Unknowns, Black Swans and the risk/uncertainty distinction

Abstract

Tony Lawson's work on probability and uncertainty is both an important contribution to the heterodox canon as well as a notable early strand of his ongoing enquiry into the nature of social reality. In keeping with most mainstream and heterodox discussions of uncertainty in economics, however, Lawson focuses on situations in which the objects of uncertainty are imagined and can be stated in a way that, potentially at least, allows them to be the subject of probability judgments. This focus results in a relative neglect of the kind of uncertainties that flow from the existence of possibilities that do not even enter the imagination and which are therefore ruled out as the subject of probability judgments. This paper explores uncertainties of the latter kind, starting with and building on Donald Rumsfeld's famous observations about known unknowns and unknown unknowns. Various connections are developed, first with Nassim Taleb's Black Swan, and then with Lawson's Keynes-inspired interpretation of uncertainty.

The Anthropocene reality of financial risk

“…72 Furthermore, most financial risk assessment still relies on historical data, 44,73 and would underestimate or completely miss the potential for thresholds and cascading effects not previously experienced. While the exact effects of crossing tipping points in the Earth system may still be ''unknown unknowns'' (see Faulkner et al 74 for review of deep uncertainty), the existence of planetary-scale thresholds is becoming an increasingly well-established part of the risk landscape (a known unknown) 74 that deserves attention and deliberate action.…”

Covid and the colorectal surgeon – on Rumsfeld and black swans

“…Now is no time for complacency as there is still much that is unknown and not just that which we know we do not know. Donald Rumsfeld's famous 2002 quote during a Pentagon briefing "But there are also unknown unknowns −the ones we don't know we don't know" may have been lampooned in the lay press at the time but the concept has traction in many fields that rely on probability and uncertainty [5]. A related concept is the Black Swan theory as developed by Taleb, namely that an event is an outlier outside the realm of regular expectations that carries an extreme impact and which is rationalized by hindsight, as if it could have been foreseen [5].…”

Exploring dynamic capabilities in open business models: The case of a public–private sector partnership

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“…unknown unknowns) rather than risk (i.e. known unknowns) that is the concern of entrepreneurs ( Faulkner et al, 2017;McMullen and Shepherd, 2006). David's sensing of new opportunities continued following the introduction of PFI in the United Kingdom in 1992.…”