03. Literature Review

3.1 UNDERSTANDING UNCERTAINTY

3.1.1. What is the uncertainty and where it exist

Uncertainty occurs when details of circumstances are ambiguous, intricate, unpredictable, or probabilistic; when the individual finds information or knowledge inaccessible, conflicting or unstable (Barbow, Hinse, & Kasch, 2000). People also perceive uncertainty while they assess the probability of an event. The experienced uncertainty is highest when the likelihood of the event is believed to be half (Barrow, 1992) or when all options look equally possible If multiple alternatives exist (D E. Brashers, 2001).

3.1.2 Effect and Meaning of Uncertainty

Uncertainty affects individuals’ cognitions, perceptions, affective state, and behaviors (Van den Bos & Lind, 2002). Uncertainty can make problem-solving or decision-making difficult; can lead to the perceived failure to foresee and control one’s future; can resist the quest for significance. (D.E. Brashers, 2003).

Uncertainty often is described as an anxiety-producing cognitive state to manage through information-seeking behaviors (Berger & Bradac, 1982; Gudykunst, 1995; Kuhlthau, 2004). Van sanctum Boset (2008) depicted uncertainty as an aversive and disturbing experience. However, some studies highlight the inherency and significance of uncertainty in life, illustrating it as “a natural rhythm to life (Mishel, 1990)” or “fundamental characteristic of complex systems (Merry, 1995).” Brashers and T.P Hogan (2013) advanced the Uncertainty Management Theory by insisting that uncertainty is not something genetically negative that to be eliminated or resolved, but rather something to be managed.

“Uncertainty is a natural rhythm to life”
- Mishel, M. H.

3.1.3 Principle of Uncertainty

There are some distinctive characteristics of uncertainty that discussed in academic research.

1) Uncertainty is fundamentally self-cognitive; is in the eyes of the beholder. Even a person who possesses much information on the issue may still feel uncertain (D.E. Brashers, 2013).

2) Uncertainty is multilayered and interconnected (Barrow, 1995). When things are in the air at once, to start from making one thing visible can change the whole scene. Likewise, when there are multiple uncertainties at once, the resolution of one issue may let another appear or shift (Barrow & Kline, 2000).

3) Uncertainty is temporal; it can be short-lived or chronic (Lazarus & Folkman, 1984; Michel, 1990).

4) A person’s reaction toward the uncertainty involves the appraisals and emotional responses of individual (Brashers, 2001), and uncertainty evaluation varies per situation or person (Brashers, Neidig, Haas, et al., 2000; Sorrentino and Roney, 2000). Although pre-existing researchers such as Gudykunst focused on anxiety — danger appraisal, wide range of emotional response can be possible; appraised as an opportunity when not knowing (Brashers et al., 2000; Mishel, 1990); neutral emotional response when uncertainty is not perceived to affect goals, or when it does not to represent a problem (Lazarus, 2001). Also, people may have mixed feeling and reaction if there are both positive and negative impact (Folkman, 1997). People, sometimes, create hope out of uncertainty by reframing or embracing it as an essential part of their life (Michel, 1990).

5) Appraisals and response to uncertainty may vary in different countries, influenced by their culture (Y. Liu, T. Almor, 2014); While western society sees the uncertainties as things to be managed or removed (Lind and Van sanctum Bos, 2002), Eastern society tends to see it as something to be endured or even embraced (Mor, et al., 2013; Pun, et al., 2000).

Since uncertainty is multilayered, interconnected, temporal, and varied in emotional response or culture, the propriety and adequacy of managing response may vary in different context and circumstances (Barrow et al., 2000)

3.2 UNCERTAINTY IN ENTREPRENEURIAL ACTION

3.2.1. Entrepreneurship, Startup and Uncertainty

Entrepreneurship requires action (Higgins & Kruglanski, 2000). Any type of entrepreneur, no matter what they are inventing or disrupting, they are, ultimately, the DO-ers. And the action is inherently uncertain since it occurs over time, and the future is unknown (Mises, 1949). Moreover, novelty — the genetic trait of entrepreneurial action intensifies the uncertainty (Amiable, 1997). As a consequence, the entrepreneurial action is about facing uncertainties in every corner. Interestingly, this description is also applied to the entrepreneur definition in the first theory of the entrepreneur by Hebert & Link;

“Entrepreneurs are someone who exercises business judgment in the face of uncertainty” 
- Hebert & Link

What about startups? The startup is a company that is in the first stage of its operations(Investopedia). There is no concise definition of the startup that all academic field and industry agree upon, but one key attribute that all can agree on is startup is designed to search for a scalable business model (Natalie Robehmed, Forbes; Alyson Shontell, Business Insider). And because of their focus on growth unconstrained by geography, most of them have to confront the vulnerability from limited revenue or high cost in its first stage of operation(Investopedia), until they get additional funding from venture capitalists. “New organizations are always vulnerable to the liabilities of newness, but such pressures are especially severe when an industry is in its formative years”(Aldrich and Fiol 1994, 645) because of the following reasons, besides from 1) the financial vulnerability that explained above. 2) The novelty of solution.

“A startup is a company working to solve a problem where the solution is not evident, and success is not guaranteed”
- Warby Parker, CEO of Neil Blumenthal

While a startup does not have to be tech-oriented by its definition, certainty, startups often adapt new technology(Natalie Robehmed, Forbes) or the new market to solve the problem. For example, SnapChat or Skype applied live video chat technology into their core product, and AirBnb and Uber introduced shared economy model into the existing hotel and taxi industry. The development of new industries is rarely easy or straightforward, and there is no simple manual to guide an emerging industry(Johan Jansson, 2011). The newness of solution leads to 3) uncertainties in the creation and establishing of new customers and 4) lack of established structures and process(Clegg, Rhodes, and Kornberger, 2007) since customers and the pre-existing structures are often ignorant of the advantages of the newness of the technology(Johan Jansson, 2011). Startups also often engage with 5) emotional instability;

“it is an emotional roller coaster that can either result in massive failure or success, after which one’s bank account total may either drastically increase or decrease”
- Alyson Shontell

As a result, for many aspiring entrepreneurs, it is indeed hard to meet their initial expectations and thereby the failure rate among new startups, and new ventures can sum up to sixty percent within its first five years (Martin and Ingrid, 2001). This situation explains the value of investigating on uncertainty management for startups that can make the difference to the industry.

3.2.2 Uncertainty in Entrepreneurship

Uncertainty is distinguished between ‘risk’ (Knight, 1921). While risk is knowable, measurable and probabilistic, uncertainty is non-comprehensible and refers to circumstances where risk can’t be communicated regarding mathematical probabilities, for example, the results of the sports game, elections or investment (Knight 1921/2006).

Based on this distinction, Alveraz & Busenitz (2001) and Loasby(2002) explains that entrepreneurial decision-making takes places under the condition of uncertainty, whereas the non-entrepreneurial one takes place under the condition of risk and that is the most critical difference between two type of decision-making.

There is various literature regarding the entrepreneurs’ uncertainty, from uncertainty in making entrepreneurial action becoming an entrepreneur to coordinating the resources and organization. Let’s review the literature regarding uncertainty according to the linear stage of entrepreneurial action:

1) Becoming entrepreneur

Does the uncertainty prevent the entrepreneurial action? This question has induced arguments. There are two mainstreams in this argument, based on how they conceptualize the uncertainty. The first stream believes what hold back people in making entrepreneurial action is the lack of knowledge (e.g., Busenitz, 1996; Gaglio & Katz ,2001), focusing on the perceived amount of uncertainty (Kaish & Gilad, 1991; Kirzner, 1979). The second stream declaims that what makes entrepreneurs distinguished from non-entrepreneur is the willingness to bear uncertainty (e.g., Douglas and Shepherd, 2000), focusing on the response and appraisal of the uncertainty of entrepreneur (Knight, 1921; Schumpeter, 1934). In this situation, resistance to uncertainties is considered as a barrier for prospective entrepreneurs. To sum-up, to become an entrepreneur, the individual must deal with the uncertainty in a knowledge-wise and/or motivation-wise (Higgins & Kruglanski, 2000).

2) Investing in market opportunity

Being entrepreneur means you are in the position facing decision-making point day and night (Baron, 1998) even with overloaded information, emotional friction or time pressure (Baron, 1998). Especially, it means you have to decide whether to invest your time and money into the attractive but frightening opportunity with no other’s assurance (Knight, 1921). The entrepreneurs are positioned to make the decision with unknowns (Shackle, 1979). Studies describe that entrepreneurs just appear to be more motivated to pursue their ventures, and if the continuous investment of entrepreneurs is made, such activities can also demonstrate persistence and thereby strong leadership (Yukl, 2010).

3) Organizational Decision Making

Entrepreneur’s specialty is to judge and take responsibility for the decision that will affect the key factors of organization (Hebert, Link, 1988). Mark Casson (1982) highlights that the critical role of entrepreneurs is to coordinate the scarce resources. Milliken & France, J (1987) examined why different organizations choose different strategies on the same environmental uncertainty by categorizing the uncertainties into three.

Firstly, State uncertainty, often called as synonyms of environmental uncertainty, exists regarding the circumstance itself. When decision makers see some environmental elements of the organization is unpredictable, they might find them as ‘state uncertainty’. Secondly, effect uncertainty is uncertainty that further derived from the not knowing the possible impact of the change in the environment. Lastly, response uncertainty happens when the decision maker doesn’t know how to react to the uncertainty because of lack of knowledge or understanding.

Let’s take an HR decision maker’s uncertainty under the M&A issue in corporate as an example: Let’s say the HR head needs to make a decision on next hiring plan but she feels uncertain because the M&A result is unknown. This is state uncertainty. If the HR head has been informed of the result, but she is not able to predict the influence of M&A in HR process. Then she has the effect uncertainty. If the head of HR is aware of both upcoming M&A result and possible impact, but she feels uncertain on what to bring as a response. Then this is the response uncertainty.

Mckelevie (2001) found that entrepreneurs make the different decision depending on the type of uncertainty (state, effect and response uncertainty) that involved in the process of utilizing opportunities.

3.3 UNCERTAINTY MANAGEMENT FOR ENTREPRENEURS

What does the uncertainty management mean to entrepreneurs? It is one of the must-have ability of entrepreneur (Schendel, 2007).

“Entrepreneurial action is the process of transforming uncertainty into opportunities”
- McMullen & Shepherd (2006)

Uncertainty Management Theory (UMT; Brashers, 2001) provides a framework for understanding and investigating entrepreneurs uncertainty management. While not previously applied to uncertainty in entrepreneurs or startup context, UMT has incorporated the uncertainty encountered in interpersonal, organizational and health dimensions. It has been argued if uncertainty has to be predicted and reduced (Hogan, 1983; Stevens and Fiske, 1995). However, recent study disclaims that managing uncertainty is crucial for maintaining hope (Brashers, Neidig, Hass, et al., 2000).

3.3.1. Uncertainty Management Theory

a) Seeking and avoiding information
Uncertainty is inherently communicative in that it is caused by lack or overloaded of information or message (Brashers, Neidig, Haas, et al., 2000). Therefore, coping with the amount, quality or the source of the information can help uncertainty management (Brashers, Neidig, Haas, et al., 2000). However, the relationship between information and uncertainty is not straightforward. Traditional studies such as Shannon and Weaver (1949) suggest a simplified linear model that uncertainty represents a lack of information, and this leads to information seeking and uncertainty reduction model (Wilson, 1999b). Wilson disclaimed that seeking information toward uncertainty is a “goal-directed” behavior. Wilson explained that people travel through four stages for resolving the problem, and each step will increase the level of uncertainty: problem identification, problem definition, problem resolution, and solution statement. Ironically, information does not need to be “correct” at that time; what people perceive extremely certain often turns out inaccurate (Planalp and Honeycutt, 1985).

Modern conception regarding information and uncertainty suggest a more intricate relationship (Afifi, 2009; Case, 2012) that uncertainty does not always motivate information seeking. They say information can also decrease or maintain the uncertainty, not only increase. Individuals can increase uncertainty by purposefully adding new alternatives or seeking information that is contradicting to their current belief (Frey, Schulz-Hardt, and Sahlberg, 1996l Kruglanski, 1989). Also, people can avoid the information when they are overwhelming and distressing by maintaining uncertainty (Brashers, 2001). At that time, avoidance behavior might be conscious or unconscious.

b) Adapting to chronic uncertainty

“Accepting uncertainty is an adaptive mechanism (Mishel, 1990).”

People adapt. When there is a chronic uncertainty people change the way of arranging or deciding with an accordance of uncertainty (Brashers, 2001). People may ignore the uncertainty, accept uncertainty, or rely on faith or a transcendent power (Embers and Canary, 1996; Hoagland and Shepard, 1980). Or they can utilize heuristics to make a decision (Epstein, 1999), lean on the minimal level of information, or compromise with the pragmatic solution (Pierce, 1996).

To minimize the impact of uncertainty and protect themselves from the complexity of life, people develop structure and routine that is called “cocoon of uncertainty” (Merry, 1995). Individuals in organizations manage the uncertainty by building certainty through stereotyping. For example, when organization reacts to environmental uncertainty, the organization may reinforce rules and regulations that they feel stable and predictable (Merry, 1995).

c) Obtaining assistance with uncertainty management

Albrecht & Adelman (1987) explained that uncertainty management can be facilitated by the supportive others. Because the uncertainties are multilayered and interconnected, if there is enough level of stability in a relationship or a social life, perceived uncertainty become light. Supportive others help individual to reappraise the uncertainty in a better way, by encouraging, questioning or reassuring it (Brashers, 2001).

However, the trickiest part of getting assistance from others for uncertainty management is aligning the goal between the support giver and receiver. One may try to decrease the uncertainty while the other appraise the uncertainty as positive and help it to stay or grow. Brashers, Neidig, Haas, et al (2000) suggests self-advocacy skills as the resolution for this Dilemmas of social support; the support receiver and support giver can avoid the dilemma by maintaining boundaries of discussion and support.

3.3.2 Managing Anxiety of Uncertainty and Communicating effectively.

The anxiety of uncertainty is a by-product of perceived danger or threat of situation. Unlike to fear, anxiety can be objectless and the interpretation can be varied per one’s cognition (Spielberger, 1976).

Many researchers have found that anxiety of uncertainty associated with communication effectiveness (Gudykunst & Nishida, 1999; Gudykunst, Nishida, & Chua, 1986; Gudykunst & Shapiro, 1996; Hubbert et al., 1999).

Anxiety/uncertainty management(AUM) theory highlights a communication framework, proposing that effectiveness of communication is an element of people’s capacities to deal with their uncertainty and anxiety. (W.B. Gudykunst, T. Nishida/International Journal of Intercultural Relations 25 (2001) 55–71). Gudykunst explained (1993) the interpersonal interaction as well; individuals who are capable of handling their anxiety and communicating effectively are likely to have a higher ability in anticipating and clarifying others’ emotions, attitudes, and behaviors (Gudykunst, 1995).

However, uncertainty or anxiety of uncertainty is not always negative. According to AUM, there is the optimal level of uncertainty and anxiety in interpersonal communication (Gudykunst, 1993). If the uncertainty or anxiety are below the minimum threshold, people can be bored or not motivated in interaction. At the same time, if uncertainty or anxiety are above the maximum threshold, people feel uncomfortable to communicate. To communicate effectively with others, the level of anxiety of uncertainty should be below the maximum and above the minimum threshold (cf Csikszentmihalyi, 1990; Janis, 1985; Schneiderman, 1960). When anxiety of uncertainty is out of the optimal range, the resolution is ‘mindfulness’ of the communicators. Being mindful can always help the communication. Then what does the mindful communication look like? According to Langer (1989), mindful communicators often create a new category of information and/or be open to new information and different perspectives (1989).

3.3.3 Comparing UMT and AUM

Uncertainty Management Theory and Anxiety of Uncertainty Management Theory share identical conceptions of uncertainty. They assume that uncertainty can be managed. Also, both theories investigate the emotional stimulation of uncertainty.

On the other hand, there are significant differences between the two theories. First, the two theory articulate on the different sequence of the uncertainty. UMT focus on uncertainty — the cognitive status itself and does not assume that uncertainty always produces the feeling of anxiety. In contrast, what AUM is focusing is an appraisal consequence of uncertainty — the anxiety of uncertainty.

Second, UMT addresses the effect of uncertainty in the broad background while AUM exclusively concentrates on intergroup and interpersonal interactions.

Third, although the definition of uncertainty is identical in the two theories, there are differences in the conceptualizations of the effect of uncertainty. Research on UMT articulates that uncertainty can create neutral or even positive appraisal such as excitement and hope, not only anxiety. AUM view uncertainty stimulates anxiety.

Fourth, those two theories have different causal relations amongst the variables. UMT considers multiple causes and results relations of uncertainty, whereas AUM only covers relations between the anxiety of uncertainty and communication effectiveness.

Finally, the difference in causal relations among those two theories induces different strategies in managing uncertainty (or anxiety of uncertainty). UMT concluded there is three type of uncertainty management: 1) information seeking, 2) adapting the chronic uncertainty, 3) seeking assistance. AMT suggests the effective communication and mindfulness in communicating to mitigate the anxiety of uncertainty or the uncertainty.