The uncertainty hierarchy
I have come across different levels of accounting for uncertainty.
- X will happen, plan accordingly.
- X or Y or … Z will happen - think of contingencies.
- X or Y or … Z will happen with different likelihoods - balance effort on the alternatives.
- X or Y or Z will happen with different likelihood and expected payoffs (use kelly’s criterion?).
So far so good. X or Y or Z could open up other opportunities, so we can iterate but we basically end up with the same structure as in 4.
People usually go to level 4 in discussions. What I do not see in discussions is the next level - taking into account the shape of the distribution of the payoffs - and I don’t know why. For any given situation, I could not quickly tell you what distribution I would prefer. It’s not automatic.
