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Knightian Uncertainty

One of the critical aspects of Risk Management is to identify risk. Part of the risk identification process is to filter risks into degrees

What is Knightian uncertainty?

One of the critical aspects of Risk Management is to identify risk. Part of the risk identification process is to filter risks into degrees of being known or unknown. One of the critical categories of risk is known unknowns, also referred to as Knightian uncertainty).

Example of Knightian uncertainty

Various risks can be classified as Knightian uncertainty. One such risk is reputational risk. We know that all organisations, especially the public ones, face some reputational risk which is a known risk. However, we know little about the impact of reputational risk, which cannot be modelled through conventional risk measurement models.

Why is it essential to know Knightian uncertainty?

The known unknown risks are probably the most relevant category of risks. It tells us that there is a particular risk that can only be accepted, and there isn’t much we can do about it in quantifying and managing it.

Owais Siddiqui
1 min read
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