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Uncertainty

Uncertainty is an inability to ascertain the true current state or to determine or predict future outcomes.

Expanded Definition

Uncertainty may involve risk, but uncertainty is more than risk. Risk is seen as measurable whereas that is not always true for uncertainty. Some people, such as Frank Knight, author of Risk, Uncertainty, and Profit, draw a distinction between risk and uncertainty whereby uncertainty is restricted to only those cases where probability of outcomes are immeasurable. While the distinction between measurable and immeasurable probabilities for outcomes is useful, this is not strictly speaking correct. Uncertainty can sometimes be measurable. If it involves loss, than uncertainty will include risk. However, if there is no possiblity of loss, there is no risk.

One further distinction should be made between risk and uncertainty in that, unlike risk, uncertainty can include profitable outcomes. Risk is concerned only with situations for which there may be unprofitable outcomes or loss.

It should be noted, however, that the definition of risk in economics theory is the uncertainty of both profitable and unprofitable outcomes. Many Fools disagree with this definition!


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