Fooled by Local Robustness

One would have expected the considerable public debate created by Nassim Taleb’s two best selling books on uncertainty, Fooled by Randomness and The Black Swan , to inspire greater caution to the fundamental difficulties posed by severe uncertainty . Yet, methodologies exhibiting an incautious approach to uncertainty have been proposed recently in a range of publications. So, the objective of this short note is to call attention to a prime example of an incautious approach to severe uncertainty that is manifested in the proposition to use the concept radius of stability as a measure of robustness against severe uncertainty. The central proposition of this approach, which is exemplified in info‐gap decision theory , is this: use a simple radius of stability model to analyze and manage a severe uncertainty that is characterized by a vast uncertainty space, a poor point estimate, and a likelihood‐free quantification of uncertainty. This short discussion serves then as a reminder that the generic radius of stability model is a model of local robustness. It is, therefore, utterly unsuitable for the treatment of severe uncertainty when the latter is characterized by a poor estimate of the parameter of interest, a vast uncertainty space, and a likelihood‐free quantification of uncertainty.