Uncertainty Is Psychologically Uncomfortable: A Theoretic Framework for Studying Judgments and Decision Making Under Uncertainty and Risk

A novel theoretic framework for examining judgments under uncertainty and risk is proposed based on literature examining how decision makers subjectively represent the concept of uncertainty, and how that representation influences the decision-making process. The literature suggests that “uncertainty” is conceptualized differently than is implied from the perspective of formal models such as the expected utility model. The literature further suggests that strategies used to cope with uncertainty are contingent upon how uncertainty is conceptualized, and also suggests that both cognitive and affective components of the decision influence how information is processed during decision making. The theoretic framework presented in this chapter postulates that uncertainty creates a state of psychological discomfort that motivates the decision maker to move the decision situation from a state of uncertainty toward a state of certainty in order to reduce the discomfort created by uncertainty, and ultimately, to make a decision. Given uncertainty is the main characteristic of an entrepreneurial environment, the present chapter has direct implications for both entrepreneurs and venture capitalists. Both theoretic and practical implications for future research suggested by the theoretic framework are outlined.