Distinguishing between risk and uncertainty, this paper draws on the psychological literature on heuristics to consider whether and when simpler approaches may outperform more complex methods for modelling and regulating the financial system. We find that: (i) simple methods can sometimes...

The weather forecast says that there is a "30% chance of rain," and we think we understand what it means. This quantitative statement is assumed to be unambiguous and to convey more information than does a qualitative statement like "It might rain tomorrow." Because the forecast is expressed as...