Risk and Uncertainty

James Ming Chen ()
Additional contact information
James Ming Chen: Michigan State University

Chapter Chapter 10 in Econophysics and Capital Asset Pricing, 2017, pp 189-211 from Palgrave Macmillan

Abstract: Abstract Although beta’s cash-flow and discount-rate components are conceptually distinct, the empirical boundary between cash-flow beta and discount-rate beta is far from clear-cut. To facilitate the interpretation of these components of systematic risk, this chapter introduces the distinction between epistemic risk and aleatory uncertainty. This conceptual dichotomy originates in economic work by Frank Knight and John Maynard Keynes and reflects principles of uncertainty in physics. It prominently in evaluations of cash-flow and discount-rate information. A special case of uncertainty, information uncertainty, is readily adapted for the interpretation of economic data that has ambiguous implications for individual firms, capital markets, and the broader economy. Although information uncertainty is compatible with behavioral interpretations of investor reactions to ambiguity, it is equally consistent with theories of rational learning.

Keywords: Frank Knight; Aleatory Uncertainty; Safety-first Criterion; Varying Risk Premia; riskRisk (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (28)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:pal:qpochp:978-3-319-63465-4_10

Ordering information: This item can be ordered from
http://www.palgrave.com/9783319634654

DOI: 10.1007/978-3-319-63465-4_10

Access Statistics for this chapter

More chapters in Quantitative Perspectives on Behavioral Economics and Finance from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().