute and one second of inspiration and actually thinks that yes, they can crawl out of their cubicle and climb mountains, walk around shirtless, and stare pensively into campfires.

And yes, there are lawyers somewhere that told us we have to place Do not attempt right over the images just in case someone out there is crazy enough to Attempt and ends up lying in a broken heap at the bottom of the valley.

What's the point of all this?

As usual, there is not much of one.

Except to think that maybe on some if not all of the 10,249 articles that will be published today telling you how to better engage your employees, or how to manage people, or to find and recruit 'top talent' that at least some of them should come with the same disclaimer.

Do not attempt.

Have a great week!

Precaution and Preparedness

While reading some of the coverage and reports of the recent and massive Typhoon Haiyan I came across a really interesting piece on the Lean Crew site titled Wind Engineering. In the piece, the author breaks down some of the science behind wind speeds and wind pressure experienced in hurricanes, tropical storms, and tornados.Ellsworth Kelly - Colors for a Large Wall, 1951

It is a fascinating look at the topic, and kind of shocking too in a way, to think about the tremendous fury these kinds of natural disasters unleash, and their impact to life and property. In the piece, though, there was one really intriguing observation about preparedness and the precautions that can (or really can't) be taken by people and property owners in advance of these kinds of storms. Have a look and I will have a quick comment or two after the excerpt:

If you don’t live in the middle of the country, you may think of tornados as those storms that destroy trailer parks, but that isn’t giving them their proper respect. The winds in a tornado are typically much higher than those in a hurricane. Residential building codes are written to protect against most hurricanes; they don’t even try to handle tornados. A house’s primary protection against tornado damage is the extremely small probability that a tornado will hit it.

I don't live in tornado country, so I don't personally know if that last point is 100% correct, (but it seems pretty plausible, I mean, is it even possible to build normal, residential housing units that could conceivably withstand 200+ MPH winds?), but let's assume for now that it is in fact accurate.

What it reminds us, all too well, is that we simply can't (and probably shouldn't) attempt to prepare for every possible adverse event that potentially may impact ourselves or our businesses. Some risks, like a tornado, are simply too devastating for us to even have an effective plan for handling. 

But, as in the case of the storm actually making a direct hit on one individual structure, the odds are low enough that it makes the risk acceptable to the thousands if not millions of folks who live in tornado country.

Sometimes, I suppose, the best preparedness is just an honest assessment of the likelihood of impact.

Note: I know you know this but donations can be made for Typhoon Haiyan relief efforts via the Red Cross, Doctors Without Borders, and probably lots of other relief agencies as well.

Comfortable Being Scared

Last night on the HR Happy Hour show we talked about social media in the workplace, why organizations should have social media and social networking policies in place to guide employee usage (although quite a few listeners argued that specific social media policies are unnecessary), and some of the concerns and outright fears that many leaders and HR professionals seem to possess when these topics are discussed. After all, many of the large mainstream HR associations have trotted out a stream of speakers and 'experts' pitching at best caution and restraint, and at worst outright bans supported by a few anecdotes about miscreant employees gone wild. Flickr - Scr47chy

Rather than contribute yet another (unnecessary) piece attempting to refute item by item the typical laundry list of 'bad' outcomes (time wasting, loss of productivity, exposure of company secrets) that may arise from the increased use of social networking in the workplace by employees, I wanted to touch upon one of the observations made on the show by our guest Eric Meyer.  During the conversation about the use of 'scare tactics' by some legal experts, Eric noted that many HR professionals are 'comfortable being scared', in other words hinting that rather than dispassionately evaluating the potential benefits of these tools and technologies, many in HR are happy to use the horror stories to keep them safely entrenched in their personal comfort zones of uninformed bliss.

Mulling over this some more last night I don't think it is all that surprising considering how popular and often successful 'going negative' is in many other aspects of our culture.  Think about our interactions with our kids, 99% of political advertising, the stories on the local TV news, and even the relentless focus on the 'bad' or negative in the coverage of the World Cup. How much more emphasis has been placed on shoddy officiating, annoying vuvuzelas, and dysfunctional team dynamics than on any of the positive aspects of the competition? 

Why are we so drawn to the negative? 

Why do we try to avoid, mitigate, reduce, manage and every possible other thing except embrace risk?

Why are so many of us 'comfortable being scared?'

The Man Without Fear

My favorite comic book super-hero is Daredevil, known as 'The Man without Fear'.

If you are not familiar, Daredevil is the only blind super-hero. A childhood accident blinded young Matt Murdock, but somehow his other senses compensate to such an extreme degree, including the development of a "radar-sense" that allows him to perceive his surroundings, that he is able to assume the persona of Daredevil.

Daredevil is 'The Man without Fear', because he never hesitates to leap into action, he never second-guesses himself, and never hesitates to put himself at risk for fear of his own safety.  He is bold. He takes action. He takes risks.

He is the kind of guy we all wish we could be.

I know, Daredevil is a comic-book hero, real life is so much more complicated, and the economy is so bad that most of us feel afraid to take risks, to expose ourselves to scrutiny and potential problems.

So many of us just want to go to the office, keep our heads down, and hang on.

Believe me, I completely understand that point of view. We all have bills, mortgages, kids to worry about.  Taking unnecessary risks is just about the last thing on our minds.

But the future, whatever it holds, will not be written by the folks who spent most of their time staying out of the line of fire.  History forgets the timid.

You have a great idea, or maybe just a good idea.  A way to fix a broken process, improve a customer experience, or build a better, more productive workplace.

Don't keep it your yourself.  Don't be afraid for your reputation or image. There may be more opportunity now than any time in the last few years. The markets have perked up lately, it for a time anyway, seems the stories of massive corporate layoffs have slowed down. 

If a blind man can put on a costume and venture out into the night to protect his city, then you can be bold too.

The economy is not going to be revived if all of us just keep our mouths shut and hope not to get fired.

We all need more men and women 'without fear', and I include myself in that admonition.