Our central idea is that the potential paralysis faced when making decisions under radical uncertainty is overcome by combing emotion and reason to create conviction narratives. A conviction narrative is necessary to act. Identifying and developing means to measure the development of conviction narratives is our main contribution to date.
We define conviction as a state of mind of an individual and confidence as an emotional state belonging to a collective, such as a group or financial market. Although subjective mental states like conviction and confidence have not figured in most economic and finance theories many who work in finance and business are very well aware of their importance.
We can then think of a conviction narrative as an internal representation of each agent’s environment projected into the future that allows someone to feel convinced enough to make a decision and to feel comfortable with it, although the future outcome of that decision cannot be validly estimated probabilistically.
Looking more deeply, we see that a conviction narrative always combines reasons for and against actions being considered in such a way that action is supported. Conviction narratives, therefore, refer to the stories and related procedures which decision-makers faced with uncertainty initiate to enable them to feel persuaded to act and to stay acting while they try to interpret signs and signals in the world and wait to see how their decisions are turning out.
Managing the emotional experience of time unfolding, that is waiting to see what happens, is crucial to this formulation. If you can’t stay positive while you wait you will not make long term decisions – only short ones.