Analytical Skills for AI and Data Science

Chapter 6. Uncertainty

Benjamin Franklin is often quoted as saying, “in this world nothing can be said to be certain, except death and taxes.” At the risk of stating the obvious, I would claim that the only thing that is certain in life is uncertainty. As we will see in this chapter, not only must we master the art of simplification, but we must also try our best to understand where uncertainty comes from, and how to make decisions when we’re not sure about the results of our actions (Figure 6-1).

Figure 6-1. Understanding the underlying uncertainty

The main takeaway from this chapter is that to make decisions under uncertainty we will seek to maximize the mathematical expectation of our business result. We must therefore start by providing enough background on probability theory so that we feel comfortable with calculating expectations. I will also provide a primer into the theory of decision-making under uncertainty and finish by applying this toolkit to our use cases.

Where Does Uncertainty Come From?

Uncertainty reflects our ignorance about something. In the sciences, uncertainty or randomness are commonly associated with our lack of knowledge about the causes of some phenomenon. So where does it come from? We have already talked about this in Chapter 2, so let me just summarize what was mentioned there.

Many times, the source of our uncertainty reflects, literally, our ...