The Strong Towns Podcast

Is there a meaningful difference between risk and uncertainty? On the face of it, we might not think so; in casual usage, we could employ the words interchangeably. But some economists see an important distinction between the two. Early in the American experience of the pandemic, economist Allison Schrager wrote an op-ed for The Wall Street Journal called “Risk, Uncertainty and Coronavirus” (paywall). “The novel coronavirus appears at first to be a problem of risk management,” she wrote. “It is a dangerous disease that threatens the lives of our neighbors and loved ones. Our response—increased social distancing, shutting down businesses—is aimed at reducing that risk. But the problem isn’t risk so much as uncertainty.” She goes on to explain that not long after the 1918 flu pandemic, another economist, Frank Knight, made a distinction between risk and uncertainty.  Schrager picks up there: The future is unknowable, but risk is measurable. It can be estimated using data, provided similar situations have hap