Understanding Uncertainty

Episode Details

Uncertainty affects companies’ investment and hiring decisions, as well as people’s choices about buying big-ticket durable goods like cars or houses. There are different types of uncertainty. Risk arises when you know the likelihood of outcomes but not what will occur, as happens with flipping a coin. Ambiguity reflects a situation in which the likelihood or effects of outcomes are much less clear, as with the consequences of COVID or climate change. Both play important, and somewhat distinct roles in decision-making. Nicholas Bloom (Stanford) joins Michael Klein on EconoFact Chats this week, to discuss the role of uncertainty, and its patterns across countries and time.