Uncovering unknown unknowns: Towards a Baconian approach to management decision-making |
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| Authors: | Alberto Feduzi Jochen Runde |
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| Affiliation: | 1. Department of Financial and Management Studies, SOAS University of London, Thornhaugh Street, Russell Square, London WC1H 0XG, UK;2. Judge Business School, University of Cambridge, Trumpington Street, Cambridge CB2 1AG, UK;3. Department of Economics, University of Rome III, Via Silvio D’Amico 77, Rome 00145, Italy |
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| Abstract: | Bayesian decision theory and inference have left a deep and indelible mark on the literature on management decision-making. There is however an important issue that the machinery of classical Bayesianism is ill equipped to deal with, that of “unknown unknowns” or, in the cases in which they are actualised, what are sometimes called “Black Swans”. This issue is closely related to the problems of constructing an appropriate state space under conditions of deficient foresight about what the future might hold, and our aim is to develop a theory and some of the practicalities of state space elaboration that addresses these problems. Building on ideas originally put forward by Bacon (1620), we show how our approach can be used to build and explore the state space, how it may reduce the extent to which organisations are blindsided by Black Swans, and how it ameliorates various well-known cognitive biases. |
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| Keywords: | State space construction Unknown unknowns Black swans Inductive methods Organisational and management decision-making Cognitive biases |
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