But our present degree of knowledge means that, in the terminology of Frank Knight (1921), there is both risk, which can be quantified, and uncertainty, which cannot. The extent of past uncertainty about life expectancy can be seen in the revisions to its forecasts made over the past 20 years by the Government Actuary’s Department. Nor has the financial sector itself proved better at forecasting. Chart 5 shows successive forecasts of expected length of life for men aged 60 published by the Actuarial Profession, a body of life assurance companies and annuity providers. It shows how reductions in mortality were expected by the industry to lead to rises in length of life. For example, the pink line shows the Actuarial Profession forecast made in 1980 that a man who was 60 in that year could expect to live another 20 years. At that time, it was thought that someone who reached 60 in 1999 would live a further 21 years. But by 1999 the forecast was that a man of 60 would live another 26 years. Over a twenty year period, expected length of life was revised up by 5 years. Length of life has risen faster than the industry anticipated, as can be seen by the  5  The first estimates of mortality rates using bills of mortality from the City of London were published by John Graunt in 1662.
In his book Reckoning with Risk, Gigerenzer argued forcefully that risks should be presented not as probabilities but in terms of natural frequencies, which correspond to our experience in counting events. Although people do understand probabilities in familiar contexts, such as betting on horse races or tossing a coin, it is not easy to calculate odds when the context is unfamiliar. (b)  Explaining probabilities  How then can we best present information about risks to the public? Both the Monetary Policy Committee and the Met Office face this problem almost every day: the former in explaining the outlook for inflation and the latter in forecasting the weather. Both have independently developed similar visual representations of forecasts that avoid the use of the word “probability”. Chart 6 shows the forecast for inflation over the next three years published by the Bank of England in its latest Inflation Report on 10 November 2004. It is in the form of a ‘fan chart’. We do not say that in our view inflation will be 2%, or any other number. Such a statement is incoherent because a forecast is inherently probabilistic. So we represent the uncertainties by the coloured bands in Chart 6.14 Their interpretation is as follows. If we found ourselves in economic circumstances identical to today’s on 100 occasions, we would expect that inflation would lie within the darkest central band on only 10 of those occasions.