Straight From the Gut

In the decision sciences, a clear distinction is made between risk and uncertainty. You take a risk when you know in advance all the potential outcomes of your choice, and their respective probabilities. This risk description covers things like coin tosses, lotteries and spins of a slot machine. In such circumstances, only cold logic, statistical thinking, and possibly a pocket calculator, should influence your decision about whether to run the risk or not. As soon as some of the outcomes, and/or some of the probabilities, are not known, we enter the realm of uncertainty. In this less ordered domain, reason and statistics become less useful because there is nothing to calculate. Instead, argue decision scientists, one should rely more on one’s intuition, gut feelings and rules-of-thumb. Examples of such judgements include living to be one hundred years old, falling in love, or being killed by a terrorist. Any decision to bet on them – or insure against them – involves dealing with uncertainty… Read more on TCAM’s website

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