Estimating Global Uncertainty? Better to consider source of uncertainty.

The level of global uncertainty should be considered, and perhaps it can be measured. The International Monetary Fund has quantified an answer: an uncertainty index.

To develop an “uncertainty index”, the IMF ‘text mined’ through quarterly Economist Intelligence Unit country reports, reviewing editions from the 1950’s to date.

They then tallied the number of times the word uncertainty is mentioned in a specific country quarterly report, then normalized that total against the total word count for that report, to then arrive at an uncertainty measure from that country report for that given period.

But this uncertainty index can only be a stock (not a flow) measure.

Knowing what uncertainty is now doesn’t tell us that much about what it might be in the (immediate) future. Quick developments can recast sentiment, sometimes fundamentally – hard charging confidence can follow uncertainty, or the reverse.

Being aware of what the ambient uncertainty is can be helpful, but just as important, is to have a steady and growing awareness of what the real and potential sources of uncertainty are.

Therefore, better to think about the underlying sources and also the conditions (see below) – then give consideration, draw inferences, and form strategies on hedging and shaping business exposure.

1) Confidence – belief that systems/relations are functional and viable

2) Deterrence – acknowledgment that actions bear consequences

3) Transparency – the allowance to see clearly, to question and to ascertain

4) Reciprocity – the behavior and reinforcing action that fosters trust

For more insights by Mike McDonnell on Youtube:

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