Uncertainty, Risk and the Entrepreneur

My earlier post on uncertainty and risk reminded me of the difference between risk and uncertainty. As Frank Knight explained in his 1921 work Risk, Uncertainty and Profit, uncertainty is where out sized profits are found and thus I would say it is the true playground of entrepreneurs. Reducible risk tends to result in incremental profit rather than spectacular profit. Sloan’s Andrew W. Lo did a great talk on this here – well worth the 57 minutes.  If that isn’t enough you can get the paper “Warning: Physics Envy May be Hazardous to Your Wealth!” that the talk is based on here. I think Andrew just convinced me to buy some of his books. :-)

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