As Steve presented in a previous seminar, the Mexico City Project is attempting to extend the work he did focusing on electric utilities. Jim drew attention to the title of his talk, saying that he sees a problem of strategy rather than analytics. The point is to manage risk, not try to get rid of it. His talk addressed an approach that integrates portfolio theory, real options, financial markets, and scientific models. Jim reviewed some of the terms.
Risk is confused with hazard, but risk is actually a problem of probabilities.
Sometimes uncertainty is defined as randomness, but real uncertainty comes from not knowing the variables rather than not knowing the probabilities . A prediction is a forecast that you assign a high probability to. Portfolio Theory has the attributes that it embraces risk because risk is what can provide return. The real problem is how to convert uncertainty to risk. There are strategies to do this in financial markets, including hedging, timing, and allocation strategies.