Managing radical uncertainty with scenario planning techniques: Insights from the perspective of behavioral strategy

Dating back to the classic work of economist Frank H. Knight (1921), decision scientists routinely distinguish uncertainty from risk, based on the basic idea that, whereas risks are quantifiable in terms of their likelihoods of occurrence, uncertainties are not quantifiable in such probabilistic terms. It thus follows that the tools commonly employed for the analysis and management of risks are unsuitable for the analysis and management of uncertainties. Although uncertainties are inherently unquantifiable, they are, nonetheless, potentially manageable, and scenario planning, a set of narrative-based techniques, has been widely promulgated for this purpose. Despite their popularity, however, when viewed from the standpoint of behavioral strategy, an emerging interdisciplinary subfield at the interfaces of strategic management and the social and behavioral sciences, scenario techniques are grossly under-theorized, and there is a paucity of (high quality) psychological evidence pertaining to their efficacy. Drawing selectively on recent advances in behavioral strategy, in particular the notion of dynamic managerial capabilities, this chapter reviews the limited body of psychological evidence accumulated in respect of these techniques and sets out an agenda for advancing the science and practice of scenario planning, as a basis for managing better the many and varied uncertainties confronting organizational decision makers and policy makers.