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topics:uncertainty [2026/05/28 13:00] – klaus.kubeczko_ait.ac.attopics:uncertainty [2026/05/28 13:05] (current) – klaus.kubeczko_ait.ac.at
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 A canonical distinction in economics comes from Frank Knight's 1921 work //Risk, Uncertainty and Profit//.((Knight, F. H. (1921). //Risk, uncertainty and profit//. Houghton Mifflin. https://oll.libertyfund.org/titles/knight-risk-uncertainty-and-profit)) Knight argued that risk applies to situations where the outcome is unknown but the odds are measurable — probabilities can be estimated from prior data or general principles. Uncertainty, by contrast, applies to situations where the odds themselves cannot be known, where no reliable probability distribution can be assigned to future outcomes. A canonical distinction in economics comes from Frank Knight's 1921 work //Risk, Uncertainty and Profit//.((Knight, F. H. (1921). //Risk, uncertainty and profit//. Houghton Mifflin. https://oll.libertyfund.org/titles/knight-risk-uncertainty-and-profit)) Knight argued that risk applies to situations where the outcome is unknown but the odds are measurable — probabilities can be estimated from prior data or general principles. Uncertainty, by contrast, applies to situations where the odds themselves cannot be known, where no reliable probability distribution can be assigned to future outcomes.
  
-The distinction is not merely academic. In conditions of risk, standard tools of insurance, hedging, diversification, and statistical forecasting can function. In conditions of genuine uncertainty, those tools give false assurance. Institutional economists and governance scholars draw on Knight's distinction to explain why energy system transitions are so difficult to manage: many of the most consequential variables — technology trajectories, political shifts, regulatory change, consumer behaviour at scale — are genuinely uncertain rather than risky in Knight's sense.+In conditions of risk, standard financial tools of insurance, hedging, diversification, and statistical forecasting can function. In conditions of genuine uncertainty, those tools may give false assurance. The distinction between risk and uncertainty from economics helps to explain why energy system transitions are so difficult to manage: many of the most consequential variables — technology trajectories, political shifts, regulatory change, consumer behaviour at scale — are genuinely uncertain rather than risky in Knight's sense.
  
 Drawing on expert stakeholder research in the UK electricity sector, Connor et al. (2018) group the sources of risk and uncertainty in smart grid deployment into seven categories.((Connor, P. M., Axon, C. J., Xenias, D., & Balta-Ozkan, N. (2018). Sources of risk and uncertainty in UK smart grid deployment: An expert stakeholder analysis. //Energy//, 161, 1–9. https://doi.org/10.1016/j.energy.2018.07.115)) Drawing on expert stakeholder research in the UK electricity sector, Connor et al. (2018) group the sources of risk and uncertainty in smart grid deployment into seven categories.((Connor, P. M., Axon, C. J., Xenias, D., & Balta-Ozkan, N. (2018). Sources of risk and uncertainty in UK smart grid deployment: An expert stakeholder analysis. //Energy//, 161, 1–9. https://doi.org/10.1016/j.energy.2018.07.115))