The Influence of Uncertainty and the Importance of Understanding Your Circle of Competence


Hatched by Glasp

Sep 27, 2023

5 min read


The Influence of Uncertainty and the Importance of Understanding Your Circle of Competence

Uncertainty: Why It Affects Our Decisions More than We Think

"We're all bewildered, but most bewildered of all are those who think they know the truth." This quote captures the essence of uncertainty and its profound impact on our decision-making process. Whether we realize it or not, uncertainty plays a significant role in shaping our choices and actions.

One reason uncertainty has such a strong hold on us is the perception of control. We tend to believe that we have control over certain aspects of our lives, which gives us a false sense of confidence. Our minds cling to this certainty, even as other biases try to convince us that we are in control. This perception of control influences our decision-making process, often leading us astray.

Moreover, uncertainty breeds anxiety, especially when it comes to an unclear future. At its core, uncertainty is about not knowing what will happen next. This lack of knowledge can be unsettling, and we may let our emotions guide us as we make decisions under uncertainty. Fear of the unknown can paralyze us, preventing us from taking risks or embracing new opportunities.

To better understand our aversion to uncertainty, we must examine our feelings towards the unknown. When faced with uncertainty, we often feel scared because we don't know what might happen if we make the wrong decision. This fear is akin to the hesitation users experience when encountering unfamiliar features in a product's onboarding flow. If they can't imagine what will happen when they click a certain button, they are less likely to take that action.

Another factor that exacerbates our struggle with uncertainty is pressure. The more we try to measure one aspect of a decision, the less precisely we can measure another. This principle applies to our decision-making skills as well. Uncertainty only becomes certain in the outcome of our decisions. We cannot predict the future with absolute accuracy, and the pressure to make the right choice can be overwhelming.

However, running from uncertainty is not the solution. Embracing uncertainty and considering the likelihood of different outcomes is the key to navigating uncertain situations. Instead of trying to control every aspect of our lives, we should accept that uncertainty is an inherent part of the human experience. By acknowledging and embracing uncertainty, we can make more informed decisions and approach life with a sense of openness.

Understanding Your Circle of Competence: How Warren Buffett Avoids Problems

Warren Buffett, one of the most successful investors of all time, attributes his success to understanding his circle of competence. He famously said, "I'm no genius. I'm smart in spots—but I stay around those spots." This quote emphasizes the importance of knowing our boundaries and focusing on what we truly understand.

The size of our circle of competence is not as crucial as understanding its limitations. We should honestly define what we know and stick to those areas. While our circle of competence can expand over time, it should be done slowly and deliberately. Mistakes are often made when we venture outside of our competence, whether in business or in life.

Charlie Munger, Buffett's long-time business partner, extends the concept of the circle of competence beyond business and into life as a whole. He asks a fundamental question: Where should we devote our limited time to achieve the most success? Munger advises us to figure out our own aptitudes and play within our circle of competence. If we engage in activities where others have the skills and we don't, we are bound to lose. Only by staying within our circle can we improve our odds of success.

To apply this concept and improve our decision-making in all aspects of life, we must define the perimeter of our own circle of competence. We should operate within this boundary while continuously working to expand our knowledge and skills. However, it is vital not to deceive ourselves about the extent of our current competence. Acknowledging our limitations and being comfortable with saying "I don't know" is essential for growth and avoiding detrimental mistakes.

Connecting Uncertainty and Understanding Your Circle of Competence

While it may seem that uncertainty and understanding our circle of competence are separate concepts, they are interconnected. Both influence our decision-making process and our ability to navigate life effectively.

Uncertainty often arises when we are faced with decisions that fall outside our circle of competence. We feel uncertain because we lack the knowledge and understanding necessary to make an informed choice. By embracing uncertainty and acknowledging our limitations, we can avoid making decisions in areas where we lack expertise.

On the other hand, understanding our circle of competence helps us manage uncertainty. When we know what we truly understand, we can make decisions with more confidence and clarity. We are less likely to be swayed by uncertainty because we have a solid foundation of knowledge and expertise to rely on.

Actionable Advice: Embracing Uncertainty and Defining Your Circle of Competence

  • 1. Embrace uncertainty: Instead of running from uncertainty, learn to accept it as a natural part of life. Recognize that certainty is an illusion and that the outcome of our decisions is uncertain. By embracing uncertainty, we can approach decisions with a greater sense of openness and adaptability.
  • 2. Define your circle of competence: Take the time to define what you truly understand and where your expertise lies. Be honest with yourself about your limitations and focus on operating within your circle of competence. Continuously work to expand your knowledge and skills, but never underestimate the importance of staying within your current boundaries.
  • 3. Be comfortable with saying "I don't know": It is impossible to know everything, and acknowledging our limitations is a sign of strength, not weakness. When faced with a decision outside your circle of competence, don't be afraid to admit that you don't have all the answers. Seek advice from others who have the necessary expertise and use their insights to inform your decision-making process.

In conclusion, uncertainty and understanding our circle of competence are vital considerations in our decision-making journey. By embracing uncertainty and defining our limits, we can navigate life with greater confidence and make more informed choices. Remember to embrace uncertainty, define your circle of competence, and be comfortable with saying "I don't know." These actions will help you make better decisions and ultimately find success in both business and life.

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