Re(2): 'Engagement Queue', The Belmont Club, Wretchard
There is a difference between Risk and Uncertainty...
University of Chicago Professor Frank Knight described the distinction between risk and uncertainty in these words. “Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated…. The essential fact is that ‘risk’ means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character … It will appear that a measurable uncertainty, or ‘risk’ proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all.” In other words, Knight wanted to differentiate between risks we could measure and those which we could not estimate. Donald Rumsfeld conveyed the same idea much more eloquently and comprehensively.
As we know,
There are known knowns.
There are things we know we know.
We also know there are known unknowns.
That is to say, we know there are some things we do not know.
But there are also unknown unknowns, the ones we don’t know we don’t know.
The Black Swan event is not a risk, it is an unmeasurable uncertainty. We have lived through a few Black Swans in the last decade. This stock market - which actually feels rather like a standard growth market - is with high probability measurable, and thus has risk. We may get a 10% contraction - a correction - but, that is normal and measurable and acceptable. A market move like that is NOT uncertain. It will happen. It is not the Black Swan of new crash.The Black Swan event that is setting up will be the 'leaker' that gets through the defense. I don't think the next Black Swan will be the same one we just saw. We have multiple inbounds, multiple adversaries, and discordant directors. As Wretchard states:
Yet with events coming at a fast and furious pace it will always be problematic whether the response will be quick enough; or whether a “leaker” will get through to change the game even faster than is happening now. Emergence tends to throw curve balls. They also tend to speed up the ball-throwing machine. In some things people must trust to luck, not just to avoid dangers but to seize opportunities.
But luck favors the ready.
Things seem to be moving rapidly.
Keep your head on a swivel.
Look, talk on defense.