# Calibrating Uncertainty > Informing your decision-making and evidence-gathering by measuring the *chance* of being wrong and the *cost* of being wrong. SEE ALSO: [[Cynefin]] In Arts Management, as in any management, you and your team continually make choices without full information. Every such decision carries risk – of spending precious time, money, and attention on the wrong thing, as one example. In an environment that's highly uncertain, it can be easy to get stuck not making any choice because every choice seems uncertain or risky. But, of course, inaction is also a choice with consequence. The trick of this challenge is being able to calibrate the uncertainty of your choices, and their possible consequences. Some decisions will require full attention, deep discovery, and significant investment of time and money. Some will only demand experimentation and nimbleness. Others will be minimally consequential, and therefore not worth much time or energy. So how do you know which is which? In *[How to Measure Anything: Finding the Value of Intangibles in Business](https://amzn.to/3MWX050)*, Douglas Hubbard suggests a framework to calibrate this challenge that builds on two factors: - the *chance of being wrong*, and - the *cost of being wrong* The *chance of being wrong* relates to the uncertainty surrounding the decision or action, which can be high, moderate, or low depending on the environment, the available information, and the variability of the possible outcomes. The *cost of being wrong* relates to opportunity cost of choosing one path rather than another, or choosing action over inaction. This cost can also be high, moderate, or low depending on the scale, salience, and impact of a negative outcome. As Hubbard states it: > “If you are uncertain about a business decision…that means you have a chance of making the wrong decision. By ‘wrong,’ I mean that the consequences of some alternative would have turned out to be preferable and you would have selected that alternative, if only you had known. The cost of being wrong is the difference between the wrong choice you took and the best alternative available — that is, the one you would have chosen if you had perfect information.” By this framework, the greatest attention, investment, information gathering, and effort belongs where *both* the *chance* and the *cost* of being wrong are high. If the chance of being wrong is low, less additional information is necessary. If the cost of being wrong is low, you might as well experiment and observe the results (what Dave Snowden calls "safe-to-fail probes"). An added benefit of this framework is that it also suggests two strategies for taking action in uncertain environments: - You can reduce the *chance* of being wrong through rigorous and front-loaded assessment and filtering. This is what institutions usually do – both to their benefit and their peril. - Or, you can reduce the *cost* of being wrong by experimenting with focused, small, iterative actions. This is what collaboration and open systems can do, or institutions who reimagine how they work. Hubbard offers data-informed analysis of the chance and cost of being wrong in his book, which is worth a reading if that's what you want. But even at the base level, this framework helps clarify and calibrate the decisions you face every day. When you're unsure about whether to act or gather more information before you act, first consider the *chance* and *cost* of being wrong. Then move forward accordingly. SOURCE: Hubbard, Douglas W. *How to Measure Anything: Finding the Value of “Intangibles” in Business*. Third edition. Hoboken, New Jersey: Wiley, 2014. --- ## Tags (click to view related pages) #frameworks #sapling