Risk versus Uncertainty

From Open Risk Manual

Risk versus Uncertainty

Risk versus Uncertainty denotes a long running debate about the nature of randomness and the ability to manage Risk

In the language of modern Risk Management the debate can be cast around the notion of

  • Risk denoting a narrower form that is considered amenable to Risk Measurement and eventually Quantitative Risk Management
  • Uncertainty a broader form that addresses the possibility of outcomes that could not have been measured in any meaningful way

In practice there very few uncertainties that can be clearly categorized as (Quantifiable) Risk and there is always a larger or smaller degree of uncertainty. When seen from within a quantification effort, that element manifests as Model Risk

In economics that debate is usually framed in the context of wikipedia:Knightian uncertainty

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