On a true value of risk

Abstract

The paper suggests looking on probabilistic risk quantities and concepts through the prism of accepting one of the views: whether a true value of risk exists or not. It is argued that discussions until now have been primarily focused on closely related topics that are different from the topic of the current paper. The paper examines operational consequences of adhering to each of the views and contrasts them. It is demonstrated that operational differences on how and what probabilistic measures can be assessed and how they can be interpreted appear tangible. In particular, this concerns prediction intervals, the use of Byes rule, models of complete ignorance, hierarchical models of uncertainty, assignment of probabilities over possibility space and interpretation of derived probabilistic measures. Behavioural implications of favouring the either view are also briefly described.

Keywords:

• Risk
• true value
• uncertainty
• ignorance

Notes

1. ”True belief” of a subject in a proposition simply means that the subject believes that the proposition is true.

2. http://mathworld.wolfram.com/PrincipleofInsufficientReason.html

3. http://simple.wikipedia.org/wiki/Uncertainty_principle