Uncertainty in economics

Uncertainty is intrinsic and pervasive in understanding economic behaviour. Knight (1921) distinguished quantifiable uncertainty as risks, in the sense of being amenable to a statistical analysis using historical or experimental data, and fundamental uncertainty, that is intrinsic and unknowable.

The recognition of fundamental uncertainty is a critical feature of Keynesian economics, which distinguishes it from neoclassical economics, and assumes that agents can characterise uncertain outcomes by well-defined probability distributions.

Relevant papers:

Information Security: Lessons from Behavioural Economics” – Baddeley, 2011

Uncertainties in macroeconomic assessments of low-carbon transition pathways – the case of the European iron and steel industry” – Bachner et al., 2020


Knight, F. H. (1921) Risk, Uncertainty, and Profit, Boston, MA. Available on Archive.

Taleb, N. N. (2007) The Black Swan: The Impact of the Highly Improbable, Random House and Penguin Books, New York, ISBN:978-1-4000-6351-2. [Expanded 2nd ed. (2010) ISBN:978-0812973815].

Fontana G. (2009) Money, Uncertainty and Time, Psychology Press. DOI:https://doi.org/10.4324/9780203503294

Taleb, N. N. (2010) The Bed of Procrustes: Philosophical and Practical Aphorisms, Random House, New York, ISBN:978-1-4000-6997-2. [Expanded 2nd ed. (2016) ISBN:978-0812982404].

Baddeley, M. (2011) Information Security: Lessons from Behavioural Economics, Workshop on the Economics of Information Security. PDF available here.

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