Radical or Knightean Uncertainty

What is it

• Assigning a distribution is fraught because you don't have info
• The insight here is that there is a difference between Risk vs Uncertainty
• The quote goes:

"Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated.... The essential fact is that 'risk' means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomena depending on which of the two is really present and operating.... It will appear that a measurable uncertainty, or 'risk' proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all."

A new conception of why profit is made

1. Unquantifiable Uncertainty: It is impossible to assign probabilities to outcomes.
2. Decision Making: In the face of Knightian uncertainty, decision-making strategies may rely more on heuristics, rules of thumb, or other non-probabilistic methods.
3. Business Innovation & Entrepreneurship: Knight argued that profits are a reward for bearing uncertainty, not risk, hence fostering entrepreneurship.

People's commentary

• Ludwig Lachmann
• GLS Shackle
• Israel Kirzner
• James Buchanan
• Viktor Vanberg
• Frank Knight