Risk vs. Uncertainty

Was listening to a podacast and they were talking about how people do not understand the difference between Risk and Uncertainty. The lack of knowing this causes people to make grave financial mistakes. Also not understanding can really effect your view of the world.

a great example I heard of the difference is the concept of a bucket with balls in it. Risk is something you know the odds for, lets say 50% of the balls in the bucket are red, what would you bet the first ball is red. Uncertainty is something you do not know any odds / in our example there are 100 balls in the bucket, it is unknown what % is red and if there are any Red balls in the bucket! Taking a wager on if a red ball will be pulled is a serious uncertainty.

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