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Description: Governments and individuals take actions and adopt policies and behavior to deal with current needs and also to have protection against some future dangers. Future dangers may come in two different forms: those that, at least in principle, can be statistically predicted; and those that are too uncertain, in time and in intensity, to be predicted statistically. For the first, called “risky events,” policies and markets can be developed, and actions can be taken to deal with them. The “uncertain events” are difficult to deal with. J. M. Keynes and Frank Knight, in 1921, each wrote a books that somehow dealt with this distinction. It has continued to be difficult to deal with “uncertain events,” those that include various natural disasters, pandemics, and global warming. Because of that, societies tend to overinvest in protection against risky events and to underinvest in protection against “uncertain events.”

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2 - Risky Versus Uncertain Events

Summary