Economist Frank Knight made a distinction between risk and uncertainty.
According to Knight, risk refers to situations in which the probability distribution of outcomes is known or can be estimated objectively. In other words, risks are situations where the probabilities of different outcomes can be assigned based on statistical analysis or historical data. Risk, in this context, can be quantified and managed through risk management techniques.
On the other hand, Knight defined uncertainty as situations where the probabilities of outcomes cannot be determined or estimated objectively due to the lack of available data or predictability. Uncertainty involves events or situations that are characterized by ambiguity, novelty, and unpredictability. Unlike risk, uncertainty cannot be easily quantified or managed using traditional statistical methods.
