Frank Knight articulated the profound distinction between uncertainty and [[risk]] in his 1921 book, *Risk, Uncertainty and Profit*. In both cases you do not know what the future holds, but with risk you know the probabilities, whereas with uncertainty you do not know the probabilities. Uncertainty comes from [[Complexity]] which is a constant and cannot be destroyed just like risk. We have evolved to deal with uncertainty by [[Thinking Fast and Slow|making highly confident judgments very quickly]]. We can even make these judgement in the face of contradictory information because of our natural distaste for uncertainty. Uncertainty meant we had to slow down and engage the deliberative and logical part of our minds, but in ancient times we often did not have the luxury of time to do so before we were killed. ## Statistics The field of statistics primarily deals with uncertainty. It is the ultimate demonstration of the fallible human effort to control and understand uncertainty. We like to attribute uncertainty to randomness and then [[Fielding Outcomes|blame bad luck for our negative outcomes and take credit for the positive ones]]. >But here’s the interesting thing about randomness – It looks identical to a non-random process for an observer that is ignorant of the cause.  Let’s think about a coin flip.  We all view a coin flip as random.  However, if you know at any point during the flip which side is up, how fast the coin is rotating, and how long until the coin lands, you can develop an accurate heads or tails estimate .  It’s all physics.  The result isn’t actually random, we are just ignorant of the information needed to understand the system.  And yet, coin flips are perfectly modeled by “randomness”. >[A Random Market](https://breakingthemarket.com/a-random-market/) ## Embracing Uncertainty [[Parrondo's Paradox]] shows us that we can combine bad choices to create a positive outcome. ### Humility >Be humble about what you [[Knowledge|know]], but confident about what you can [[Learning|learn.]] >-James Clear **Case Studies**: - [CHG Issue #119: When Reality Doesn't Meet Expectations](https://cedarshillgroup.substack.com/p/chg-issue-119-when-reality-doesnt) - [CHG Issue #66: Mental Flexibility](https://cedarshillgroup.substack.com/p/issue-66-mental-flexibility) - [CHG Issue #53: The Markets Hate Uncertainty](https://cedarshillgroup.substack.com/p/chg-issue-53-markets-hate-uncertainty) - [[CHG Issue 6 Exponential Change]] Explore Further: [[Decision Making]] | [[Jensen's Inequality]] Tags: #Concepts Your support for Cedars Hill Group is greatly appreciated <form action="https://www.paypal.com/donate" method="post" target="_top"> <input type="hidden" name="hosted_button_id" value="74PGN8ZXHQVHS" /> <input type="image" src="https://www.paypalobjects.com/en_US/i/btn/btn_donate_LG.gif" border="0" name="submit" title="PayPal - The safer, easier way to pay online!" alt="Donate with PayPal button" /> <img alt="" border="0" src="https://www.paypal.com/en_US/i/scr/pixel.gif" width="1" height="1" /> </form>