Are you sure about that?  Well MIT Professors Lo and Mueller seem to be any way as they have expanded upon the work of Frank Knight (Ph.D Chicago University 1921) who was the first to define or maybe better put articulate the difference between “risk” and “uncertainty“.  As Knight defined “Risk” as those forms of randomness which could be dealt with via the concepts of probability and statistics, while “uncertainty” the outlier of the two was defined as “all other forms of randomness” meaning that the world of mathematics held no domain over their truth and as Nassim Taleb would put it “Black Swans“.

However Lo and Muller being up starts are seeking to add granularity to the near century old concept of risk duality and have come up with a potential 6 level scale.  Why do I say 6 levels, well let’s take a look at their scale and we shall see:

Level 1 – Complete Certainty
Level 2 – Risk without Uncertainty
Level 3 – Reducible Uncertainty
Level 4 – Partial Reducible Uncertainty
Level 5 – Irreducible Uncertainty
Level Infinity – Zen Uncertainty (impossible to understand)

As you can see the first 5 measures are practically bounded while Lo & Mueller also leave room for the “long tail” of infinity as no matter how slender it may run, it will run much like Einstein’s cosmological constant and Hubble’s Red Shift (both basically the same).

Why is all of this so interesting you ask yourself, well the answer is modern man is playing with metaphoric fire every day in many differing scales be-it driving down the highway or investing in complex credit swaps which requires the equivalent of a modern day Cray Computer to calculate, man just has to keep throwing the dice for lucky sevens, however “snake eyes” always seem to have way a of popping up.

My thinking of “risk” and “uncertainty” fall into the realm of a model which I’ve developed around the concepts of “Possibility” and “Probability” whereas think of the world this way, you’re driving down the freeway minding your own business and all of the sudden out the sky your struck by a meteor from out of the blue.  Ok, is the possible?  You bet it is, is it probable?  Well no as you are more likely (statistically) to “probably” have the fool next to you cut you off.  So what does this tell us about our world, so should we invest in meteorite detection systems for our cars, or side impact air bags?

As the world becomes flat and social affluancy is diminished by the horizontal movement, our decision making process will have to become more efficient in its nature as being “right” was like making choices within a an 8 lane freeway, however in today’s world we are being forced down a two lane highway and instead of seeking a right answer we need to seek the best answer.  As in 1921, the solution put forward by knight was one of right and wrong where today Lo & Mueller are putting forward a model to seek the “best” answer…

About Joseph Campbell

As a strong believer in the fact that "people work for people", it has been a life driver to better to understand the complexities of the various aspects which drive efficiency within this axiom, especially the concepts of leadership. Supporting this, I have been fortunate enough to having experienced this as leader on a global basis over the last decade and half. During this time it has been clear there are three core drivers being Life, Leadership and Economics.
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