Can probability theory deal with entrepreneurship?

Vlad Tarko

The Review of Austrian Economics, 2013, vol. 26, issue 3, No 6, 329-345

Abstract: Abstract The Austrian theory of entrepreneurship emphasizes the importance of epistemic heterogeneity and the unlistability of the set of all possibilities. A similar concern with what has been called “the art of choosing the space of possibilities” is an important part of Bayesian model selection. Both Austrian and Bayesian authors view the common knowledge assumption as an unrealistic and unnecessary restriction. This coincidence of concerns leads to a joint theory of entrepreneurship. Three important benefits result from this merger: (1) the ability to use Itti & Baldi’s Bayesian theory of surprise to empirically measure radical surprise and improve the Betrand competition model as a consequence, (2) dealing with the unlistability problem, and (3) better understanding why the emergence of common knowledge is always the outcome of a social process rather than an inherent consequence of “rationality”.

Keywords: Kiznerian entrepreneurship; Bayesian surprise; Unknown unknowns; Radical uncertainty; Bertrand competition (search for similar items in EconPapers)
JEL-codes: C11 D01 D83 D84 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11138-012-0193-5

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