Skip to 0 minutes and 10 seconds In this lecture, we deal with uncertainty. What is uncertainty?
Skip to 0 minutes and 17 seconds Many consequences of our actions are not certain. Many consequences of our decisions are not certain.
Skip to 0 minutes and 26 seconds We have to make a distinction between a risk and uncertainty.
Skip to 0 minutes and 32 seconds In a situation of uncertainty, not all consequences of a given action or decision can be known. It is different from a situation of risk. In a situation of risk, it is possible to know all the possible outcomes of a certain action. The concept of uncertainty was introduced in economics by the famous economist Keynes and Frank Knight, an economist from Chicago back in 1921. In real life, for almost all decisions going beyond routine, uncertainty exists. Only decisions that are very repetitive, that we have to take many times, you can assume that we know all the possible outcomes. But it’s hardly true in real life. Think about the decision to marry someone.
Skip to 1 minute and 34 seconds Such a decision is never based on a complete list of all the things that might happen after you have married to a certain person. Or think about the historical event of the coming down of the Berlin Wall. It is simply impossible at that time to know exactly all the possible outcomes, all the possible events, after this event.
Skip to 2 minutes and 7 seconds Think about the choice of a profession. What to do next in life? Do you take such a decision on the basis of a complete list of all the possible things that might happen if you take a certain profession or another one? The answer is probably, almost certainly, no. Same is true for a study at a university. You cannot know what will happen next in very great detail. This is impossible. Not only because of a lack of capacity to calculate or a lack of imaginative power, but it is an inescapable characteristic of human existence.
Skip to 2 minutes and 53 seconds We as human beings cannot know now what we will discover in the future.
Skip to 3 minutes and 2 seconds Think about all the inventions and innovations that have taken place over the past century, the telephone, cars, the telex, PCs, and all kinds of other inventions. Think about how some inventions had a very short life cycle, disappeared already very quickly. So it’s very difficult, and impossible in fact, for human beings to know what will happen next. That is a statement that can be made with certainty. It is unavoidable. It is inescapable.
Skip to 3 minutes and 48 seconds Now it’s also true that if you take a decision today, that decision may be affected, may be influenced, the consequences of that decision may be influenced, with what will happen in the future, with what will be discovered in the future. That’s also certain. Imagine for instance that you consider to build a factory, and that factory is producing typewriters. And assume we are early 1970s. Now you couldn’t know that 10, 15 years later there would be laptops and there would be PCs, and it would have a very important impact on the profitability of your factory producing typewriters.
Skip to 4 minutes and 42 seconds But you couldn’t know that at the moment that you took the decision whether or not to build this factory.
Skip to 4 minutes and 50 seconds This also implies that the future cannot be predicted, but it can be imagined.
Skip to 5 minutes and 1 second It’s also important to realise that uncertainty is different from very unlikely.
Skip to 5 minutes and 10 seconds Uncertainty has nothing to do with so-called black swans.
Skip to 5 minutes and 15 seconds Black swans are very unlikely events which may turn out to be more likely than expected.
Skip to 5 minutes and 23 seconds We know that almost all swans are white, but there have been found black swans. And it’s even true that they occur more likely than you would expect.
Skip to 5 minutes and 40 seconds So very unlikely, but not uncertain. Uncertain means that you simply do not know.
Skip to 5 minutes and 51 seconds Under uncertainty, probability simply do not exist. Under uncertainty, it’s impossible to calculate. There is no objective room for calculation whatsoever under uncertainty.
Skip to 6 minutes and 9 seconds In this lecture, we have dealt with uncertainty. We’ve explained what uncertainty is, and how it is different from very unlikely and is also different from risk.
This lecture deals with the concept of uncertainty.
What is uncertainty? How does it differ from risk? This lecture will address why some decisions or actions are fundamentally uncertain and what this means for dealing with uncertainty.
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