The key distinction between risk and uncertainty is
A)Risk cannot be quantified,priced or traded
B)Uncertainty refers to not knowing possible outcomes or their probabilities
C)Uncertainty is modeled by listing the possible outcomes and assigning probabilities to the outcomes
D)Risk has to do with not knowing the probability distribution of a random variable

Question

​The key distinction between risk and uncertainty is
A)​Risk cannot be quantified,priced or traded
B)Uncertainty refers to not knowing possible outcomes or their probabilities
C)Uncertainty is modeled by listing the possible outcomes and assigning probabilities to the outcomes
D)​Risk has to do with not knowing the probability distribution of a random variable

Quizplus · Accepted Answer

The key distinction between risk and uncertainty is that risk refers to a situation where the possible outcomes and their probabilities are known, while uncertainty refers to not knowing possible outcomes or their probabilities. In other words, risk can be quantified, priced or traded, while uncertainty cannot be modeled by listing the possible outcomes and assigning probabilities to the outcomes. Option B correctly captures this distinction. Option A is incorrect because risk can be quantified, priced, and traded. Option C is incorrect because it describes how we model uncertainty, not how we distinguish between risk and uncertainty. Option D is incorrect because it conflates risk with not knowing the probability distribution, which is only one type of risk.

​The Key Distinction Between Risk and Uncertainty Is

The Key Distinction Between Risk and Uncertainty Is