Probabilities disguising uncertainty – Part II

This behavior makes one blind to all sorts of things. 

The first blind spot … is that it treats uncertain events – items of unknowable incidence and severity – as if they were risks that could be estimated probabilistically. 

Epsilon Theory ; “Lack of Imagination” 14 March 2020

One of my recent posts drew attention to an article by John Kay promoting a book he has co-written with Mervyn King on the topic of “radical uncertainty”. Epsilon Theory offers another useful perspective on the ways in which extending probabilistic thinking beyond its zone of validity can cause us to miss the big picture.

The Epsilon Theory post focusses on the Covid 19 fallout currently playing out but is also worth reading for the broader challenges it offers anyone trying to use models and probabilities to manage real world outcomes …

Tony

Author: From the Outside

After working in the Australian banking system for close to four decades, I am taking some time out to write and reflect on what I have learned. My primary area of expertise is bank capital management but this blog aims to offer a bank insider's outside perspective on banking, capital, economics, finance and risk.

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