Not All Risks Are Created Equal

There are two types

Risk is defined by two factors; the volatility of the outcome (it may or may not happen by a certain degree of probability) and the asymmetry of the outcome (meaning that gains and losses are disproportional). If gains and losses would be equal it wouldn’t be much of a risk, merely a trade.

In complex systems, it is often meaningless to talk about probabilities, simply because we don’t have enough data or good enough models to calculate them. Can you give a conclusive probability estimate of a tornado smashing your…