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Is there a meaningful difference between risk and uncertainty? On the face of it, we might not think so; in casual usage, we could employ the words interchangeably. But some economists see an important distinction between the two. Early in the American experience of the pandemic, economist Allison Schrager wrote an op-ed for The Wall Street Journal called \u201cRisk, Uncertainty and Coronavirus\u201d (paywall). \u201cThe novel coronavirus appears at first to be a problem of risk management,\u201d she wrote. \u201cIt is a dangerous disease that threatens the lives of our neighbors and loved ones. Our response\u2014increased social distancing, shutting down businesses\u2014is aimed at reducing that risk. But the problem isn\u2019t risk so much as uncertainty.\u201d\nShe goes on to explain that not long after the 1918 flu pandemic, another economist, Frank Knight, made a distinction between risk and uncertainty.\xa0 Schrager picks up there:\n\nThe future is unknowable, but risk is measurable. It can be estimated using data, provided similar situations have happened before. Uncertainty, on the other hand, deals with outcomes we can\u2019t predict or never saw coming.\nRisk can be managed. Uncertainty makes it impossible to weigh costs and benefits, such as whether reducing the spread of a virus is worth the cost of an economic shutdown that could last several months. The most responsible course of action is to assume the worst and take the most risk-averse position. Managing uncertainty is expensive: In markets, it means holding cash; in society, it means shutting down.\n\nStrong Towns president Chuck Marohn says he\u2019s gone back to Schrager\u2019s Wall Street Journal piece, as well as her other writing, numerous times throughout the pandemic. That\u2019s why it\u2019s a special pleasure to welcome her on this week\u2019s episode of the Strong Towns podcast.\nAllison Schrager is a senior fellow at the Manhattan Institute, author of the book An Economist Walks into a Brothel: And Other Places to Understand Risk, and cofounder of LifeCycle Finance Partners, LLC, a risk management firm. In this episode, Marohn and Schrager talk about that difference between risk and uncertainty, the tension between efficiency and adaptability, and whether people are geographically sorting during the pandemic based on risk preference. They discuss why meatpackers in Iowa were more prescient about the coronavirus than global finance experts in New York. And they discuss how local communities should be thinking about their own fragility. \u201cThe only insurance against uncertainty,\u201d says Schrager, \u201cis resilience.\u201d\nAdditional Shownotes\n\n\u201cRisk, Uncertainty and Coronavirus,\u201d by Allison Schrager (paywall)\n\n\nAllison Schrager at the Manhattan Institute\n\n\nAn Economist Walks into a Brothel: And Other Places to Understand Risk, by Allison Schrager\n\n\n Allison Schrager (Twitter)\n\n\nCharles Marohn (Twitter)