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Risk and Uncertainty
People often confuse risk with uncertainty. But the terms "risk" and "uncertainty" do not refer to the same thing.
- Risk is precise and quantifiable.
- Uncertainty is when the underlying system is not understood.
The more you understand a system, the more able you are to convert uncertainty into risk.
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Uncertainty and Framing
The prospect theory shows that people are often willing to make riskier decisions to avoid losses than to make gains - even when the situation is identical but framed differently. For example, a 30% chance of death and a 70% chance o...
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Coping with Uncertainty
- Risk can be calculated by figuring out the odds.
- Uncertainties can't be computed. Even if you could do the math, uncertainties don't have any numbers to calculate.
Most people deal with uncertainty by only doing things others have don...
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Risk and Arrogance
Once you understand a system, you can change some risk into uncertainty. Sometimes you can do this completely, but other times you can limit your range of uncertainties to a calculable level.
More knowledge allows you more controlled risk. However, sometimes, peopl...
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Smart Risk
Uncertainty hides the risks of our decisions. This makes us tread very carefully. But, in reality, most of the decision terrain isn't nearly so dangerous. Things that look risky often aren't, and things that look routine and safe, often are.
The solution i...
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Risk and Arrogance
Once you understand a system, you can change some risk into uncertainty. Sometimes you can do this completely, but other times you can limit your range of uncertainties to a calculable level.
More knowledge allows you more controlled risk. However, sometimes, peopl...
Risk and uncertainty
- Risk is when the factors that determine success or failure are out of your control, but the odds of success are known.
- Uncertainty is when the factors that determine success or failure are not out of your control but are simply unknown. It is play...
Uncertainty and Framing
The prospect theory shows that people are often willing to make riskier decisions to avoid losses than to make gains - even when the situation is identical but framed differently. For example, a 30% chance of death and a 70% chance o...
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