Navigating Probability, Uncertainty, and Randomness
Navigating Probability, Uncertainty, and Randomness
In upcoming posts, we will be exploring decision making in greater depth and we will be providing mental models, and algorithms to help make better decisions under uncertainty. In this article, we will explore the key concepts including probability, uncertainty, and randomness, and how they intersect and impact decision-making.
Decision: A decision is a choice made after considering alternatives and assessing the potential consequences of each alternative.
Probability: Is a measure of the likelihood of an event occurring. Expressed as a number between 0 and 1, where 0 indicates the event is impossible, and 1 indicates that the event is certain to occur. The probability of an event can be calculated by dividing the number of ways the event can occur by the total possible outcomes. It is a way of quantifying the uncertainty associated with an event or outcome.
Chance: Is a way of describing the degree of randomness and unpredictability associated with a given situation or event.
Uncertainty: Lack of knowledge or information about a particular situation or event. It can be caused by incomplete data, complex systems or unpredictable events.
Randomness: Refers to the property of lacking a pattern or predictability. In a random system, outcomes are not determined by any prior events or factors, and are not influenced by any external factors or causes. It is critical for making accurate predictions and decisions in the face of uncertainty.
Risk: Refers to the potential loss, harm or negative consequences associated with a particular decision, action, or event. Risk can be measured by the likelihood of a negative outcome occurring, as well as the potential severity of that outcome. It is used to inform decision making and manage uncertainty.
Skill / Luck Continuum: It is a concept used to describe the balance between skill and luck involved in determining outcomes of various activities or events. The continuum ranges from activities that are pure skill, such as chess, to activities that are pure luck, such as playing the lottery. Most situations fall somewhere along the continuum.
Bias: Refers to a tendency to favor one option or outcome over others. Bias can arise from personal beliefs, experiences, or preferences, and can affect the decision-making process.
Consequence: A consequence is the outcome or result of a decision. Consequences can be positive or negative, and decision makers must consider the potential consequences of each alternative when making a decision.
Complex Systems: Systems composed of many interconnected parts that interact with each other in multiple ways, often resulting in behavior that is difficult to predict or control.