ABSTRACT
This chapter explains that uncertainty comes from the lack of predictability, or from the unsystematic behaviour of variable factors. The most common case is one in which variables exhibit unsystematic and unpredictable changes that occur at random and by chance. Any process that includes a random element of this kind is called a stochastic process. This can be contrasted with a process from which the same solution is always obtained if the basic conditions remain unchanged, which is called a deterministic process. In order to be able to move from a development appraisal based upon conventional deterministic methods to a more rigorous analysis that deals systematically with risk and uncertainty, it is necessary to become familiar with the terminology and methods conventionally used in such analyses. The chapter deals with three aspects of analysis: the measurement or assessment of probability; the use of utility as an indicator of individual attitudes to risk; and sensitivity and simulation.
