ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Definition of Uncertainty It refers to a situation where there are multiple alternatives resulting in a specific outcome, but the probability of the outcome is not certain.

Detailed explanation-2: -When there is only one possible outcome to a decision, risk or uncertainty is present. Risk refers to a situation in which the probability of each possible outcome to a decision is unknown or meaningless.

Detailed explanation-3: -In the case of uncertainty, we don’t use probabilities because we don’t know what they are, so we calculate model output for one or more scenarios. Very often models are calculated using single point estimates, or for a few scenarios such as best case, worst case, and most likely case.

Detailed explanation-4: -Risk is the situation under which the decision outcomes and their probabilities of occurrences are known to the decision-maker, and uncertainty is the situation under which such information is not available to the decision-maker.