Facing Risk or Uncertainty

Just found this fabulous post in the Atlantic Monthly blog

…risk “describes a situation where you have a sense of the range and likelihood of possible outcomes. Uncertainty describes a situation where it’s not even clear what might happen, let alone how likely the possible outcomes are.” Risk is an everyday part of business. But a deep recession ups the ante of unknowns so high that instead of calculated risks, managers are faced with actual uncertainty. And like sailors facing a dark, unpredictable storm, the typical response is to batten down the hatches, reef the sails, and just try to ride it out.

You can read the full post by Lane Wallace here.

Is the recession over?

“Has the recession ended?” is a question I have been wondering about as news reports focus on climbing energy prices, and the upwards movement of the TSX index. As a news junkie, I have found a few blogs and individuals who have some great insights.

Most recently, I’ve added Atlantic Monthly to my Google Reader. There has been a tremendous discussion from a number of interesting perspectives. Here is what I have been distilling:

  • Lane Wallace directs us to an Op-ed in the May 21 eidtion of the New York Times by Daniel Gilbert (who is, by the way, my favourite social psychologist):

Our national gloom is real enough, but it isn’t a matter of insufficient funds. It’s a matter of insufficient certainty. Americans have been perfectly happy with far less wealth than most of us have now, and we could quickly become those Americans again — if only we knew we had to.

People got tired of reading about economic gloom and doom, so the media were happy to play up indications that the worst was over.

I make no predictions. The burden of my argument is that the instability of the economy makes predictions about the recovery from a depression perilous.

  • Mark Thoma argues that there will be a long, drawn out recovery to the recession because consumer spending cannot go back to pre-recession levels. Debt leverage was unsustainable.
  • The Seattle Times Jon Talton asks “What if Starbucks is an artifact of an economy that’s not coming back?”
  • Richard Florida (who also deserves credit blogging about the above two issues) says

One of the most powerful, though least understood, effects of economic crises is their ability to alter global talent flows. Economic history shows that major economic crises like the current, can and frequently do produce considerable alterations in global flows of talent – particularly high-skill, highly inventive, and highly entrepreneurial immigrants.

So what does this all add up to?

We don’t know if the recession is over, or if it is not. This uncertainty is making things worse. And we will never go back to where we were before.

All of this reinforces our belief that we need better tools to be able to plan for a world that is changing in unexpected ways.