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Knight on Risk and Uncertainty

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  • LeRoy, Stephen F
  • Singell, Larry D, Jr

Abstract

It is argued that the received interpretation of Frank Knight's_(1921) classic risk-uncertainty distinction-as concerning whether or not agents have subjective probabilities-constitutes a misreading of Knight. On the contrary, Knight shared the modern view that agents can be assumed always to act as if they have subjective probabilities. The authors document their contention that by uncert ainty Knight instead meant situations in which insurance markets collapse because of moral hazard or adverse selection. Knight's discussion of market failure, a lthough always informal and in placesinaccurate, was in many respects a remarka ble anticipation of the modern literature. Copyright 1987 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 95 (1987)
Issue (Month): 2 (April)
Pages: 394-406

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Handle: RePEc:ucp:jpolec:v:95:y:1987:i:2:p:394-406

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Web page: http://www.journals.uchicago.edu/JPE/

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Cited by:
  1. David M. Bruner, 2009. "Changing the Probability versus Changing the Reward," Working Papers 09-04, Department of Economics, Appalachian State University.
  2. Maitreesh Ghatak & Massimo Morelli & Tomas Sjoström, 2001. "Credit rationing, wealth inequality, and allocation of talent," ICER Working Papers - Applied Mathematics Series 23-2001, ICER - International Centre for Economic Research.
  3. Wojciech Olszewski & Alvaro Sandroni, 2008. "Manipulability of Future-Independent Tests," Econometrica, Econometric Society, vol. 76(6), pages 1437-1466, November.
  4. Velamuri, Rama & Venkataraman, Sankaran, 2005. "Why stakeholder and stockholder theories are not necessarily contradictory: A knightian insight," IESE Research Papers D/591, IESE Business School.
  5. Baochun Peng, 2000. "How Well Does the Market Allocate Entrepreneurs?," CRIEFF Discussion Papers 0025, Centre for Research into Industry, Enterprise, Finance and the Firm.
  6. Peter R. Mueser & Donald Granberg, 1999. "The Monty Hall Dilemma Revisited: Understanding the Interaction of Problem Definition and Decision Making," Experimental 9906001, EconWPA.
  7. Eliasson, Gunnar, 2005. "The nature of economic change and management in a new knowledge based information economy," Information Economics and Policy, Elsevier, vol. 17(4), pages 428-456, October.
  8. Baochun Peng, 2000. "Is Entrepreneurship Always Good for Growth?," CRIEFF Discussion Papers 0024, Centre for Research into Industry, Enterprise, Finance and the Firm.
  9. Vriend, Nicolaas J., 1996. "Rational behavior and economic theory," Journal of Economic Behavior & Organization, Elsevier, vol. 29(2), pages 263-285, March.
  10. Macauley, Molly, 2006. "Some Issues at the Forefront of Public Policy for Environmental Risk," Discussion Papers dp-06-01, Resources For the Future.
  11. Silvia Magri, 2009. "The financing of small entrepreneurs in Italy," Annals of Finance, Springer, vol. 5(3), pages 397-419, June.
  12. Steiner, Philippe, 1997. "La théorie de l’entrepreneur chez Jean-Baptiste Say et la tradition Cantillon-Knight," L'Actualité Economique, Société Canadienne de Science Economique, vol. 73(4), pages 611-627, décembre.
  13. Al-Najjar, Nabil I. & Weinstein, Jonathan, 2013. "A Bayesian Model of Knightian Uncertainty," Economics Series 300, Institute for Advanced Studies.
  14. Pelloni, Gianluigi, 1996. "De Finetti, Friedman, and the methodology of positive economics," Journal of Econometrics, Elsevier, vol. 75(1), pages 33-50, November.
  15. Alvaro Sandroni & Wojciech Olszewski, 2008. "Falsifiability," PIER Working Paper Archive 08-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  16. Grijalva, Therese & Berrens, Robert P. & Shaw, W. Douglass, 2011. "Species preservation versus development: An experimental investigation under uncertainty," Ecological Economics, Elsevier, vol. 70(5), pages 995-1005, March.
  17. Burke, Andrew E & FitzRoy, Felix R & Nolan, Michael A, 2000. " When Less Is More: Distinguishing between Entrepreneurial Choice and Performance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(5), pages 565-87, December.
  18. Adam Cagliarini & Alexandra Heath, 2000. "Monetary Policy-making in the Presence of Knightian Uncertainty," RBA Research Discussion Papers rdp2000-10, Reserve Bank of Australia.
  19. Baochun Peng, 2000. "Is Entrepreneurship Always Good for Growth?," Econometric Society World Congress 2000 Contributed Papers 0435, Econometric Society.
  20. Haley, Usha C. V., 2003. "Assessing and controlling business risks in China," Journal of International Management, Elsevier, vol. 9(3), pages 237-252.

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