Decision Making: Uncertainty versus Risk
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 1 April 2020
⏱️ 31 minutes
🧾️ Download transcript
Summary
What is the difference between risk and uncertainty and how our decision making approach should differ under each scenario. Why pandemics are highly uncertain and should be treated as such.
Topics covered include:
- How the coronavirus pandemic is far worse than other pandemics this century.
- How humans have a difficult time accepting that things won't return to normal.
- What is the difference between risk and uncertainty.
- How we make decisions should differ if something is uncertain versus risky.
- What is the minimax regret approach to making decisions under uncertainty.
- How stories help us deal with uncertainty.
- How the story driving financial markets has changed.
- What is the duration and severity of bear markets during a recession and how large have bear market stock rallies been.
- What will it take for the pandemic to end and to be more confident about the future.
Thanks to Mint Mobile and Grammarly for sponsoring the episode.
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Transcript
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| 0:00.0 | Welcome to Money for the rest of us. This is a personal finance show on money. How it works, how to invest it, and how to live without worrying about it. |
| 0:10.0 | I'm your host David Stein today's episode 293. It's titled Making Decisions |
| 0:17.0 | Uncertainty versus Risk. We have been sheltered in place here in Phoenix for over two weeks now. |
| 0:26.0 | There are five of us we've spent a lot of time walking the dog, taking hikes, doing our best to stay at least six feet away from strangers. |
| 0:39.0 | I've only gone to the store once to the grocery store about 10 days ago. Most of our food is now delivered, |
| 0:45.0 | spending a lot of time reading, two kids spending a lot of time taking online classes |
| 0:50.0 | for college, we make dinner together and occasionally watch a movie. |
| 0:56.1 | Life admittedly is much easier for me than for many of you who have young children at home and you're trying to at the same time homeschool them or help |
| 1:06.1 | them with school and pursue your professional activities. |
| 1:10.8 | I liked this description by Masha Gessin in the New Yorker. She wrote, |
| 1:17.0 | The social fabric is being torn in unprecedented ways, owing to school closings, a widespread shift to working from home, social |
| 1:26.6 | distancing, sheltering in place. |
| 1:29.4 | Whereas we used to share dozens of experiences a day with friends, acquaintances, and strangers from riding the subway |
| 1:36.0 | to working in an office, standing in line at lunch, going to a concert, eating at a restaurant, |
| 1:41.9 | chatting to an Uber driver, many of us have been reduced to sharing |
| 1:45.8 | only isolation and the fear of chance encounters, if either of those can be said to be shared. |
| 1:53.0 | In early February, episode 26 of the podcast, |
| 1:57.0 | we looked at the coronavirus and the financial impact of pandemics. |
| 2:01.0 | At the time I said we didn't know how severe this would be from a health |
| 2:04.8 | standpoint because epidemiologists and other health officials were still trying to |
| 2:09.2 | determine how deadly the virus was, how contagious, how it spreads, and what treatment mechanisms work the best. |
| 2:17.8 | In some regards, they're still uncertain. |
... |
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