Dealing With Uncertainties

The stock market is primarily unpredictable in the short term, yet investors constantly seek patterns, trends, and forecasts to convince themselves they can anticipate movements

While our fundamental understanding of risk boils down to the outcome or the consequences of outcome of an event, the very uncertainty of an even happening itself is a risk. We, humans, always tend to seek certainty in any outcome. Our brains are prediction machines—constantly trying to reduce ambiguity by forming expectations, even when the future is inherently unpredictable. This is the reason why we like to make predictions into the future outcomes.

Rory Sutherland illustrates best of our aversion to uncertainty in his book, ‘Alchemy’. If one were to take a flight to Frankfurt which departure board would you prefer to see?

Option1: BA123 – Frankfurt – Delayed

Option2: BA123 – Frankfurt – Delayed 70 min.

Logically, neither scenario is ideal—your flight is late in both cases. Yet, most people would prefer Option 2. Why? Because while a 70-minute delay is frustrating, it provides a clear expectation. The first option, however, leaves you in limbo—How long will I wait? Will the flight be canceled? Should I stay or look for alternatives? The uncertainty amplifies stress, making the experience far worse than a defined (even if longer) delay.

Though, the delay in option2 is frustrating, it is better than optio1 because it reduces provides the certainty in the delay. While in the option1, the uncertainty is intensified as we don’t know when the flight would take off, if at all, which could a source of considerable psychological pain.

Similarly, Sutherland illustrates of the ride-hailing maps show us where our driver is. They don’t make the car get to us any faster but they negate the uncertainty around when it will arrive. Does seeing the car move toward you make it arrive faster? No. But it eliminates the gnawing uncertainty of "Where is my ride? Is it coming at all?" The mere act of providing information—even if it doesn’t change the outcome—reduces anxiety.

As investors, we exhibit the same behavior. The stock market is primarily unpredictable in the short term, yet investors constantly seek patterns, trends, and forecasts to convince themselves they can anticipate movements. Analysts publish price targets, economists predict recessions, and traders rely on technical charts - not because these methods guarantee accuracy, but because they provide a semblance of certainty. This is how we develop the illusion of control.

This is an instinctive coping mechanism that has remained all through our evolution as humans. When faced with randomness, our brains impose narratives.

If the RBI cuts rates, so stocks will rally

If the war gets escalated, the stocks will crash

These mental models help us tolerate uncertainty, even when reality is far messier. As Nassim Taleb argues in Fooled by Randomness, humans are prone to overestimating causality in chaotic systems. We’d rather believe in a flawed prediction than accept that some outcomes are simply unknowable.

Business that understands this physiological need thrive by selling certainty (or illusion of it):

e-commerce delivery trackers don’t speed up packages but they ease the “where’s my order? “ anxiety. Restaurant wait times displays make a 45-min delay feel more manageable than an ambiguous “we’ll call you”. Pregnancy tests that show “weeks since conception” provide more information than a simple positive/negative result, even if it doesn’t change the outcome. In each case, the value isn’t just in the service itself but in the reduction of uncertainty.

While we naturally seek certainty, wisdom lies in recognizing it’s limits. In investing, this means:

Accepting probabilism: instead of predicting to know the exact outcome, focus on ranges of possibilities.

Preparing for multiple scenarios: plan for different futures rather than betting on one ‘certain’ path.

Managing emotions: the most critical aspect. Acknowledge that discomfort with uncertainty is normal but don’t let it drive impulsive decisions.

The future will always be uncertain. The best we can do is build resiliencenot by eliminating unpredictability but by learning to navigate it without false comforts. As Sutherland’s examples show, sometimes the biggest relief isn’t a better outcome, but simply knowing what to expect.

(The author is a partner at “Wealocity Analytics”, a SEBI Registered Research Analyst and could be reached at [email protected])