“An unbiased appreciation of uncertainty is a cornerstone of rationality – but it is not what people and organizations want.”
— Daniel Kahneman, Thinking, Fast and Slow

In a perfect world, truth would be our most prized asset and uncertainty would be welcomed as an invitation to explore with caution. But in the world of finance, business, and leadership, uncertainty is often viewed as weakness, and overconfidence is rewarded, even when it's costly.

Within our group at RBC Wealth Management, we believe that a fundamental part of managing wealth is knowing what we don’t know. That may sound unhelpful at first, but as Daniel Kahneman so effectively explains, admitting uncertainty isn’t just a sign of humility, it’s a cornerstone of rationality.

The Problem with Certainty

Organizations tend to reward those who speak with conviction. The confident forecast. The bullish outlook. The sure bet. But as Kahneman highlights through years of research, these confident voices are often wrong, sometimes spectacularly so.

A long-running study from Duke University asked CFOs to predict stock market returns. Their confidence was high. Their accuracy? Essentially random. Not only were their forecasts poor, the real problem was that they didn’t realize how unreliable they were. This disconnect between confidence and accuracy is at the heart of many poor investment decisions.

Still, the confident expert is celebrated. Why? Because people prefer certainty. Clients prefer clarity. Boards prefer bold plans. The media prefers headlines. And yet, the market prefers reality and that’s where rationality must come in.

Why Uncertainty is a Strength

It may seem counter intuitive, but acknowledging the limits of our knowledge makes us better investors. When we admit what we cannot know — when the next rate hike will be, how inflation will respond, or which stock will outperform this quarter — we free ourselves from the illusion of control.

As we often remind clients: volatility is the price we pay for long-term growth. Uncertainty is not a bug in the system — it's part of how markets function. Recognizing it, respecting it, and planning for it is how we stay invested through it.

Why Organizations Struggle With Uncertainty

Kahneman makes a powerful observation: people who admit they don’t know often get replaced by those who pretend they do.

This creates a dangerous feedback loop, particularly in large institutions where bold forecasts are celebrated, until they aren’t. Whether it's a misguided merger or a high-profile investment decision, history is filled with examples of leaders who mistook optimism for insight and certainty.

But that doesn't mean we should ignore optimism altogether. Optimism fuels innovation. It drives entrepreneurship. It helps us move forward after setbacks. However, as Kahneman says, optimism without an appreciation for uncertainty leads to risk we don’t see — and costs we can’t afford.

Our Approach: Embrace the Unknown

We won’t pretend to know the unknowable. We won’t build strategies based on forecasts dressed up as facts. Instead, we build plans that can absorb surprise, good and bad.

And when the market gives us a storm , whether it's a recession, geopolitical shock, or media frenzy, we go back to fundamentals:

• Do we own quality businesses?
  • Are we diversified across asset classes?
  • Do we have a strategy rooted in your long-term goals?
  • Are we reacting out of fear or responding with discipline?

  In times like these, it’s more important than ever to ask the right questions — especially the hard ones. Because while “an unbiased appreciation of uncertainty” may not be what organizations want, it’s exactly what long-term investors need.