Difference between risk and uncertainty

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The difference between risk and uncertainty "is that in the former, the distribution of the outcome in a group of instances is known... While in the case of uncertainty that is not true, the reason being in general that it is impossible to form a group of instances, because the situation dealt with is in a high degree unique." -Knight (2002)

I like that interpretation of risk and uncertainty, because it is often miscommunicated to entrepreneurs. We can absorb risks in our lives, investors can profile risks in their portfolios, but operating under high levels of uncertainty is not for everyone.

If we are truly doing something new, in the sense that it hasn't been done before, it is impossible to quantify its risks. This is something that appears in the movie Oppenheimer, when they discuss the chances of igniting the atmosphere. Uncertainty was their main context, judging risks was left to military and politicians.

While investors form statistical knowledge based on past experiences of performance, and work incrementally from one cycle to the next, entrepreneurs are the ones acting on uncertain scenarios. They can't predict the likelihood of success, nor the chances of a given outcome. Especially as companies are starting, the uncertainty permeates even to market understanding and adoption.

We work towards lowering uncertainty, while we manage risks.


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Aquiles Carattino
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