There’s a difference between risk and uncertainty. Let’s think about biology. If we compare humans, each of us has two eyes, two hands, and two legs, and we’re mostly similar genetically. Therefore, when we develop a medication, there’s a certain risk in what effects and side-effects it will have. This is a risk. It’s quantifiable; something that can be expressed with statistics, and we can attach a number to it.
However, with financial systems, there’s uncertainty. It’s not possible to come up with a p-value that would value the uncertainty. Consider credit default swaps. Is it possible to assign a value to the risk you take? Probably not – the past doesn’t allow you to guarantee the future.
Think about uncertainty – which are true unknowns…as Donald Rumsfeld once said in a conference, referring to “unknown unknowns”.
