What is the difference between uncertainty and risk according to Frank Knight?
Frank Knight, writing in 1921, defined uncertainty as a lack of knowledge that is immeasurable and impossible to calculate, while risk involves outcomes that have a clearly defined expected probability distribution. To Knight, risk is hypothetically insurable because its probabilities can be estimated; uncertainty is not insurable because no such probability distribution exists. Knight also argued that bearing a known risk carries no special reward, while bearing genuine uncertainty can lead to entrepreneurial returns.
What is Knightian uncertainty and why does it matter for investing?
Knightian uncertainty refers to situations with unknown probabilities, as opposed to risk where probabilities can be estimated. It is named after economist Frank Knight. Investing in financial markets involves Knightian uncertainty when the probability of a rare but catastrophic event is unknown.
What is radical uncertainty and how is it different from Knightian uncertainty?
Radical uncertainty, a term popularised by John Kay and Mervyn King in their book Radical Uncertainty published in March 2020, describes uncertainty that cannot be resolved even in principle because no means exist to acquire the missing knowledge. Knightian uncertainty is immeasurable but may still have a recognizable structure; radical uncertainty is distinguished by whether or not it is resolvable at all.
What does the Heisenberg uncertainty principle say about uncertainty in physics?
The Heisenberg uncertainty principle states that there are fundamental limits on how much an observer can ever know about the position and velocity of a subatomic particle simultaneously. Physicists debate whether this reflects an irreducible property of the universe itself or whether hidden variables exist that would describe particle states more precisely. If the universe is genuinely indeterminate at subatomic scales, uncertainty is a feature of reality rather than a gap in human knowledge.
How is measurement uncertainty expressed in science and engineering?
Measurement uncertainty is typically stated as a range of values likely to enclose the true value, often written as a measured value plus or minus an uncertainty figure, or in a concise parenthetical notation used by bodies such as IUPAC. When uncertainty represents one standard deviation, the true value falls within the stated range about 68.3% of the time. The ISO "Guide to the Expression of Uncertainty in Measurement" (GUM) describes the most commonly used procedure for these calculations.
How do journalists distort scientific uncertainty when reporting on it?
Journalists can inflate uncertainty by giving scientists with minority views equal weight to those with majority views without explaining the state of consensus, or by reporting new contradictory research without context. They can also downplay uncertainty by removing scientists' carefully chosen tentative wording, relying on single sources, or framing science as a triumphant quest that makes uncertainty seem already resolved. Political consultant Frank Luntz advised climate change deniers to use a framing of scientific uncertainty, which became a documented example of deliberately managed public perception.