How can researchers interested in complex societal and environmental problems best understand and deal with uncertainty, which is an inherent part of the world in which we live? Accidents happen, governments change, technological innovation occurs making some products and services obsolete, markets boom and inevitably go bust. How can uncertainty be managed when all possible outcomes of an action or decision cannot be known? In particular, are there lessons from the discipline of economics which have broader applicability?

While uncertainty is often discussed alongside risk, a fundamental difference between uncertainty and risk is that risk involves events with known probabilities (or probabilities based on reliable empirical evidence), whereas under uncertainty probabilities are unknown and reflect an individual’s subjective belief concerning the likelihood of a given outcome. Given the subjectivity, that likelihood can differ from person to person. It can also involve a perceived zero probability in the case of unforeseen events (or ‘unknown unknowns’).

We highlight three approaches from economics that have broad value in managing uncertainty, especially for helping decision makers in taking uncertainty into account: expected utility theory, hedging, and modelling. A common strength of these approaches is that they explicitly consider uncertainty rather than ignoring it. you can read this post in full here

The Department of Health Services Research & Policy (DHSRP) Researchers, Professor Emily Lancsar and Dr Siobhan Bourke are members of blog partner PopulationHealthXchange which is in the Research School of Population Health at the Australian National University.