Knightian uncertainty: through a Jamesian window

Mario J Rizzo and Malte Dold

Cambridge Journal of Economics, 2021, vol. 45, issue 5, 967-988

Abstract: Frank Knight is famous for the distinction between risk and uncertainty. In this paper, we argue that Knight’s distinction is different from the one made by those who seek to interpret it within a neoclassical framework. Knight does not reduce ‘true uncertainty’ to the application of (axiomatic) subjective probability. Instead, Knight highlights the power of intuitive judgement in situations of uncertainty. Moreover, Knight conceptualises uncertainty along a continuum which means that many of our real-world problems must be seen as mixed cases of risk and uncertainty. This paper illustrates that Knight’s arguments can be more fully understood through the lens of William James’s psychology, which deeply influenced Knight’s way of thinking. Finally, this paper links Knight’s argument to a growing body of recent empirical literature that shows how effective judgemental–intuitive modes of reasoning are in cases of environmental instability. In doing so, this paper begins to fill out the uncertainty framework, which Knight has sketched in Risk, Uncertainty and Profit (1921).

Keywords: Frank Knight; Uncertainty; Intuitive judgement; Implicit learning; William James (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/cje/beab011 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:cambje:v:45:y:2021:i:5:p:967-988.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Cambridge Journal of Economics is currently edited by Jacqui Lagrue

More articles in Cambridge Journal of Economics from Cambridge Political Economy Society Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().