How might decision-making differ for a risky versus an ambiguous situation?

Risk and ambiguity are both terms used in contemporary decision-making, leadership, and business processes.

Risk is typically described as a potentially negative outcome that might occur, the incidence of which can be more or less predicted and understood. Ambiguity, on the other hand, refers to events and situations where the likelihood is never certain and cannot be properly estimated. Ambiguity often occurs because of a myriad of factors influencing an outcome or an absence of data based upon which a decision can be made.

While certain business and decision-making strategies do not avoid risk, most of them would evade ambiguous scenarios if they could. Herein lies the difference in decision-making strategies when facing risks and ambiguity; one is proactive, while the other one – is reactive.

When risks are understood, steps can be made to minimize the damage or avoid it entirely. It is possible to focus resources and actions to counter a specific risk and minimize its influence on a business or a project. With ambiguous scenarios, it is much more difficult to estimate the event’s likelihood and effects.

As such, the only way to prepare for an ambiguous scenario is to assume the worst and dedicate the appropriate amount of attention to it. Because the worst scenarios are often catastrophic in nature, fully addressing them in advance requires significant effort. If the outcome is less than that, then the resources are wasted.

It is the reason why companies prefer risks to ambiguity. Even if the risks are high, most decision-makers prefer to know the odds of failure versus success.

The only situation in which ambiguous scenarios are favored over risks includes those where the possibility of success in one is extremely low, prompting decision-makers to make a leap of faith when faced with the certainty of the failure otherwise.

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Academic.Tips. 2023. "How might decision-making differ for a risky versus an ambiguous situation?" May 4, 2023. https://academic.tips/question/how-might-decision-making-differ-for-a-risky-versus-an-ambiguous-situation/.

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