Business and precaution

The difference between private and public reaction to uncertainty (as opposed to risk) is that firms aren't tempted to take outlandish steps in the name of the 'precautionary principle'.

"[A] famous distinction that the economist Frank Knight made between risk and uncertainty. Risk describes a situation where you have a sense of the range and likelihood of possible outcomes. Uncertainty describes a situation where it’s not even clear what might happen, let alone how likely the possible outcomes are. Uncertainty is always a part of business, but in a recession it dominates everything else: no one’s sure how long the downturn will last, how shoppers will react, whether we’ll go back to the way things were before or see permanent changes in consumer behavior. So it’s natural to focus on what you can control: minimizing losses and improving short-term results." Extract from James Surowieci in The New Yorker

Tags for this entry: ideas precaution risk uncertainty