Cobas AM: Nueva Gestora de Francisco García Paramés

People have no problem taking risks in their day-to-day activities, but when there’s any uncertainty about those risks, they immediately become more cautious and conservative. Fear of the unknown is one of the most potent kinds of fear there is, and the natural reaction is to get as far away from it as possible. This may not be mathematically correct, but it’s hardwired human nature. 

Almost a century ago, the economist Frank Knight introduced a useful distinction between risk and uncertainty into the economic lexicon: he called “risk” the kind of randomness that can be measured or quantified, and he called “uncertainty” the kind of randomness that can’t. The roulette wheel, blackjack, or the lottery are examples of Knightian risk; finding intelligent life outside our solar system, exploiting fusion as a new source of energy, or surviving a nuclear war with Russia are examples of Knightian uncertainty.  

Knight redefined risk and uncertainty for entirely practical reasons: he wanted to explain why some entrepreneurs made tremendous fortunes in their businesses, while others barely made enough to survive from day to day. Knight’s answer was simple. For industries with Knightian risk, where the random element of the business could be measured, it would be measured, and the forces of competition would eventually drive excess profits down to zero as that particular business became commoditized. However, for industries facing Knightian uncertainty—for example, industries using completely new and unproven technologies—there’s no easy way to commoditize the business since, by definition, the randomness can’t be quantified. These unknown unknowns make most of us withdraw from the game. But these are also the circumstances in which billionaires are made. Mark Zuckerberg and Facebook come to mind. What were the odds that social media would be a commercial success in the pre-Facebook days? How would you have estimated such odds without any prior history or data? Human nature simply doesn’t allow us to view uncertainty with indifference. Fortune favors the brave, and market prices reflect our innate tendency to avoid uncertainty.

Andrew W. Lo. Adaptive Markets: Financial Evolution at the Speed of Thought (Posición en Kindle1321-1341). Princeton University Press. Edición de Kindle.