Smart people who are overwhelmed by uncertainty make even smarter bankers, according to new research by A. Alexandra Michel, assistant professor of management and organization at the USC Marshall School of Business.

Michel’s new book, Bullish on Uncertainty: How Organizational Cultures Transform Participants (Cambridge University Press), explores the case of two major U.S. investment banks with two differing philosophies on how to structure business processes and organizational strategies.

The counterintuitive findings: The bank that amplified bankers’ uncertainty produced better overall results than the bank that reduced bankers’ uncertainty. The book’s conclusions have implications for every knowledge-based industry.

“In our society we tend to believe that workers can better cope with complexity when we decrease their uncertainty and give them the tools they need to become experts,” Michel said. “This research, in contrast, shows that people are often better at complex jobs when they know less. This gives them the incentive to question assumptions and collaborate with others.”

Michel compared radically different management training and organizational procedures in the two institutions.

To reduce uncertainty, one bank did what every good management textbook recommends: Top management articulated a clear strategy that was translated into explicit roles and into revenue goals for bankers. New bankers were trained carefully to fill these roles, assigned work based on their relevant expertise and given targeted feedback.

The other bank intentionally thwarted this model and amplified uncertainty. Instead of receiving goals and roles, new bankers were deluged with statistics about the consequences of their actions – ranging from cost of color copies to deals lost to the competition.

Projects were staffed based on banker availability, not expertise. Junior bankers sometimes did the work of vice presidents and often worked on deals for which they had no training. Meanwhile, the organization’s leadership – busy executing deals themselves – let corporate strategy bubble up from below.

The findings showed that reducing uncertainty ultimately leads to a culture of the self-reliant “individual” – one in which expertise is segmented and in which personal fiefdoms flourish. Feeling confident in their abilities, experts often do not notice when situations change and their knowledge is no longer applicable.

Such expert cultures have contributed to the “bad bets” that recently have rattled financial markets, resulted in thousands of layoffs and undone venerable institutions, Michel said.

On the other hand, investment banks that amplified uncertainty through information overload produced a corporate culture of “organization.” Overwhelmed bankers needed to draw on others to do their work – and the company consequently thrived by constant collective questioning and collaboration.

Given the vagaries of Wall Street, the sudden changes of new technology, the unknown pitfalls of political decisions and the sheer complexity of international markets, Michel said that investment bankers can’t possibly be definitive experts in every area. “Similar conditions are now present in other industries and similar conclusions about the management of employee uncertainty apply,” she said.

For the study, Michel charted the professional development of new investment bankers in two major firms over a period of two years. (Because of nondisclosure terms, these banks cannot be named publicly.)

The bankers, who graduated from top MBA programs, initially exhibited similar psychological processes.

After about six months, however, the bankers at the two banks developed different types of cognition, emotion, motivations and identities because of the distinct types of uncertainty they experienced – with profound consequences for individual and organizational performance.

The book was co-written by Stanton Wortham of the School of Education at the University of Pennsylvania.