Are You Facing Uncertainty or Ambiguity and Why it Matters

I go to the grocery store every day to buy whatever I need for what I’ve decided to make us for dinner that evening and while driving I listen to Bloomburg radio. Sometime in the past year or so Bloomburg took over a terrible classic rock station out of Boston and while the classic rock station was only a go to when nothing else was on other channels, I’ve now become kind of addicted to the Bloomburg analysis at the expense of my musical development.

Today the hosts of Bloomburg Intelligence were talking about the uncertainty and ambiguity that all the tariff talk had brought to the markets. And I realized they were using the terms interchangeably and that I had done so as well in a recent post, or at least failed to clarify what I meant by them, which was a bit embarrassing to realize whilst driving to the grocery.

So why does it matter the difference between uncertainty and ambiguity? It matters because we face both every day, especially in our professional lives, and they do mean different things and they have different solutions. So being clear on which of these we are experiencing will drive how we approach them and mitigate them.

Some Definitions

Uncertainty means we do not know exactly what impact an act will have and what factors will mitigate or enhance that impact and what other chain reactions it might spur. Ambiguity means we don’t know why something is happening and of the many explanations we do not know which is correct.

Uncertainty is what we are experiencing right now in the stock market, as the radio show pointed out. We are uncertain about the impact of Trump’s tariff threats, meaning we are not sure what impact they will have on inflation, on trade, and on our relationship with our allies. There are a lot of variables at play, and those could impact on things we are not yet aware of, so we are uncertain about the outcome.

Contrast this with the ambiguity of the situation, meaning we do not know why Trump is engaging in the trade wars, which I would argue is the real reason for the volatility in the stock market. More on that in a moment, but first I feel a need to point out that I am not advocating for or against Trumps actions, I’m an agent, analyst and observer and this is what is happening now so serves to illustrate the point.

And the point is, no one can know what is going on inside Trump’s head (or inside my head or your head) so there is a lot of ambiguity around why he is pursing the tariff path that he is. Thus far, in various public statements, Trump has provided the following justification’s for the tariffs:

-            To balance trade and spur U.S. manufacturing

-            To stop illegal immigration and human trafficking

-            To stop the flow of fentanyl

-            To balance the budget

-            To impose fairness

-            To retaliate against other countries

-            To bolster national security

-            To make child care more affordable

-            To make America rich

-            To protect the soul of the country

Some of these group together in themes that make sense, but some are contradictory and some are just confusing; thus, we have no way of knowing for sure which of these, if any, is the actual reason for the tariffs or as to why Trump wants to impose tariffs on all of our trading partners.

If there were one reason offered, we’d feel more comfortable, but when there are ten reasons, our brains cannot make sense of them, and this ambiguity makes us feel highly uncomfortable, and that I would offer is the real reason the markets are trembling.

This ambiguity creates a situation known as causal overshadowing. Causal overshadowing means that where multiple explanations compete, the abundance of potential causes can obscure or "overshadow" our ability to identify the primary driver. This creates cognitive strain as we attempt to determine which explanation carries the most weight.

Ultimately we will latch onto one explanation, but the reality is we will never be completely confident that is the actual explanation, which leads to a situation known as inferential discomfort. Inferential discomfort is the tension we experience when we've made an attribution about someone's behavior while simultaneously recognizing the fragility of that inference due to competing explanations. That is really hard to resolve without direct access to the person. But we can try.

Uncertainty

Resolving uncertainty, though the markets are pained by it every day and we in our professional lives face it and wrestle with it every day, really is not that hard. We have models that do that for us.

With tariffs, we have more than a hundred years of data about how the cost of tariffs is or is not passed on to consumers and in what situations consumers bear the cost and in what situations manufacturers bear the cost. We also have a very clear picture of the supply chain, what is manufactured where, and how tariffs on certain products will impact costs.

And while inflation is a bit more tricky, we can still model that and how increased prices and increased or decreased wages may impact on inflation. It won’t be perfect, but it will help to manage the uncertainty.

In your job and in your life, you will face uncertainty, and I am confident you will have either the tools available or the people around you who can model the situation and make sense of the uncertainty. They can, for example, develop a factor analysis and model showing how pushing on one factor will likely move others and bring us closer to or further away from resolution.  If rather than trying to follow our gut, we follow the models, we can substantially reduce the uncertainty.

Ambiguity

Ambiguity is harder. It’s not about what is happening, but why it is happening. To reduce the uncertainty, we have to make inferences and we have to make very calculated inferences. This is the heart of what I do and here in general terms is what it looks like.

First, you have to be clear on what question you are trying to answer. If you are not clear on that, your inferences are more or less pointless. Once we have the question solidified, we separate what we know to be fact from what is just information (e.g. things people have said but that we cannot verify as fact).

From the facts and information, we make a series of inferences about the situation. Without listing all the facts and information here, relative to Trump and the tariff situation, I could make the inferences that 1. Trump does not like to lose, 2. Trump likes attention to be on him, and 3. Tariffs help to mitigate Trump’s sense that the U.S. is losing.

I would make many more inferences, but these serve to illustrate the point and, again, just analytic observations, not politics.

Finally, we then take all the inferences we’ve made and roll them into a coherent answer to our question. And this helps to reduce the ambiguity. So if our question is “Why does Trump believe so strongly in tariffs?”, we could come to a better answer than we can from just trying to make sense of the ten options he has put forward.

And my answer to the question would not be on the list; rather, my assessment would be that, from Trump’s perspective, tariffs make the U.S. look strong and that is what matters the most to him.

We may never know the real reason, but following this rigorous process helps us to be more confident, and more accurately confident, in the situation, reducing that sense of ambiguity and the resulting inferential discomfort we feel when we’ve just selected the rational that makes the most intuitive sense to us.

What the heck am I making for dinner?

Now back to me grocery forays. It is always uncertain how my dinner will turn out, but you could be more certain if you had the data from the last thousand meals I’ve prepared and you could easily model the likelihood that my dinner will be terrible, edible, good, or fantastic taking into account what I’m cooking, what ingredients I’m using, day of the week, current workload, and so forth.  

Then there is the ambiguity. Why did I choose to go with Italian tonight rather than Mexican, Spanish, Japanese, Korean, Lebanese, Moroccan, French or American. Hard to know for sure, but taking the facts and information you would have available, I’m confident you could sort it via your inferences. Just from this short paragraph you could infer that I like jumping between cuisines and probably could arrive at the assessment that I’d not cooked Italian in a while so that was the primary reason I chose it. Which would be pretty accurate.