Managing radical uncertainty

Risk vs uncertainty

Risk vs uncertainty

Risk is present when future events occur with measurable probability, whereas uncertainty obtains when the likelihood of future events is indefinite or incalculable. The distinction, made a century ago by Frank Knight, is critical in economics. We at Frontier are comfortable assessing risk, but the incalculable nature of the still-raging COVID-19 pandemic raises a host of difficulties.

Second-guessing the pandemic

This collection includes articles exploring how the coronavirus is amplifying challenges in key sectors. For the NHS, facing an unparalleled crisis, innovation is likely to be at the heart of any strategy to minimise the damage caused by uncertainty over the trajectory of the disease. Few industries have been harder hit than aviation. We make the case that flexible regulation has an important part to play in helping airports to recover. Businesses and households have made more use of telecoms services during lockdown, but the unknowable economic impact of the virus will make it harder for operators to value the spectrum needed to roll out 5G services.

Radical uncertainty

Leaving the pandemic to one side (if that’s possible), uncertainty is of course a constant for any organisation. Take the energy sector. Because we cannot know how society will make the transition to net zero carbon emissions, network operators will need to rigorously model the attendant uncertainty over future demand growth. And in the critical area of competition policy, the unexpected resignation of CMA chief Andrew Tyrie has deepened uncertainty over the future direction of policy. Businesses have been left in an information void and customers in limbo. No wonder that Mervyn King, a former governor of the Bank of England, and his co-author John Kay argue in a recent book that we have entered an age of “radical uncertainty”.

Team thoughts

We are unable to predict the future, but unpicking what has changed and why can help firms better understand whether various shifts are likely to stick and how best to monitor the direction of travel.
Phil Sneade
Associate Director
The pandemic makes demand for 5G services even more uncertain. On balance, there appears to be a risk that demand could be dampened, although there are a number of offsetting effects.
James Bellis
Director

In numbers

Global flights are now 46%

below last year's levels

Team Thoughts

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