Risk, Uncertainty, and 'Super-Risk'
29 Pages Posted: 28 Jun 2015
Date Written: June 26, 2015
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
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