From John Kay (an economic professor) and Marvin King (the governor of the Bank of England), the authors of the classic handbook, The British Tax System comes an interesting and timely book with useful reminders mostly about the financial domain which can be generalised to other domains. If you might get overwhelmed by the page count (544 pages = 10 hours and 53 minutes of non-speed-reading reading) I’ve boiled it down for you to this short and practical summary on how to make decisions (their simple strategy might surprise you so if you’re already a speed reader, you know where to start getting the key message of this summary ie at the end).
What is radical uncertainty?
Firstly, what’s ‘radical uncertainty’? The authors make a distinction between ‘reservable uncertainty’ and ‘radical uncertainty’. For ‘reservable uncertainty’ there is usually a simple solution that exists somewhere ie you can look it up. For example, if you’re uncertain what’s the capital of Estonia, you can check it easily. Or you can use known probability distribution outcome for the spin of a roulette wheel.
For ‘radical uncertainty’ there is no way of resolving the problem. In short, there, the correct answer is ‘don’t know’. There are many aspects of ‘radical uncertainty’ such as vagueness, ambiguity, ignorance, obscurity, ill-defined issues and most of all the lack of information. It’s classical, “unknown unknowns” coined by Donald Rumsfeld, the United States Secretary of Defense who famously said, “there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know.”
Another example of radical uncertainty is ‘black swans’ coined by Nicholas Taleb in his book with the same title.