Radical Uncertainty

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In economics radical uncertainty, also called Knightian uncertainty, is a risk that is immeasurable, not possible to calculate. Radical uncertainty thus requires very different methods to deal with relative to conventional risk-based analysis. For example, historical developments like the widespread adoption of the personal computer, were entirely impossible to predict but nevertheless have world-changing effects. A primary source of radical uncertainty can be traced back to chaos and the butterfly effect, where feedback loops during the system’s development create sensitivity to initial conditions and an exponential growth in the state of possibilities as the systems developes.