

Explained: Knightian uncertainty  - 32ftpersecond
http://web.mit.edu/newsoffice/2010/explained-knightian-0602.html

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jayruy
I appreciate the shout-out to Frank Knight, an under-appreciated genius, but
this is nonsense:

"Investment banks that in recent years regarded their own apparently precise
risk assessments as trustworthy may have thought they were operating in
conditions of Knightian risk, where they could judge the odds of future
outcomes."

You can't get a position in risk management without understanding the
limitations of the normal distribution baked into every risk calc (eg, 'fat
tails'). The disconnect comes when executives ask: "so these numbers mean we
can turn it up to 11?!?" and the risk managers who simply shrug and mumble
under their breath are the ones who get promoted.

I'm not sure if you can solve this problem, Basel is attempting to by
standardizing and publisizing risk calcs.

