Risk is defined as unknowns that have measurable probabilities, while uncertainty involves unknowns with no measurable probability of outcome. These concepts are related, but not the same.
Continue ReadingUncertainty and risk are closely related concepts in economics and the stock market. The definitions of risk and uncertainty were established by Frank H. Knight in his 1921 book, "Risk, Uncertainty, and Profit," where he defines risk as a measurable probability involving future events, and he argues that risk will not generate profit. Risk is calculated using theoretical models, or by calculating the observed frequency of events to deduce probabilities.
Uncertainty is not quantifiable because future events are too unpredictable, and information is insufficient. The uncertainty of the event is not something that can be calculated using past models. Though randomness of events underlies both principles, it is important to distinguish the differences as they relate to investments. An investor has the opportunity to calculate the risks by deducing past probabilities to protect his or her investment portfolio. Uncertainty is not quantifiable and therefore does not offer the same opportunity to protect an investment. Both principles work in tandem and do apply when in investing situations, or even prospects of investing on the stock market.
Learn more about InvestingTheoretically, define the probability of a specific outcome of any event as the ratio of the number of outcomes that favor that specific outcome to the total number of possible outcomes of that event. Mathematically, define the probability of outcome "A" with this equation: P(A) = Number of outcomes that favor A / Number of every possible outcome.
Full Answer >Cumulative probability is used in statistics to determine the probability of a particular outcome given the previous outcomes of the same problem with the same variables. For example, cumulative probability can be used to determine the probability that a coin flipped 10 times comes up twice as tails.
Full Answer >A tattoo of a flying pig is most likely a depiction of the popular idiom that compares the probability of a certain outcome coming to reality to the very improbable circumstance of a pig being able to fly. This may be to commemorate an unlikely event that has already occurred, or serve as a reminder some goals are unlikely to be accomplished, and it is wisest not to pursue them.
Full Answer >Neuroscience has shown that courage is less about facing fears than it is about learning to cope with risk and uncertainty; it can therefore help to specifically acknowledge the things that you are afraid of, thereby removing some of the uncertainty. Implement stress management techniques and practice acts of courage as positive steps toward conquering fear.
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