Risk Thinking

Even small events can generate severe disruptions.

Statistics and probability have deluded people into believing they have a reasonable understanding of possible future events. Most situations have both deterministic and “stochastic” elements.  Deterministic events are predictable, while stochastic events are uncertain. You must identify and deal with each element individually.

People can’t be certain what tomorrow will bring, but must make decisions today. A stochastic process develops over time and is subject to random events. Some stochastic processes allow the calculation of probabilities, but unique situations frustrate such calculations. Some uncertainty is measurable, and some is not. Risk thinkers posit that most future events are not predictable.

One way to deal with uncertainty is to generate scenarios that include best and worst cases.

Understand what factors drive a potential risk. In assessing the future of Miami, for example, climate change planners consider the interrelationships among sea levels, high tides, low tides, hurricanes and precipitation...