As business leaders study the U.S. economy, politics, and governance and try to make decisions that fit the probabilities for success, these thought leaders must deal with uncertainty, misinformation, powerful anti-business opponents, and risk management.
How should business leaders assess uncertain information? How do we measure the degree of risks faced by C-Suite chiefs? How should we expect the unexpected?
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It’s crucial that when business leaders formulate plans to deal with expected economic and political problems, we think in terms of probabilities, not certainties. Making decisions for the future and evaluating future courses of action under consideration by politicians and society’s leaders is like forecasting the weather. Weather forecasters speak of probabilities, not certainties. However, our local and national leaders often do not understand probabilities. They tend to treat commonplace events such as climate change and loud political protests as extraordinary when they’re not. Their plans and calculations often become deeply subjective because planning future actions usually involves best guesses. Yes, we can use critical thinking to improve predictions and plans. But sometimes careful planning has limitations, such as when events turn to chaos or Black Swans convert our plans into mush. (A Black Swan is a high-impact, unpredictable, unexpected event with potentially severe consequences.)
When we try to use reasoning and critical thinking to make major decisions and try to understand risk and uncertainty, there is a famous quote that came out of a Department of Defense briefing in 2002 while discussing intelligence about assessing weapons of mass destruction in Iraq. Here is the quote:
“There are known knowns; these are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know.”
This quote is widely recognized for its philosophical framing of uncertainty. It offers lessons in decision-making and probabilities, and we can use it to help us make better decisions in the economic and political arenas. For example, there are facts, laws, or balance-of-power situations we are fully aware of and understand. These are straightforward and manageable, and we can call them Known Knowns.
Then there are areas where we know gaps exist, certain knowledge is unattainable at the moment, or the players are unpredictable, causing the need to reassess plans, seek additional information, or play a waiting game to fill those gaps. Call them Known Unknowns.
The most dangerous category, because it involves risks or information outside our awareness, is events or results that are unpredictable, unexpected, and much harder to prepare for. We can call them Unknown Unknowns.
The lessons we can learn here are to acknowledge the limits of our own knowledge and prepare for future uncertainty by doing more study, employing persuasion, exercising patience to await more information and better opportunities, and staying adaptable. By actively working to identify “Known Unknowns,” we can expand our understanding, dig deeper, and explore new perspectives, possibilities, and routes we haven’t considered.
When we acknowledge the existence of “Unknown Unknowns,” it doesn’t necessarily mean initial inaction—it means making decisions while understanding their inherent risks, and it may result in no action at all. Perfect information is rarely achievable, but we can’t let that paralyze progress. We may need to distinguish between different types of uncertain risks and conclude that some may be acceptable and some unacceptable.
While we can’t predict every “Unknown Unknown,” creating resilient and flexible strategies and applying critical thinking and patience allows us to respond better when surprises or Black Swans hit us.
The complexity of navigating uncertain landscapes in the business world, populated by unpredictable persons with power or ambitions, often requires awareness of our ignorance, which is knowledge almost as valuable as relying on what we do know.
Other stories you may want to read:
- John R. Smith: A Turning Point for America: Pondering Trump’s Plans & Obstacles - March 12, 2025
- John R. Smith: Regulatory Relief for Businesses May be On the Way - March 5, 2025
- John R. Smith: Known Knowns, Known Unknowns, and Unknown Unknowns - February 19, 2025