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The Economics of Uncertainty
Listening Length 11 hours and 59 minutes
Economies are deeply complex systems. The marketplace involves many economic actors behaving in rational and irrational ways, sustaining a dizzying array of interconnected activity. Because of the number of participants involved, the unpredictability of their actions, and the sheer variety of possible actions, some degree of economic uncertainty is inevitable.
In one of the most dramatic displays of economic uncertainty in our times, a wave of toxic loans almost brought down the American financial system in 2008-2009, and with it jobs and savings. Few experts forecast this catastrophe, which stands as a lesson in the power of economic forces to defy our predictions. This event may have been exceptional, but every day we are all at the mercy of economic uncertainty in matters such as the stock market, insurance, and career and retirement planning.
Uncertainty also plagues us in smaller ways. For example, everyone is familiar with rising prices, but the Internet now makes it possible for online shoppers to be charged more based on their buying history, adding a new level of unpredictability to pricing. And anytime you hire someone for a service - from roofing to dentistry - you face the principal-agent problem, in which the person hired may take unethical advantage of your lack of expertise.
Indeed, these large and small risks are so pervasive that it is all too easy to conclude that nothing can be done. But economic uncertainty is like the weather: You can't stop storms from happening, but understanding how and why they happen allows you to be prepared. In the same way, economic uncertainty is beyond our control, but we're in a much better position to respond if we know what's happening and why.
In 24 practical and empowering half-hour lectures, The Economics of Uncertainty takes the mystery and dread out of uncertainty, giving you the tools to deal with risk in every phase of your life.
Economies are deeply complex systems. The marketplace involves many economic actors behaving in rational and irrational ways, sustaining a dizzying array of interconnected activity. Because of the number of participants involved, the unpredictability of their actions, and the sheer variety of possible actions, some degree of economic uncertainty is inevitable.
In one of the most dramatic displays of economic uncertainty in our times, a wave of toxic loans almost brought down the American financial system in 2008-2009, and with it jobs and savings. Few experts forecast this catastrophe, which stands as a lesson in the power of economic forces to defy our predictions. This event may have been exceptional, but every day we are all at the mercy of economic uncertainty in matters such as the stock market, insurance, and career and retirement planning.
Uncertainty also plagues us in smaller ways. For example, everyone is familiar with rising prices, but the Internet now makes it possible for online shoppers to be charged more based on their buying history, adding a new level of unpredictability to pricing. And anytime you hire someone for a service - from roofing to dentistry - you face the principal-agent problem, in which the person hired may take unethical advantage of your lack of expertise.
Indeed, these large and small risks are so pervasive that it is all too easy to conclude that nothing can be done. But economic uncertainty is like the weather: You can't stop storms from happening, but understanding how and why they happen allows you to be prepared. In the same way, economic uncertainty is beyond our control, but we're in a much better position to respond if we know what's happening and why.
In 24 practical and empowering half-hour lectures, The Economics of Uncertainty takes the mystery and dread out of uncertainty, giving you the tools to deal with risk in every phase of your life.
12 pages, Audible Audio
Published May 29, 2015
7 people are currently reading
86 people want to read
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Displaying 1 - 20 of 20 reviews
June 3, 2020
This was another walk-the-dog, do-the-gardening, and paint-the-shed audiobooks. I find the thought process of economists very interesting. Their logical-thinking sometimes contrasts sharply with my own thoughts. Reading and listening to economics causes/ allows me to think things through using a different part of my brain. This was a great courses lecture set and I really love the fact I can borrow some of these great audio book courses from the public library to listen to. It was 12 hours of lecture and to me it was time well spent.
November 7, 2018
Another good series, but if you can borrow this and don't want to make time for all 24 lectures, then I highly recommend the 24th and final lecture about taking a "financial stress test".
November 1, 2018
Outstanding in its informative, useful content and its excellent presentation.
December 15, 2024
Uncertainty is a facet of life, and Professor Connel Fullenkamp of Duke University distills the basics of such in the context of economics and finance.
The overarching theme of the lecture series is that uncertainty exists because we live in a world of incomplete, imperfect, and asymmetric information. It is nigh impossible to predict what your neighbor (or even what yourself) is going to do in a given day, much less forecast the behavior of a world economy comprised of 8 billion people. The best thing we can do is to therefore process what information we do have through unemotional critical thinking to make good decisions with the information we do (or can) have.
Frank Knight, sometimes called the Godfather of the Chicago School of Economics, suggests that we reframe the concept of uncertainty into risk - i.e., convert something unknowable into something that can be quantified in probability terms. Engaging in this exercise will let us see the world differently and also potentially reduce anxiety and/or shore up our confidence in decision making. One way to go about this is to develop a rudimentary understanding of probability and statistics, such as seeing things in terms of Expected Value (the sum of all possible outcomes multiplied by their respective probabilities) and Standard Deviation (likelihood of an outcome relative to the mean). Another important component is being cognizant of the inherent biases in human cognition and behavior (Lecture 5 of this series summarizes Daniel Kahneman and Amos Tversky’s work about System 1 and System 2 thinking in their book Thinking Fast and Slow (4/5 stars).) Worth stating also, is that uncertainty (and even a little bit of chaos) is not necessarily bad - as humans we are drawn to uncertain outcomes (e.g., sports and gambling), and whenever dealing and/or negotiating be aware that by acting too consistently you may be vulnerable to manipulation and exploitation (Lecture 9 is about game theory).
The second half of the course gets a bit more granular. Lectures 10 - 13 discuss uncertainty in the context of human and business interactions by explaining the concepts of Adverse Selection, Moral Hazard, and the Principal-Agent problem. Adverse Selection exists due to asymmetric information between parties, a classic example being the market for used cars (i.e., sellers have superior information about their cars than buyers). Moral Hazard describes what happens when one party’s actions are hidden from the other until it is too late, and a subset of such is the Principal-Agent problem (i.e., a potential conflict of interest for the agent who might be incentivized to surreptitiously benefit from the agency relationship to the detriment of the principal, an example being a mechanic who gouges his customer). As interesting as these concepts themselves are the individual and market solutions that have developed over time in response thereto; warranties, collateral, and stock options to name a few. Put more concretely: a warranty makes a seller stand behind its product; collateral punishes a borrower who defaults on his loan; and stock options align the respect interests of employees and managers to that of their employer. Altering incentives alters behavior.
No lecture series about uncertainty would be complete without discussing insurance, hedging, and options contracts. Many who disparage insurance companies as rapacious and greedy conglomerates lack a fundamental understanding of how insurance actually works. The function of insurance is to pool risk and to manage money. Most of us lack the financial wherewithal to weather an extreme adverse event (expensive car accident, a burned down house, premature death, etc.) and so we pay an insurance premium into a collective fund that covers us in such event. It is the job of the insurance company and its actuaries to calculate the appropriate amount of the premiums in order to: (i) pay out policy holders as required; (ii) fund its operating costs; and (iii) be profitable enough to incentivize remaining in business. Charge too little and the insurance company will go insolvent; charge too much and the company will lose its customers. How to manage the money before paying out depends on the type of insurance provided. Car insurance policies pay out frequently, and so the money is typically invested in short term, liquid assets. Life insurance has a much longer time horizon, and so stocks, bonds, real estate, etc. with a higher overall return but with less liquidity are often chosen. (Returning to the topic of Moral Hazard, one way to deal with drivers who drive recklessly knowing that they are covered is to make them pay a deductible and thus align his incentive of avoiding car accidents.) The basic definition of hedging is to give up potential upside in order to protect against downside risk. Options contracts are often used for this purpose (a famous example being Southwest’s call options on jet fuel). While we typically think of options as financial instruments, conceptually we deal with options in our everyday lives. An example is prepaying one’s mortgage, which is akin to a call option in the event interest rates go down.
The overarching theme of the lecture series is that uncertainty exists because we live in a world of incomplete, imperfect, and asymmetric information. It is nigh impossible to predict what your neighbor (or even what yourself) is going to do in a given day, much less forecast the behavior of a world economy comprised of 8 billion people. The best thing we can do is to therefore process what information we do have through unemotional critical thinking to make good decisions with the information we do (or can) have.
Frank Knight, sometimes called the Godfather of the Chicago School of Economics, suggests that we reframe the concept of uncertainty into risk - i.e., convert something unknowable into something that can be quantified in probability terms. Engaging in this exercise will let us see the world differently and also potentially reduce anxiety and/or shore up our confidence in decision making. One way to go about this is to develop a rudimentary understanding of probability and statistics, such as seeing things in terms of Expected Value (the sum of all possible outcomes multiplied by their respective probabilities) and Standard Deviation (likelihood of an outcome relative to the mean). Another important component is being cognizant of the inherent biases in human cognition and behavior (Lecture 5 of this series summarizes Daniel Kahneman and Amos Tversky’s work about System 1 and System 2 thinking in their book Thinking Fast and Slow (4/5 stars).) Worth stating also, is that uncertainty (and even a little bit of chaos) is not necessarily bad - as humans we are drawn to uncertain outcomes (e.g., sports and gambling), and whenever dealing and/or negotiating be aware that by acting too consistently you may be vulnerable to manipulation and exploitation (Lecture 9 is about game theory).
The second half of the course gets a bit more granular. Lectures 10 - 13 discuss uncertainty in the context of human and business interactions by explaining the concepts of Adverse Selection, Moral Hazard, and the Principal-Agent problem. Adverse Selection exists due to asymmetric information between parties, a classic example being the market for used cars (i.e., sellers have superior information about their cars than buyers). Moral Hazard describes what happens when one party’s actions are hidden from the other until it is too late, and a subset of such is the Principal-Agent problem (i.e., a potential conflict of interest for the agent who might be incentivized to surreptitiously benefit from the agency relationship to the detriment of the principal, an example being a mechanic who gouges his customer). As interesting as these concepts themselves are the individual and market solutions that have developed over time in response thereto; warranties, collateral, and stock options to name a few. Put more concretely: a warranty makes a seller stand behind its product; collateral punishes a borrower who defaults on his loan; and stock options align the respect interests of employees and managers to that of their employer. Altering incentives alters behavior.
No lecture series about uncertainty would be complete without discussing insurance, hedging, and options contracts. Many who disparage insurance companies as rapacious and greedy conglomerates lack a fundamental understanding of how insurance actually works. The function of insurance is to pool risk and to manage money. Most of us lack the financial wherewithal to weather an extreme adverse event (expensive car accident, a burned down house, premature death, etc.) and so we pay an insurance premium into a collective fund that covers us in such event. It is the job of the insurance company and its actuaries to calculate the appropriate amount of the premiums in order to: (i) pay out policy holders as required; (ii) fund its operating costs; and (iii) be profitable enough to incentivize remaining in business. Charge too little and the insurance company will go insolvent; charge too much and the company will lose its customers. How to manage the money before paying out depends on the type of insurance provided. Car insurance policies pay out frequently, and so the money is typically invested in short term, liquid assets. Life insurance has a much longer time horizon, and so stocks, bonds, real estate, etc. with a higher overall return but with less liquidity are often chosen. (Returning to the topic of Moral Hazard, one way to deal with drivers who drive recklessly knowing that they are covered is to make them pay a deductible and thus align his incentive of avoiding car accidents.) The basic definition of hedging is to give up potential upside in order to protect against downside risk. Options contracts are often used for this purpose (a famous example being Southwest’s call options on jet fuel). While we typically think of options as financial instruments, conceptually we deal with options in our everyday lives. An example is prepaying one’s mortgage, which is akin to a call option in the event interest rates go down.
March 20, 2019
This book is a lecture by economics professor Fullenkamp. The topics are artfully framed and centered on understanding and dealing with uncertainty.
The book covers the usual topics such as basic statistics and probability knowledge, the stock market, options as hedging tools, and insurance products. However, it also contains unexpected issues such as information asymmetry, the psychology of loss aversion, and understanding statistical numbers in the media.
The topic selections and explanations are tuned for people without any college economics or finance course knowledge. The focus is on how ordinary people can use the knowledge to improve their financial and psychological wellbeing. The course achieved this goal effectively.
The only thing I wish can be elaborated more is behavioral economics. First, the course did not mention its founders Kahneman, Tversky, and Shiller. Second, the concept of utility function was mentioned but could have been expanded more. For example, the utility function may be useful in explaining the value of insurance. The fact that insurance company makes money (in addition to its expense) means that the expectation value of insurance benefit and premium sum is negative. In other words, a consumer loses money on average. However, because of the utility function, a consumer would rather lose a small amount of money on average by buying insurance than taking the risk of losing big money, which would cause nonlinearly larger suffering.
The course was read by the professor himself. While the voice is professional and pleasant to listen, there are too many glitches and misspoken words to be slightly distracting. But overall, it’s enjoyable to listen through the course.
The book covers the usual topics such as basic statistics and probability knowledge, the stock market, options as hedging tools, and insurance products. However, it also contains unexpected issues such as information asymmetry, the psychology of loss aversion, and understanding statistical numbers in the media.
The topic selections and explanations are tuned for people without any college economics or finance course knowledge. The focus is on how ordinary people can use the knowledge to improve their financial and psychological wellbeing. The course achieved this goal effectively.
The only thing I wish can be elaborated more is behavioral economics. First, the course did not mention its founders Kahneman, Tversky, and Shiller. Second, the concept of utility function was mentioned but could have been expanded more. For example, the utility function may be useful in explaining the value of insurance. The fact that insurance company makes money (in addition to its expense) means that the expectation value of insurance benefit and premium sum is negative. In other words, a consumer loses money on average. However, because of the utility function, a consumer would rather lose a small amount of money on average by buying insurance than taking the risk of losing big money, which would cause nonlinearly larger suffering.
The course was read by the professor himself. While the voice is professional and pleasant to listen, there are too many glitches and misspoken words to be slightly distracting. But overall, it’s enjoyable to listen through the course.
March 2, 2021
The Economics of Uncertainty is a good, basic, beginning course on an important subject in economics and finance. However, after a career in business management and my reading of so many advanced, in-depth books on probability, risk and uncertainty, it was difficult for me to stay fully engaged in this audio-lecture. Even so, it was a decent refresher...and the course did spur me to review and update parts of my insurance coverage. For someone looking for a beginners primer on risk and uncertainty, the lecture is well-organized, well-written and covers a wide breadth of risks....inflation, investments, liability, property, retirement, health and a multitude of other common risks. In each case, Mr. Fullenkamp provides layered ideas to managing risk through risk avoidance, reduction, sharing and self-insurance.
November 16, 2019
To be honest, I didn't read closely and thought this was a behavior economics course, which I'm very interested in. Turned out to be a regular economics course, which I'm less interested in. I still found it informative but I'm in no way an economist and I found it to be a bit basic at times. But I can imagine this course would be very good for someone who has little knowledge of economics or who is facing economic uncertainty.
April 27, 2019
Another excellent great courses presentation. Good coverage of economic risk, uncertainty and the options that are available to deal with each. The lecturer does a really good job explaining the behavior of markets, especially financial markets. He also discusses models, forecasts and the unintended consequences that often result from government policies. Nicely done.
June 11, 2019
3.5 stars
It was a good lecture series, and couldn't decide between 3 or 4 stars. The smaller sections could make for an easy entry into any of the topics for someone new to economics.
Recommended for someone looking for an approachable entry point to economics.
It was a good lecture series, and couldn't decide between 3 or 4 stars. The smaller sections could make for an easy entry into any of the topics for someone new to economics.
Recommended for someone looking for an approachable entry point to economics.
October 2, 2021
I thought this might be fun since I listen to economics podcasts. This isn't quite as creative and engaging as those, but it was decently interesting and informative. Though trying to write a review a month later, nothing really sticks in my mind.
May 11, 2022
Not my favorite of the Great Courses series. Lots of topics in basic economics were covered that would seem to be common sense. I wish that the course would have delved into chaos theory and game theory just a little bit more.
June 22, 2023
I like this author. He has a very nice way of explaining concepts. It turned out I was already familiar with some of the stat and probability tools so this book moved slower pace for me than I would have liked. Still worth a read for those less familiar with the topics.
April 8, 2019
A decent, modern introduction to economics and how it applies to everyday life. A mix of engaging chapters and some more boring ones. Overall the topics are presented in an understandable way.
July 7, 2020
It just didn't hold my attention. Don't remember exactly what it was.
June 11, 2021
I found this course valuable; appreciated learning more about the regulatory cycle, game theory, comparative advantage, and adverse selection, amongst other concepts
August 26, 2022
A good straightforward presentation of the fundamentals of uncertainty, risk management and decision-making.
October 18, 2022
A very gentle and simple explanation to several of the key concepts in economics. Highly recommend especially for those in managerial roles.
October 30, 2022
Just too basic.
April 1, 2024
Got too detailed into the math of economics for me to follow at times. Overall though I appreciated the walk through economics with attention to uncertainty (risk).
August 5, 2025
A fantastic--albeit a bit elementary for those who already have familiarity with the topic--introduction to uncertainty and quantifying that uncertainty into risk.
In summary, I wish I would have found this resource 6 years ago, as it would have blown my mind. Strongly recommend.
In summary, I wish I would have found this resource 6 years ago, as it would have blown my mind. Strongly recommend.
Displaying 1 - 20 of 20 reviews