#109: How do we create progress through uncertainty?

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Hannah Gowen (Host)

What do you do when the path ahead isn't clear? Act now, wait for more evidence, or take one careful step at a time?

Every day, people and businesses make decisions that shape what happens next. But without certainty, how do we know which decision is right? Will we create opportunity or amplify poor judgement?

Today we ask: How do we create progress through uncertainty?

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Alex Edmans (Guest)

I think actually, people put too much weight on the wrong type of confidence

Debo De (Guest)

The assumption that businesses can plan for everything and therefore be prepared for everything is an absolute fallacy.

Alex Edmans (Guest)

If you weight train, this doesn't actually build your muscles. It tears them, and then it grows stronger. And this is the same with, with business, necessity is the mother of invention

Debo De (Guest)

Businesses are meant to be dynamic organizations that are constantly adapting to a changing environment

Alex Edmans (Guest)

The best way to avoid failure is never to try anything new. Mm. But then you've actually made a failure. You've made an error of omission, not an error of commission.

Debo De (Guest)

Your action kind of follows your confidence, some of the greatest successes of humanity have come at times of adversity

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Hannah Gowen (Host)

Welcome to The Green Room, a podcast by Deloitte. I'm Hannah Gowen, and I'm joined today by my co-host Oli Carpenter.

Oli Carpenter (Host)

Hey, Hannah. So let's get straight into today's conversation. We're joined by Alex Edmans, professor of finance and author of books including ‘Grow the Pie’, a Financial Times Book of the year and ‘The Madness of Markets’, which is out this month. So welcome, Alex.

Alex Edmans (Guest)

Thanks so much for having me here.

Oli Carpenter (Host)

We also have Debo De, and he is Deloitte's chief economist, and this is your second appearance in The Green Room Debo, so welcome back.

Debapratim De (Guest)

Thanks, Oli.

Oli Carpenter (Host)

Well, it's great to have you both on. And look, I suppose the first thing to say is not a day goes by where we don't end up hearing about the economy and what's happening.

But economic conditions aren't just big-picture forces. They shape how people feel about the future. So with that in mind, Alex, if I come to you first, when economic conditions change, what happens to the way people think and behave in their everyday lives?

Alex Edmans (Guest)

So often people will overreact to bits of information and so why do I think this is so common? Is because we can see this in all areas of life. So if you go down to a football stadium this weekend, if a manager has lost three games in a row, they might call for his head even if he's had a couple of really successful seasons.

So let's translate that then into the stock market or the economy. We might see some news which is mildly positive, but we over-extrapolate and we think it's going to be extremely good, or some news which is mildly negative and we think it's going to be catastrophic. So as an example, typically you see people getting the direction correct, but the magnitude and the speed wrong.

For example, in 2000, Cisco overtook Microsoft to become the world's most valuable company. And that makes sense, you might think, because routers and switches are going to be the future of the internet, but that would only make sense, the valuation would, if Cisco grew six times within the next five years. It did grow six times, but it took 25 years to grow that rapidly. Why? Well internet is indeed the future, the speed of adoption was much slower than what people thought, because people are not yet comfortable... were not fully comfortable with moving to online.

And we might think about this with other trends that we see. For example, electric vehicles, do we have the charging infrastructure? Are people going to be willing to move towards that? The same with artificial intelligence. So every bit of news about whatever's hot is either seen as really a famine or feast, when in fact, I think the implications of that might be much more moderate than people think.

Oli Carpenter (Host)

And with that in mind, what sort of decisions become easier, harder or delayed when things feel uncertain?

Alex Edmans (Guest)

So whenever there’s uncertainty the value of any option is really high. So that's basic finance theory. You want to keep your options open. And so whenever you can build in modularity or flexibility into your decisions that's particularly valuable. So if it's to build a new data centre with the option to expand later, that's much better than sinking an investment which will be irreversible.

Hannah Gowen (Host)

And Debo, from a business point of view then, how do some of those decisions, as we touched on there, start to show up at a business level?

Debapratim De (Guest)

Well I suppose, in a way, businesses kind of exist to manage uncertainty for others. For consumers, businesses absorb a lot of complex uncertainty. Take, for example, you know, if you go to a baker here and you buy the bread, they deal with where they sourced the wheat from or the flour from, they don't need us to deal with that.

And in a way, I think it is one of the reasons why businesses are quite efficient in economies because they have both the scale and the size and the ability to deal with these decisions in a much more sophisticated way... well most big businesses would... than individual consumers do.

Hannah Gowen (Host)

And how quickly do businesses feel the impact of consumer behaviours and those changes, if they're feeling a little bit more sensitive to change and they’re changing their purchasing decisions, how quickly do businesses feel that?

Debapratim De (Guest)

It varies by sector. If you're a consumer-facing business, you'll probably see a big dip in consumer sentiment or buying behaviour almost immediately. If you're selling a product which is largely a discretionary purchase, again, difficult economic environments might mean that you see the impact of that on demand quicker.

But at the same time, if you're selling durable goods, for example, or, you know, heavy machinery, your clients or your customers are big businesses who've got ten-year plans. And so they don't necessarily shift as much to kind of short-term changes in outlook or opinion.

Hannah Gowen (Host)

And Alex, what is it you think that causes certain events to cause... or uncertainty to cause one person to really draw back on certain behaviours, but others it might lead them to take more of a risk? Why do you think that happens?

Alex Edmans (Guest)

So this is because of confirmation bias. So what is that? We have a view of the world, and we interpret information based on whether it supports that viewpoint or contradicts it.

So if you allow me one more football analogy, if you were to have two sets of fans see a penalty incident, one set will say, “oh, that's a sure-fire penalty”, and the other set will say, “that was never a penalty.” They clearly see the same thing, but they're interpreting it differently.

So again, let's translate that into a business setting. Let's say there's some information about the potential for generative AI. And there might be one set of people which is very tech savvy, who thinks this is going to transform the world. Let's invest everything that we have into this technology. And others might be more sceptical about this and think, “well, actually, there's going to be a lot of caution and concerns behind this.”

So what you might want is viewpoint diversity. And in this case it might come from age diversity. So if in general, younger cohorts might be more enthusiastic about technology, we want to balance that with some of the old guard.

Oli Carpenter (Host)

With that in mind then, it's clear to see that with economic conditions, that can shape our confidence. And there is a relationship, I think, between household and business confidence and how they're connected. Debo, from your perspective, could you help us sort of define confidence? What does it mean in that context?

Debapratim De (Guest)

That is a tricky question. You know, broadly, you're obviously trying to gauge people's sentiment and whether in the case of individuals or businesses, they think that the time and the environment is right for them to spend more. Typically, that's what a lot of these confidence measures try to gauge.

How good people are at self-reporting that, I'm not sure, because if you look at some of these confidence measures, especially consumer confidence in the UK, it's a net balance. So the figure’s either positive or negative, depending on whether consumers feel more or less confident on balance now than they did, say, a month ago or three months ago, or whatever the time period is.

And if you look at the UK’s consumer confidence readings, they've been negative for a very, very long time. That doesn't mean that the consumer has been in the depths of despair for 15 years or 16 years, but it's just one of those quirks of self-reporting sentiment.

Oli Carpenter (Host)

Yeah. And what about overconfidence, Alex? Because you said, you know, you gave the example of a football team, but is there a danger of being overconfident in decision making sometimes? And is there a way we can tell that's happening?

Alex Edmans (Guest)

Absolutely and I think there's dangers in different types of decisions, so let me try and disentangle them. So first, going back to consumer decisions, it may well be that you think you have a high amount of confidence, but it's not based on factors which are economically sound. So what should determine my purchasing decisions? It might be my own expectations of my future income growth, my job security. But if there's a particularly, say, charismatic politician in charge, he or she might instil lots of confidence, even if that's not going to have a clear impact on my purchasing power.

Also, then when you think about decisions as a business leader, overconfidence means that I might be more optimistic about my decision than is warranted or my ability to manage a difficult decision.

So one area in which overconfidence rears its ugly head is mergers and acquisitions. So the sad fact of the data is that around 50% of mergers just don't add value to the acquirer. But it may be that you overestimate synergies or you overestimate your ability to manage culture clashes.

And then if you do that, then you are making decisions too often and behind any bad decision or bad mentality, there is a grain of truth behind it, which is why sensible people can make bad decisions. And the grain of truth behind it is you might think, “I need to act.” If you snooze, you lose. If there’s changes in circumstances, I need to change my strategy or merge with other companies. But it may well be that you are overconfident about your ability to manage that.

So you ask, “well, what is the solution?” It is different points of view, and I know that diversity is often an overused word, but the evidence suggests that diversity of thought people with different perspectives is really useful.

So maybe you're a very optimistic person, and then you have a senior management colleague who is more pessimistic and sees what can go wrong. Maybe you're a big-picture thinker, but then somebody else is focussed on the detail and they say, “well, have you considered all of these smaller things which might actually endanger the vision?”

And so the more that you can build in cognitive diversity, which is different viewpoints, but also a psychologically safe environment where you, despite being the leader, encourage your subordinates to express different viewpoints and challenge you. The less likely you are to be a victim of your own overconfidence.

Hannah Gowen (Host)

How important is confidence as a driver for progress, for businesses?

Debapratim De (Guest)

It depends how you define progress. Confidence is key for businesses to invest. Typically, you'd imagine that in a dynamic economy, businesses need to invest, to grow and to progress. And to that extent, confidence is crucial to it.

But at the same time, you know, many progresses or innovations come at times of adversity. When businesses might think that actually they don't have the room to invest more and therefore need to find efficiency gains. There's lots of examples in history where those things have led to actually quite interesting innovations.

Hannah Gowen (Host)

Conditions aren’t always favourable, and leaders regularly feel that they have to make decisions before they have all the answers, it's very common. So, Alex, what factors do you think should shape the decision to take action? Are there any times where actually waiting might be better?

Alex Edmans (Guest)

I think there's a couple of factors that matter. So, number one is when you take a decision, recognise that there is still uncertainty and that the decision could go wrong. Even if you're taking the best decision at the time.

So we as business leaders or investors or the media who reports on business, have a tendency towards resulting. What is that? That is judging the decision by the results rather than the decision process.

So if I was to be on a 12 in blackjack and I hit, I hit a 10, I go bust. That's a bad result. But it was a good decision at the time. And often we like to chastise leaders for things that did not work out, even though they acted with the best information. So I think it's important for boards of directors or investors or whoever evaluates business leaders to give them some slack and some leeway, because there is a lot of uncertainty about which they are taking the decision.

Second point is that if there is a lot of uncertainty, then to build in flexibility in two ways. Number one, it could be waiting before making a decision, particularly if that decision is irreversible. Or second, if you make a decision, be willing to backtrack and to change your viewpoint.

And again, there are many decisions about which often CEOs do not get given the ability to backtrack and show flexibility. Let's take sustainability decisions. And so that's a large area of my research. If you announce an ambitious net-zero strategy and then you backtrack on that, why? Because you think it's actually not technologically feasible, or the trade-offs with financial returns are too high. You're accused of not being truly committed to net-zero, of greenwashing.

When in fact, with any good business decision, you should be willing to re-evaluate when new information comes to light.

So if my goal is to be globally diversified and then I see geopolitical tensions, then if I choose to actually backtrack or put on hold those global ambitions, that’s seen as absolutely fine. We should afford CEOs and business leaders the same luxury, to be flexible in other types of decisions. It's more important to be pragmatic rather than just to show inflexible commitment.

Oli Carpenter (Host)

Interesting. Yeah, and building on that then Alex, some businesses seem to be better at navigating this uncertainty than others. So what are the factors that make those businesses more adaptable?

Alex Edmans (Guest)

So I think, sorry to come back to an earlier answer, but cognitive diversity is really useful, because when there is uncertainty this is when different viewpoints is particularly valuable. And also being a company where you are allowed to fail and make mistakes.

So there are some companies which are notorious for throwing failure parties to celebrate innovations that ended up not working. But you were bold in taking the decision to avoid the problem of resulting.

So, Intuit, founded by CEO Scott Cook. He was saying, “well, behind any failure, there is often a great idea behind it.” We want to allow people to fail because we're willing to tolerate the nine mistakes, to allow the one decision, which is actually the blockbuster.

Oli Carpenter (Host)

Debo, as much as I'm sure they'd like to, organisations can't control the economy. But where do business leaders have the greatest ability to create that momentum?

Debapratim De (Guest)

Largely, businesses have to operate, you know, in an economic environment where there are exogenous shocks that they're subject to, and they need to be able to address them.

I feel that somehow the assumption that businesses can plan for everything and therefore be prepared for everything, is an absolute fallacy. Businesses are meant to be dynamic organisations that are constantly adapting to a changing environment. That's what they are in real life.

And no matter how much planning you do, I mean, this takes me back to the 19th century. There's a famous quote by Prussian army commander Helmuth von Moltke who said, “no plan survives first contact with the enemy.”

And you could plan as much as you want for lots of different economic environments, but you’ll never really be fully prepared and therefore having confidence that you've got a leadership team that is adaptable, that has some of the features that Alex just pointed out, it’s got a diverse set of stakeholders who bring different points of view to the decision making process, will make businesses feel confident that they'll be able to deal with whatever's thrown at them.

Alex Edmans (Guest)

And just to add to that, I think just to embrace the uncertainty is very valuable. So often we live in an environment in which certainty pays.

Within organisations, if you want a particular plan to be approved, you will say, “well, this merger is a sure fire win.” Or, “we definitely need to backwards integrate with our supplier.”

Whereas if you say, “well there are uncertainties about this, what could go wrong is there could be a downturn in the economy, or there should be changes and there could be changes in regulation.”

And so why is that useful? It's not just to cover your backside if things go wrong. It may well be that the organisation thinks, “oh, this is actually an important source of uncertainty. Let me try to get more information about this particular driver. Can I try to do more research into the likelihood of changes in regulation, so that the factors that are particularly material for the go no-go decision you're getting more information about.”

Oli Carpenter (Host)

Changing and uncertain circumstances, they can force organisations to reconsider what they do next. They can have a real, you know, immediate change or sometimes it's a longer-term change, but that doesn't have to stop that progress. So, Alex, what role does adversity play in innovation?

Alex Edmans (Guest)

Adversity plays a very important role. And again this is something which is true outside of business. So the way to build strength is you actually will weight train. And so if you weight train this doesn't actually build your muscles, it tears them. And then it grows stronger the next day. And this is the same with business.

Because if you are in adverse circumstances then you will need to come up with responses to the adversity. So we often hear that necessity is the mother of invention. And I think this is true.

So if we see something really problematic such as Covid, that led to innovations which are still valuable nowadays, even though the world has opened up, such as being able to work remotely.

And so what we want to do as organisations is every time we see adversity, one way is to retreat into our shell and say, “well let's completely pull back on our strategy.” But another approach is, “well, let's stay with the strategy, not be inflexible, but are there other ways to adapt that strategy, which is able to overcome the challenge that we have here.”

And again, this is the learning mindset that I've given in my prior responses. We want to be organisations which are adaptable, which allow for failure.

The best way to avoid failure is never to try anything new. But then you've actually made a failure. You've made an error of omission, not an error of commission.

If you're launching any new idea, understand that there will be headwinds and that you might be blown off course, and then you adapt to that. And this is the best way to learn and progress as an organisation.

Hannah Gowen (Host)

Debo, from your experience, have you got any examples of businesses who have faced some of that adversity in those challenging conditions and have responded particularly well?

Debapratim De (Guest)

Yeah, I think more than businesses, it's some of the greatest successes of humanity have come at times of adversity.

If you take the Second World War, I mean, the example I'm always fascinated by is how penicillin became incredibly crucial to saving the lives of soldiers. And because of the Blitz, Britain, even though it had the technology to produce penicillin, simply didn't have the capacity to mass-produce it.

And therefore some of the scientists went to the US and they set up mass-production techniques, which they refined over time. And that's how mass produced commercial medication became sort of true or real for the world. So there's loads of examples of significant innovation that have happened, at times of adversity.

I feel what adversity does to businesses, it forces them to rethink what they may have already seen as an efficient, optimal operating model forces them to operate under limitations that under normal circumstances, they may not have, and therefore sometimes inadvertently causes them to produce new things.

The other aspect of adversity is, it can sometimes drive people to adopt things that they may otherwise be sceptical of. So take telemedicine, for example. We know that during the pandemic, telemedicine took off. And people are less sceptical of it now than they were before the pandemic. And it's simply a question of just that nudge to adopt something would change people’s behaviour and therefore has changed the world.

Alex Edmans (Guest)

So I think penicillin is a great example. So I believe it was Merck which first cracked the code on how to manufacture penicillin at scale, which was really important in the Second World War.

But then it decided to share the secrets of how to do this with its rivals. So normally you do not share your trade secrets with your rivals, but it was just so important for enough penicillin to be produced to support the Allied Forces.

And so this is the general idea that when there is a common external enemy, that might cause internal cohesion, when there otherwise might be tension, because we forget the differences between us, we need to make sure that the company survive from the downturn or the pandemic or the competitive threat. And so this is another positive way in which we can turn adversity into something supporting us.

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Hannah Gowen (Host)

Really interesting. So we've spoken about businesses navigating uncertainty. But before we continue, let's consider what uncertainty can mean for people in their everyday lives.

Oli Carpenter (Host)

Right now, too many people across the UK are facing hunger and financial hardship. That's why we're proud to support Trussell through our Social Impact Programme.

An anti-poverty charity and community of food banks, Trussell works together to ensure no one in the UK needs a food bank to survive, while providing emergency food and practical support for people left without enough money to live on.

You can play your part too. Search Trussell to find out how you can help.

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Hannah Gowen (Host)

So we've now covered how the economy impacts us as individuals and obviously as organisations too. But we want to now explore the opposite flow. And if we're all making similar choices, can those decisions actually start to shape the economy too?

So Debo we’ll start with you. Economies are often discussed as if they're driven purely by external forces, but how much are they shaped by the choices that people or individuals and organisations make?

Debapratim De (Guest)

Well, the bulk of the UK economy is driven by the British consumer. Which accounts for about two-thirds of UK GDP. So quite a lot of the overall GDP figure, that there's a lot of debate and discussion about every few months, is driven by, decisions made by businesses and individuals here.

Having said that, the external environment does have an impact on them. So if you see the outbreak of a war somewhere and you know then that means energy prices are going to rise, you will generally be a bit more defensive. And be careful and cautious with your spending. And that’ll be true for businesses and individuals.

So I don't think you can totally separate the external or the exogenous factors at play. But having said that, the bulk of what drives growth in this country and in much of the Western world is actually domestic decisions.

Hannah Gowen (Host)

And Alex, given that the kind of power of the consumer from a behavioural viewpoint, do you think that we perhaps underestimate the impact of these smaller decisions made by us as individuals?

Alex Edmans (Guest)

I think we do, or at least we did historically, because we might think, well an individual, that's only one small part of the UK economy, but actually you can have a rather large contagious effect on other people.

So there's evidence that there's herd behaviour in many economic decisions. So my main field is investing and right now you can see other people's investment decisions, even if you don't even know who these people are on Reddit. So something like Wall Street Bets, that's a place in which people are buying into stocks just because others were doing so.

The fear of missing out if you do not capitalise on a potentially profitable opportunity is huge. You don't know the names of the other people behind the usernames. You don't see their faces, but it stings to be the lone person who's sceptical about crypto when everybody else is into this.

And so this might also apply towards purchasing decisions. So if there's a boycott against a particular company because of some violation of the social compass, then indeed if you are seen with that brand, then you might have some social stigma against you.

And similarly, if there's a trend towards like healthier eating or buying local or buying organic, that's something where people will see the decisions that you're making. And that is not just a decision in and of itself. It says what you stand for, what your values are. That can also influence the community in ways which was not the case maybe ten years ago.

Hannah Gowen (Host)

And Alex, you've actually just used the term there of I think, herd mentality. Do you think there's a risk of herd mentality? And if we all make the same decisions and follow the same guide, that that will have a negative impact more broadly?

Alex Edmans (Guest)

Yeah. So it depends on what you are herding on. So sometimes when we see herding, particularly for investing decisions, we see herding on information. We think that that particular person has unique information, which is why they're going into crypto. We want to learn from that information and we copy them.

But we have no idea who that person is. We don't know what their information is. They might just be up-voting or pitching something just because they're fans of crypto. So there is a danger of herd mentality where we are thinking that other people are informed when they're actually not.

But some of the consumer decisions I'm talking about are not so much learning about information, but social trends. Now that it becomes socially less acceptable to throw your litter in the street rather than to recycle it, then that will affect other people.

Similarly, if within an organisation it might have been seen as socially the case that you support everything that the leader says and you back him or her up with your own analyses. If you are set to challenge constructively the leader and to say, “well, my role here is to highlight his or her blind spots” that might then encourage other people to do so instead.

So instead of people just assuming information, what you're actually doing is you're influencing behaviour and norms. And that I think, is the positive side of influencing others rather than just the herd mentality behaviour.

Oli Carpenter (Host)

We've spoken a lot about progress during adversity. And Debo, you gave the example earlier around penicillin during World War Two as an example. But do you think progress looks different during periods of uncertainty and, you know, does it come at a cost, or is it generally seen as a very positive thing that we're making so much progress? What's your thoughts on that?

Debapratim De (Guest)

It certainly feels different at times of adversity because often, in some cases, as Alex just pointed out, you may feel like you're fighting a common adversary or a common enemy. So everybody's in the same boat, and therefore you may see a certain kind of camaraderie that you don't always see under normal circumstances. So it'll feel different.

I'm not sure, whether there's any kind of progress that comes without some sort of price. But if you look at new technology that essentially, you know, going to make new business superstars that will come at the cost of other existing superstars waning in their power and influence.

So there's always change. And that change will mean that, you know, progress and success will come at the cost of other businesses. And, you know, therefore change for people.

I think the question is when governments, when regulators, policymakers see that sort of change, how do they manage the impact of it? So not only do they harness the positive effects and the benefits from that sort of change, how do they make sure that the effects, the negative impacts of that change are managed better.

Alex Edmans (Guest)

And uncertainty just provides more opportunities to learn. Translate that to in a business setting, uncertainty means that I'm going to deal with different types of environments, different types of consumer behaviour, and therefore I learn more because I learnt how to adapt to that compared to if the environment was completely stable.

Hannah Gowen (Host)

We've sort of alluded to it already here. The kind of intersection between confidence and what that means for progress, for businesses, for individuals. But could either of you give kind of a summary of what is the relationship between confidence, action, progress? How do they all intersect?

Debapratim De (Guest)

I can start with, talking about the GenAI boom or the AI boom that we are experiencing at the moment. Obviously, quite a lot of it is driven by the confidence of a few businesses, these hyperscalers, and their investors who think that this really is the next transformative technology, and therefore they're happy to sink a lot of money and a lot of invest... make huge investments into this.

And arguably that's driving growth not just in the US but across the world. And we shall see over the next few years, you know, the returns they receive from that investment.

So I see this as kind of quite natural. i.e. if you don't have confidence in a particular idea or a particular technology, you are just not going to invest in it and therefore you're not going to make the most of it. So that is fundamental. Your action kind of follows your confidence and the returns, you know, it's a function of a number of different things, including the environment in which the investment was made.

Alex Edmans (Guest)

I think actually, people put too much weight on the wrong type of confidence. So some people might think, “well, unless I have absolute certainty that this is going to work, I'm not going to engage in this decision.”

But as I mentioned earlier, we should be willing to navigate uncertainty and be comfortable with the fact that I can hit on 12 on blackjack and I could make a mistake, but I don't need to beat myself up about it because I made the right decision at the time.

What instead I want confidence in is I want confidence that the organisation will back me if I take a decision that ends up being incorrect, because they recognise that failure and uncertainty is just part of being in business.

And I also want confidence in myself, in my ability to adapt. So if indeed things become difficult, then I will be able to learn from this and maybe change my decisions.

So what we want is not confidence that the decision will look good after the fact, but confidence that I can make a rational decision with the information at the time I can deal with and respond to what things, what the world throws at me, and confidence that the organisation will back me up and support me.

Hannah Gowen (Host)

It's quite interesting all this talk around progress and innovation. A lot of it feels like it's founded in risk, which doesn't necessarily come with the association of confidence. So it's quite an interesting balance there.

Oli Carpenter (Host)

And Alex, I think we are in general agreement that confidence does help us to move forward. But how can leaders avoid becoming overconfident, as they gain that experience?

Alex Edmans (Guest)

I think to avoid overconfidence, the starting point is to recognise what might give rise to overconfidence in the first place. And one source may be organisations that want complete certainty before they move ahead.

So then a leader might think, “well, I want to make sure that I unambiguously support this decision to go ahead. Therefore, I'm going to ask all my junior reports to give me arguments and data and evidence in support of this decision.”

When actually what you want is people to highlight your blind spots and to give you dissenting viewpoints. And so once we recognise that actually we don't want to have complete certainty, then this is an organisation which will allow different viewpoints to surface and then it's fine to say, “I’m going to make this decision with a 60% certainty or 70% certainty, rather than to claim that I always need 100%.”

The second is overconfidence can come from the wrong type of confidence. So rather than having overconfidence in the outcome, what I like to have is confidence in the process.

And what do I mean by this? I would like to have confidence that the organisation is one in which if I make a good decision that turns out bad, like hitting on 12 and getting a 10, the organisation will back me. The organisation allows there to be failure. It recognises that failure is part... as a result of making decisions under uncertainty.

I would also like the organisation to give confidence to junior employees that they are allowed to challenge seniors. Actually, they're not allowed to, they're encouraged to. That is why they are there is to highlight leaders’ blind spots.

So the more we have confidence that the process will be evaluated, not the decision and confidence that the organisation will have my back. If I was to challenge the status quo, that's the right type of confidence that I would like to engender.

Hannah Gowen (Host)

Debo, given the fact that uncertainty is inevitable. We've talked about that a lot today. How do you think organisations can build some adaptability to that in the way that they operate, so that they are ready and prepared in those situations?

Debapratim De (Guest)

I think a number of things, skills development, actually giving people, even people who may otherwise be seen as fairly junior in the firm, a lot of responsibility. There's a lot of evidence that firms that have independent teams, that have the remit to take business decisions, generally tend to be more adaptable, and they do better.

You also want a leadership who would support the business in doing those things.

I think you can have a discipline of being adaptable and always being alive to changing market conditions. And that means, you know, when it's not just a change in market conditions, but an exogenous shock. You've already had enough practice of adapting to it that you know you're going to do well.

Oli Carpenter (Host)

One other thing we'd like to ask, because it's been a fascinating conversation, and we always want to make sure we've got plenty of takeaway advice for our listeners, but what advice, Alex, from your perspective, would you give someone who's worried about making the wrong decision so they delay the action?

Alex Edmans (Guest)

The first thing is to recognise that a wrong decision is not the same as a wrong outcome. I could make the right decision and it just doesn't turn out correctly, because the economy moves in ways that I could not anticipate. I shouldn't beat myself up too much about this.

The second is to recognise that often an indecision is the worst type of decision. So a decision which looks incorrect because the economy turns against me, actually, that provides me with opportunities to learn. And that's much better than never having tried the innovation or the expansion to begin with.

I think the third is just to get in the habit of making decisions under uncertainty by practising what I have suggested in business, in your own life.

So in your own life, this might involve trying a new sport which you might not be successful at. Why? Because even if you “fail” at that, that's much better than never having tried it. And then in which case you fail by default.

So it's difficult to have a separate home life and personal life. I think it was Gandhi who said, “life is a homogenous whole.” So just get into the practice of making decisions and failing and trying difficult things, particularly when the stakes are low, such as trying a new hobby.

Oli Carpenter (Host)

If at first you don't succeed.

Alex Edmans (Guest)

Exactly. And there is truth behind any phrase such as that.

Hannah Gowen (Host)

And finally, we have to come back to our big question of course. Which for today is: How do we create progress through uncertainty? So Debo, I'll start with you.

Debapratim De (Guest)

By embracing it.

Alex Edmans (Guest)

By recognising that uncertainty provides opportunities to learn and never to wait for complete certainty because you'll never get there.

Hannah Gowen (Host)

Thank you both for joining us in The Green Room today. It's been a very interesting conversation.

Alex Edmans (Guest)

Thank you. Thanks for inviting us.

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Hannah Gowen (Host)

Thanks for listening to this episode of The Green Room, a Deloitte podcast.

We release a new episode every other Tuesday with another big question. So don't forget to hit follow or subscribe to this podcast wherever you are listening or watching. And make sure your notifications are on, so that way you'll be alerted whenever a new episode drops.

This podcast is produced by our very own Pod Squad. Original music by Ali Barrett.

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