82 lines
2.0 KiB
Markdown
82 lines
2.0 KiB
Markdown
---
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id: uncertainty
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aliases: []
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tags:
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- authorship/original
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- destiny/permanent
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- status/incomplete
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- topic/risk
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- type/encyclopedia
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---
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# Uncertainty
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The term "uncertainty" refers to the possibility of multiple outcomes.
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## Information
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In statistical inference and [[strategy]],
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**information** is the resolution of uncertainty.
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### Value of Information
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> [!quote]
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> **Value of information** (VOI or VoI)
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> is the amount a decision maker would be willing to pay
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> for information prior to making a decision.
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It is the value of the reduction in uncertainty
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that the information provides.
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In a monetary context, it is the reduction of
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expected opportunity loss.
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$$
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\text{EVI} = \text{EOL} - \text{EOL}|I
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$$
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### Expected Value of Perfect Information
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Expected value of perfect information (EVPI)
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is the price that one would be willing to pay
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in order to gain access to perfect information.
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> [!info] Perfect Information
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> Perfect information is hypothetical information
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> that would eliminate all uncertainty.
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The perceived _value_ of decreased uncertainty
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must be weighed against its _cost_.
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#### In Construction Estimating
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This concept provides the basis for the solution
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of one or more [[open-problems-in-estimating]].
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To reduce [[risk]] in [[construction-estimating]],
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an organization pays in estimator hours.
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These hours have a direct cost in salary and benefits,
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however the greater cost is the opportunity cost
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of tying up an estimator who could otherwise be starting a new project.
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In many cases, the utility of doubled throughput
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far outweighs the increased risk of individual bids.
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## Types of Uncertainty
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### Aleatory Uncertainty
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> [!info] Also Known As
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> * statistical uncertainty
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> * stochastic uncertainty
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> * random error
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Aleatory uncertainty is inherent randomness in data that can't be explained away.
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### Epistemic Uncertainty
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> [!info] Also Known As
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> * systematic uncertainty
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> * model uncertainty
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Epistemic uncertainty is that which arises from a lack of knowledge,
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and can be eliminated with access to [[#information]].
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