Risk and Uncertainty

In Behavioral Development Economics, risk refers to situations where the outcomes of decisions are known along with their probabilities, such as investing in a business with a known chance of success or failure. Uncertainty, on the other hand, arises when outcomes are unpredictable and we lack information about their likelihood, such as the impact of a new government policy. Both concepts influence how individuals make decisions, as people tend to react differently to risks and uncertainties, often governed by biases and emotions, which can affect their economic choices and overall development.