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Why Dealing with Ambiguity Is Important

        posted by , February 16, 2013

Neurosis is the inability to tolerate ambiguity.
~ Sigmund Freud
People cling to information like a frog adrift in the ocean clings to a coconut.

When making decisions, people avoid choices for which they're missing information. This sound's reasonable enough. After all, why would you choose something if you're not sure about it?

The problem is that people can be perfectionists when it comes to information for decisions. It has be shown in sociological experiments that missing information causes people to make irrational choices. This is known as the Ambiguity Effect.

Definition: Ambiguity Effect

The ambiguity effect is a bias for perfect information in decision making. In other words, people prefer making a bad decision where all information is known to making a good decision that involves missing information.

The ambiguity effect has numerous business implications for sales, marketing, employee motivation and decision making.

Example: Ambiguity Effect

Sue is shopping for a new home. She's considering house A and house B.

She prefers house A. House A is also cheaper. She asks her agent who lived in house A previously, the agent says "I have no idea".

The missing information about house A drives sue to buy house B — spending more money for a house she doesn't like as much.

Dealing With Ambiguity

It has been shown in sociological experiments that the ambiguity effect is fairly common. However, it doesn't affect everyone.

Some people are completely comfortable making choices that involve a degree of ambiguity. People can also be trained to make better decisions in ambiguous situations.

In business, ambiguity is the rule not the exception.

Leaders are expected to make timely, logical decisions in the face of ambiguity. This skill is often referred to as "Dealing with Ambiguity".

Dealing with Ambiguity may sound like a fluffy skill but it's important.

One of the basic functions of leadership is to provide certainty to followers — to provide direction. Leaders who freeze in the face of uncertainty aren't leading. Leaders who make bad choices because they can't tolerate ambiguity are destructive.

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