Risk Vs Uncertainty

In the book, 'The Signal and the Noise' Nate Silver talks about the difference between risk and uncertainty. He talks about this in the context of the American financial crisis in 2008. Specifically, collateralized debt obligation (CDO) (a stacked instrument combining mortgages) defaulted en masse leading to the meltdown. Before the event, the credit rating agencies were able to estimate the risks associated with CDOs, but they were blinded to the uncertainty around it. Risks were fairly straightforward, it was about the possibility of default for an individual instrument. Uncertainty refers to the cataclysmic domino effect that led to the mass default. In other words, credit rating agencies failed to understand the strong connections between various events that precipitated the formation of the deadly ripple.

I think the risk Vs uncertainty theme is not only relevant in the financial world but also in a much wider context or the life itself. Translating into the real world, risks are what we foresee or envision, uncertainty remains uncertain. Risks are usually uni-dimensional or at times may have a few dimensions, uncertainties are always many-dimensional. Similar to how we struggle to visualize anything more than 3-dimensional, we are unable to even gauge the gravity of the uncertainties in life. This is a humbling thought in many ways. Considering life is full of unpredictabilities of varying degrees, it is foolish to have attachments to worldly beings and things. To concretize the aspect, I would think of it as follows: I could be dependent on anyone or anything at any time due to the multitudinous possibilities. My feelings (in particular negative) about anyone is irrelevant. The thought tells me to place each and every happening in context and react with complete consciousness. It also emphasizes the significance of the little blessings (I mean even the minutest, a baby's smile, for instance, is huge).