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Uncovering unknown unknowns: Towards a Baconian approach to management decision-making

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  • Feduzi, Alberto
  • Runde, Jochen

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.

Suggested Citation

  • Feduzi, Alberto & Runde, Jochen, 2014. "Uncovering unknown unknowns: Towards a Baconian approach to management decision-making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 124(2), pages 268-283.
  • Handle: RePEc:eee:jobhdp:v:124:y:2014:i:2:p:268-283 DOI: 10.1016/j.obhdp.2014.04.001
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    Cited by:

    1. Love, Peter E.D. & Ahiaga-Dagbui, Dominic D. & Irani, Zahir, 2016. "Cost overruns in transportation infrastructure projects: Sowing the seeds for a probabilistic theory of causation," Transportation Research Part A: Policy and Practice, Elsevier, vol. 92(C), pages 184-194.
    2. Aven, Terje, 2016. "Risk assessment and risk management: Review of recent advances on their foundation," European Journal of Operational Research, Elsevier, vol. 253(1), pages 1-13.
    3. repec:oup:cambje:v:41:y:2017:i:5:p:1279-1302. is not listed on IDEAS
    4. repec:eee:tefoso:v:124:y:2017:i:c:p:77-87 is not listed on IDEAS

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