Epistemic Risk

Epistemology is the study of knowledge. Epistemology is a layer which governs how we distinguish between raw inputs (data), structured meaning (information), and actionable knowledge. Imagine "data", "information", and "knowledge" in terms of building a house.

  • Bricks, 2 by 4s, cement, rebar; that is the level of "data".  The raw materials used to build a house. "Unprocessed".
  • Walls, doors,  windows,  roof, floor; that is the level of "information". Information is like the bricks, 2 by 4s, and cement arranged into the structures that make up the house. "Processed bricks,  2 by 4s, and cement."
  • House, a structure made up of walls, doors, windows, roof, and floor that you can live in. The house is made of walls, doors, windows, a roof, and a floor which makes it something you might be able to live in. "Completed structure."
  • Blueprints, inspection process, building code; that is the epistemology.  Epistemology is the blueprint, the engineering, and the inspection process which is used to answer questions like: Is this house solid? Was the building code followed when the house was constructed? Can we trust the house? Should we take the risk and live in the house?  Epistemology is less about what you know, and more about how you know what you know, and whether you should trust it.  "Assessment."

Epistemic risk relates to the risk of the epistemology being wrong. To manage potential epistemic risk, your epistemic "inspection process" or methods of checking, validating, and governing risk must have enough variety to match the possible errors which could occur. This is the "assessment process".

Requisite variety relates to every possible way of being wrong. If you don't understand the complexity of the system you are working in, then you don't understand the system.

If you only prepare for one type of mistake; you will very likely be blindsided by other types of mistakes that ultimately occur.  Understanding the Law of Requisite Variety helps you better understand the dynamics of what is going on.

Effectively managing and controlling requisite variety requires that there be a balance or "matching" between the potential "perturbance variety" or potential possible disturbances which may occur within a system and the "control variety" which is the information such as rules available to the system to make sure the "residual variety" is as close to 0 as possible, preferably equal to zero. Basically, requisite variety manages your risk control process.

To manage epistemic risk, your epistemic “inspection process” which is your methods of checking, validating, governing that risk must have enough variety (be sufficient enough) to match the possible errors. What you claim to know and what you actually know need to match.

Key to managing epistemic risk is for stakeholders, usually within an area of knowledge, is for the stakeholders to agree on the goals and objectives of a system; governance. Governance mechanisms are used to agree on those stakeholder goals and objectives, which has an impact on possible perturbances and therefore on perturbance variety, which impacts the necessary control variety, which impacts residual variety, which then impacts epistemic risk and therefore the risks which must be managed.

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