John Kay and Mervyn King almost called their new book Through a Glass Darkly but opted instead for Radical Uncertainty: Decision-making for an unknowable future (The Bridge Street Press: 2020). Either title would have been uncannily prescient for the environment we all now work in. Written before Covid-19 took hold Kay and King looked at an increasingly uncertain world and asked a basic but fundamental question, how can we plan ahead and make decisions ‘when there is no rule book’?
With Radical Uncertainty Kay and King have written an accessible, informative and entertaining study of modern economic theory and its practical utility in guiding decision making in an increasingly unpredictable world. Radical Uncertainty is built around three propositions;
1). The world of economics, business and finance is non-stationary and is not governed by unchanging scientific laws
2). Human behaviour is determined by evolutionary rationality, which is determined by subjective context, not objectivity
3). Humans and market economics are social activities
In short we live in ‘a world of uncertain futures and unpredictable consequences, about which there is necessary speculation and inevitable disagreement’. This, for Kay and King, is the world of radical uncertainty, where ‘wicked’ problems operate beyond the rules that frame ‘resolvable uncertainty’ which normal economic models are designed to answer. This isn’t intended as a council of despair, but rather a reminder that off-the-peg solutions will fail to resolve and potentially worsen problems rooted in radical uncertainty.
Radical Uncertainty initially focuses on testing the limits of probability reasoning, in particular the Chicago School model of economics and Friedman’s Price Theory, which suggests ‘we may treat people as if they assign numerical probabilities to every conceivable event’. Key and King acknowledge the potential benefits of what they term ‘small-world’ models to help frame thinking, but call for an approach that draws from a wider breadth of knowledge and experience. As they conclude, ‘people who know only economics do not know much about economics’.
To Kay and King context is all. They argue that real households, business and governments do not seek to optimise, most of the time they seek merely to cope from day-to-day. This is perhaps to advocate an ominshambles model of economics, but Kay and King repeatedly illustrate how individuals and organisations tend to seek only to optimise their current position, rather than an abstracted, optimal position.
Radical Uncertainty is a useful primer as to how we can challenge the group-thinking that can lead to day-to-day errors and broader crisis such as the Iraq War and the 2008 financial crisis. Kay and King suggest we acknowledge the social nature of decision making and give more consideration to ‘communicative rationality’, how we express our views and judgements to other. In particular they suggest that we need to be conscious when putting forward arguments that we are creating narratives to describe and bring order to an uncertain world.
To Kay and King the most important thing is to ensure there is always someone in the room willing and able to challenge the prevailing narrative. As they point out Roosevelt had Harry Hopkins and Nixon had Kissinger. In their words “beware the narrative of the hedgehog, derived from ‘universal’ explanations, ideologues and grand theories”. As Margaret Thatcher once said, ‘every one needs a Willie’.
I would like to have seen greater consideration as to how AI and the operations of companies like Amazon are impacting on consumer decision making, but ultimately the focus of this book isn’t primarily economics. Radical Uncertainty is really about leadership. It is about how together we need to forge narratives that help guide our thinking, visualise future scenarios and ensure plans are robust enough to cope with a range of plausible alternatives. It is about how these narratives can provide a secure base for companies and communities to engage with uncertainty, allowing it to become a source of opportunity rather than despair.
