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Decision-making under radical uncertainty: An interpretation of Keynes' treatise

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  • Marsay, David

Abstract

Keynes' mathematical Treatise addresses what some call "radical uncertainty", which he thought endemic in world affairs and whose appreciation underpinned much of his later work. In contrast, the mainstream view in economics, as elsewhere, has been that even if radical uncertainty exists, either there is in principle nothing that can ever be done about it, or that even if one could in theory do something about it then the institutions required would be unreliable, and one would be better off without them. Thus the mainstream has worked as if it were realistic to ignore even the possibility of radical uncertainty. But one needs some conceptualisation of radical uncertainty, such as Keynes', before one can make such judgments. This paper presents an interpretation, to inform debate. The viewpoint taken here is mathematical, but this is not to deny the value of other views.

Suggested Citation

  • Marsay, David, 2016. "Decision-making under radical uncertainty: An interpretation of Keynes' treatise," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 10, pages 1-31.
  • Handle: RePEc:zbw:ifweej:20161
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    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2016-1
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    File URL: https://www.econstor.eu/bitstream/10419/125926/1/84573833X.pdf
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    References listed on IDEAS

    as
    1. Fair, Ray C., 2014. "How might a central bank report uncertainty?," Economics Discussion Papers 2014-25, Kiel Institute for the World Economy (IfW).
    2. Bray, Margaret, 1982. "Learning, estimation, and the stability of rational expectations," Journal of Economic Theory, Elsevier, vol. 26(2), pages 318-339, April.
    3. Elisabetta De Antoni, 2010. "Minsky, Keynes, and Financial Instability," International Journal of Political Economy, Taylor & Francis Journals, vol. 39(2), pages 10-25.
    4. Fair, Ray C., 2014. "How might a central bank report uncertainty?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 8, pages 1-22.
    5. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, Oxford University Press, vol. 75(4), pages 643-669.
    6. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 69(1), pages 99-118.
    7. Dreger, Christian & Kholodilin, Konstantin A., 2013. "An early warning system to predict speculative house price bubbles," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 7, pages 1-26.
    8. Frydman, Roman & Goldberg, Michael D. & Mangee, Nicholas, 2015. "Knightian uncertainty and stock-price movements: Why the REH present-value model failed empirically," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 9, pages 1-50.
    9. Ramsey, Frank P., 1926. "Truth and Probability," Histoy of Economic Thought Chapters,in: Braithwaite, R. B. (ed.), The Foundations of Mathematics and other Logical Essays, chapter 7, pages 156-198 McMaster University Archive for the History of Economic Thought.
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    More about this item

    Keywords

    mathematical models; equilibrium conditions; stability conditions; evolutionary games; policy; regulation; crisis management;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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