The Economist Frank Knight and others sometimes make a distinction between risk and uncertainty:
A) Risk involves the huge volatility, whereas uncertainty is more like a feeling of queasiness.
B) Risk involves probabilities that are unknown and outcomes that are unknown, whereas uncertainty involves probabilities that are known and outcomes that are known.
C) Uncertainty uses standard deviations and expected values, whereas we can compute these in situations involving risk.
D) Uncertainty involves probabilities that are unknown and outcomes that are unknown, whereas risk involves probabilities that are known and outcomes that are known.

Question

Quizplus · Accepted Answer

Risk involves situations where the probabilities of outcomes are known, allowing for the calculation of expected values and standard deviations. Uncertainty, on the other hand, refers to situations where the probabilities of outcomes are unknown, making it impossible to calculate expected values or standard deviations in a meaningful way.

The Economist Frank Knight and Others Sometimes Make a Distinction