Uncertainty

The future is uncertain, because man cannot predict it perfectly. If he would know the future, he would not have to choose and would not act.

Every action refers to an unknown future. It is in this sense always a risky speculation.

Probability
There are two types of probability, demonstrating the difference between uncertainty and risk.

Class probability means, that we know nothing about an individual outcome, but we know everything about a whole class of events, and are certain about the future. In a lottery, for example, we know how many tickets are in total and how many will be drawn. But that does not say at all, if a particular ticket or tickets will win, and buying more tickets does not increase the chance of winning. An instance of class probability is called risk. It is possible to insure against risk, because the behavior of a class of events (or a reasonable subset of it) is well known.

Case probability means, that we know some of the factors which determine the outcome of a particular event; but there are other determining factors which we don't know. The cases are individual, unique, and nonrepeatable, their result is uncertain. If in roulette a ball falls ten times on red in succession, the probability, that in the next turn will be the result black, is not greater than it was before. Football games cannot be predicted on the results of last games, nor can be presidential elections.

Protection
Life is exposed to many risks, accidents and disasters, than cannot be controlled. Man can remove some of their consequences by buying or producing insurance (ranging from financial insurance to the procurement of specific goods - like a fire extinguisher against the threat of fire).

But when man faces uncertainty, it is not known what will be wanted or needed and when. Only present, instantly serviceable goods can protect against unpredictable events at unpredictable moments. And money, because of its instant and unspecific wide-ranging salability, can protect against uncertainty. Thus, just as insurance premiums are the price paid for protection against risk aversion, cash holdings are the price paid for protection against uncertainty aversion.

Science and uncertainty
Natural science does not make the future predictable. It makes it possible to foretell the results of definite actions. But it leaves unpredictable two spheres: that of insufficiently known natural phenomena and that of human acts of choice. Our ignorance with regard to these two spheres taints all human actions with uncertainty.

Regime uncertainty
Higgs theorizes, that the New Deal prolonged the Great Depression by creating an extraordinarily high degree of regime uncertainty for the investors. Given the unparalleled number of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, the political climate could hardly have failed to discourage some investors from making fresh long-term commitments. There also exists a great deal of direct evidence that investors felt very uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded many statements by contemporaries to that effect; in the years just before the war most business executives expected substantial weakening of private property rights.

Links

 * Uncertainty on Wikipedia
 * Uncertainty and Its Exigencies: The Critical Role of Insurance in the Free Market, a Mises Daily article by Hans-Hermann Hoppe
 * On Certainty and Uncertainty, Or: How Rational Can Our Expectations Be? (pdf), by Hans-Hermann Hoppe, Review of Austrian Economics 10, No. 1 (1997)
 * Time, Uncertainty, and Disequilibrium (pdf), Exploration of Austrian Themes. Edited by Mario J. Rizzo New York University, LexingtonBooks