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Radical Uncertainty, Dynamic Competition and a Model of the Business Cycle

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  • Fusari, Angelo

Abstract

The influence of radical uncertainty and expectations on economic behaviour is indisputable, whether on entrepreneurship, innovation, investment, or the behaviour that contributes to the business cycle. It is rather surprising, therefore, to see widespread ambiguities in accounts of this crucial aspect of business life and, indeed, human existence. In particular, the frequent assumption ex hypothesis that radical uncertainty is non-measurable and non-explainable constitutes a major misunderstanding that obstructs the analysis of economic growth and development and, more generally, the study of economic dynamics. This essay first of all underlines the conceptual difference between uncertainty and expectations. It then establishes the possibility and delineates a method of measuring true or radical uncertainty by means of the monthly EU business tendency surveys. This method allows the derivation from these surveys of both more and better information than they at present provide, and also some indicators that are relevant mainly in an evolutionary perspective. In order to obtain a deeper understanding of such procedures, some applications have been carried out. A model of dynamic competition and the business cycle centred on the relation between innovation and uncertainty is then specified and tested using a FIML estimator.

Suggested Citation

  • Fusari, Angelo, 2013. "Radical Uncertainty, Dynamic Competition and a Model of the Business Cycle," MPRA Paper 74015, University Library of Munich, Germany, revised Mar 2013.
    • Handle: RePEc:pra:mprapa:74015
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    1. Fusari, Angelo, 2014. "An Explanation of Economic Change and Development," MPRA Paper 60042, University Library of Munich, Germany, revised 2014.
    2. Fusari, Angelo, 2014. "The Contrast between Mainstream and Heterodox Economics: A Misleading Controversy—“Necessary” System versus “Natural” System," MPRA Paper 60097, University Library of Munich, Germany, revised Jul 2014.

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    More about this item

    Keywords

    business tendency surveys; uncertainty; business cycle; innovation; simultaneous estimation;
    All these keywords.

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • A10 - General Economics and Teaching - - General Economics - - - General
    • E0 - Macroeconomics and Monetary Economics - - General
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • P0 - Political Economy and Comparative Economic Systems - - General

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