Uncertainty in economics

Uncertainty is intrinsic and pervasive in understanding economic behaviour. Knight (1921) distinguished quantifiable uncertainty as risk, 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, which assumes that agents can characterise uncertain outcomes by well-defined probability distributions.

Relevant papers:

Baddeley (2011) provides a helpful review

References:

Baddeley, M. (2011) ‘Information Security: Lessons from Behavioural Economics’, available as a .pdf

Fontana G. 2009. Money, Uncertainty and Time. Psychology Press

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

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

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

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