Risk, Uncertainty, and 'Super-Risk'

29 Pages Posted: 28 Jun 2015

See all articles by Jose Bermudez

Jose Bermudez

Texas A&M University - Department of Philosophy

Michael S. Pardo

University of Alabama School of Law

Date Written: June 26, 2015

Abstract

Our goal in this symposium article is to introduce the general idea of super-risk and to explain its features and sources. Risk is a pervasive feature of law and public policy. Decision-making in these domains often takes place in the absence of certainty and with awareness that errors may be made and predictions may fail. Within law — as within the social and physical sciences, medicine, economics, finance, and countless other domains — a primary focus of practical and scholarly inquiries is the extent to which risks can be measured and managed. In each of these domains, risk analysis typically employs the basic tools of decision theory (probability and utility) to measure the likelihood as well as the costs and benefits associated with possible outcomes. Risk analysis also often makes use of the familiar (but confusing) distinction between decisions made in conditions of “risk” (roughly, the relevant likelihoods and costs are quantifiable) and decisions made in conditions of “uncertainty” (roughly, the possibilities are either unknown or not amenable to quantification).

Beginning with the risk-uncertainty distinction, but altering its terminology, we argue that there is a fundamentally important type of risk that has been systematically ignored. We call it “super-risk.” Super-risk occurs when, at the time of decision, decision-makers believe they are in conditions of risk (what we call “actuarial decision-making”), but they do not know whether they are in an actuarial or an uncertain environment. Super-risk gives rise to a particular type of inferential problem, with significant practical consequences, when decision-makers proceed under the assumption that they are in an actuarial environment but they are in fact in an uncertain one. Super-risk has the potential to arise in any decision-making domain with uncertain outcomes, but it is more prone to arise with decision-making in domains such as law, public policy, economics, finance, and the social sciences rather than in domains such as the physical sciences, medicine, and insurance.

Keywords: risk, uncertainty, Frank Knight, epistemic risk, financial decision-making, adjudication, legal proof, explanation, projectability

Suggested Citation

Bermudez, Jose and Pardo, Michael S., Risk, Uncertainty, and 'Super-Risk' (June 26, 2015). Notre Dame Journal of Law, Ethics and Public Policy, Vol. 29, No. 2, 2015; U of Alabama Legal Studies Research Paper No. 2623715. Available at SSRN: https://ssrn.com/abstract=2623715

Jose Bermudez

Texas A&M University - Department of Philosophy ( email )

College Station, TX 77843-4237
United States

Michael S. Pardo (Contact Author)

University of Alabama School of Law ( email )

P.O. Box 870382
Tuscaloosa, AL 35487
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
147
rank
194,373
Abstract Views
1,144
PlumX Metrics