Rethinking uncertainty

Uncertainty inescapably affects all economic decisions and actions. Core neoclassical theory does not, and cannot, treat uncertainty seriously, because its constrained maximization requires the reduction of all uncertainties to different forms of perfect knowledge. Other economic schools do take uncertainty seriously, however, giving it independent, determining roles rather than eliminating it by assumptions. The treatment of uncertainty in four schools is discussed – the deficient neoclassical approach, followed by the better approaches of post-Keynesian, Austrian and institutionalist economics, all of which link economic theorizing to key features of reality, so embracing uncertainty instead of ignoring or trivializing it.