COVID-19 is a classic example of radical uncertainty.  We knew that pandemics were likely but we did not know enough to attach a probability to an event such as “a virus will emerge from Wuhan in China in December 2019”.  We do not know what the future will hold.  But we must make decisions anyway. So we crave certainties which cannot exist and invent knowledge we cannot have.  It is tempting to believe that we attach subjective probabilities to all possible future events – but misguided.  It leads to spurious precision.  Humans are successful because they have adapted to an environment which they understand only imperfectly.  Throughout history we have developed a variety of ways of coping with radical uncertainty.  The distinction between risk and uncertainty that was buried by economists for over half a century needs to be restored.

Mervyn King is the Alan Greenspan Professor of Economics at NYU Stern.