Monday, November 11, 2013

Living under the Uncertainty

Recently I have learned the necessity to tell risk from uncertainty:

Risk is what can happen with some probability that can be known for sure, while uncertainty is what can happen with some probability that cannot be known for sure: Risk is known unknowns, while uncertainty unknown unknowns. Technically, Risk is unknowns with known cumulative distribution functions (CDFs), while (Knightian) uncertainty is unknowns without known CDFs.   

We are now and always in the world of uncertainty where we cannot see what will happen soon.

It is a sad thing to know what will happen in the future, but it is a happy thing not to be informed of what will happen to us.

What we know for sure about uncertainty is that we cannot know only that a good thing will happen, but also that a bad thing will happen. 


We are said to have a biased view on uncertainty: we are always worried that a bad thing or the worst thing will happen to us, while forgetting the likelihood that a good thing or the best thing will happen. 

We are more likely to avoid unknown unknowns. We may change the attitude toward uncertainty to make our life better and better, and need to learn about how to deal well with unknown unknowns.

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