Difference between Risk and Uncertainty

In our everyday life, there are various circumstances, where we need to go out for risk and regularly there comes a circumstance of uncertainty with respect to upcoming events, which we comprise no clue. We utilize the terms risk and uncertainty to explain about expectations for upcoming events; however have you ever pondered about their distinction. In this article we are going to explain the differences between these two terms.

Risk

In the normal terms, risk is the result of an act taken or not, in a specific circumstance which might bring about gain or loss. It is explained as a chance or misfortune or introduction to danger, emerging out of interior or outside elements, which can be reduced with help of preventive measures. It suggests the uncertainty with respect to expected returns for the speculations made. Such a risk might incorporate the likelihood of losing the part or entire venture. Despite the fact that, the more the risk, the more is the desire of profits, since financial specialists are paid off for the extra risk they tackle their speculations.

Uncertainty

By the word uncertainty, we imply the nonappearance of certainty or we can say something that is unpredictable. It alludes to a circumstance where there are numerous option bringing about a particular result, however the probability of the result is not sure. This is a direct result of inadequate data or learning about the current condition. Thus, it is difficult to characterize or anticipate the future result or events. Uncertainty can’t be calculated in quantitative terms with help of theoretical models. Subsequently, probabilities can’t be connected to the potential results, on the grounds that the probabilities are unpredictable.

Risk Vs Uncertainty

  • Meaning:

Risk is actually the probability of losing or winning something valuable.

Uncertainty is actually the situation where upcoming events are not predictable or known.

  • Nature:

By nature, risk is a quantifiable uncertainty.

By nature, uncertainty is an unpredictable risk.

  • Measurable:

Risk can be measurable and it can be quantified with the help of theoretical models.

Uncertainty cannot be measurable or quantified in quantitative terms.

  • Outcomes:

In risk, probability of outcomes is known or predictable.

In case of uncertainty, probability of outcomes is not known or unpredictable.

  • Controllable:

In case of risk, it is controllable by taking appropriate measures.

In uncertainty, we can’t control as it is a far from person’s control.

  • Insured:

In case of risk, insurance is feasible. There are some risks that can completely cover with help of different insurance policies like fire, theft, flood and so forth.

In case of uncertainty, insurance is not feasible and it cannot cover with insurance policies.

  • Transferability:

In risk, transferability can be done as one risk can be converting in another risk.

In uncertainty, transferability can’t be occurred.

  • Cost of production:

Cost of risk is included in cost of production but producer can’t get revenue for risk bearing.

Uncertainty is not included in cost of production but actually the profit is the incentive of producer for bearing uncertainty.

  • Previous knowledge:

In risk, we can take help from previous knowledge.

In uncertainty, previous knowledge is not helpful or possible.

Conclusion

From the above article we come to know that risk is actually the probability of losing or winning something valuable while uncertainty is actually the situation where upcoming events are not predictable. Risk is a quantifiable uncertainty and uncertainty is an unpredictable risk by its nature. Risk can be measurable, controlled and minimized but uncertainty can’t.  In case of risk, insurance can be done but not in case of uncertainty. In risk, probability of outcomes is known or predictable but in case of uncertainty, probability of outcomes is not known or unpredictable. Cost of risk is included in cost of production but uncertainty is not included in cost of production. In risk, we can take help from previous knowledge but in uncertainty, previous knowledge is not helpful or possible.