Second, to what extent can it be claimed that the underlying economic outcomes, which presumably have a major bearing on investors’ perceptions of risk, are less “risky” or volatile than they used to be? Third, what are the odds that this apparently benign environment will persist? What factors might prompt a change? What is risk?
To begin, it is perhaps important to be clear what we mean by “risk”, and how it differs from “uncertainty”, a distinction first made by Frank Knight 1 in 1921.