IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/74015.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/74015/1/MPRA_paper_74015.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Paul Davidson, 1991. "A Technical Definition of Uncertainty and the Long-run Non-neutrality of Money," Palgrave Macmillan Books, in: Louise Davidson (ed.), Inflation, Open Economies and Resources, chapter 15, pages 159-170, Palgrave Macmillan.
    2. Fusari, Angelo, 2010. "Economic theory and social change: problems and revisions," MPRA Paper 23974, University Library of Munich, Germany.
    3. Angelo Fusari, 2005. "A model of the innovation-adaptation mechanism driving economic dynamics: a micro representation," Journal of Evolutionary Economics, Springer, vol. 15(3), pages 297-333, August.
    4. J. M. Keynes, 1937. "The General Theory of Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 51(2), pages 209-223.
    5. Lawson, Tony, 1985. "Uncertainty and Economic Analysis," Economic Journal, Royal Economic Society, vol. 95(380), pages 909-927, December.
    6. Fusari, Angelo & Pellissier, Murray, 2008. "Some new indicators and procedure to get additional information from the Business Tendency Surveys," MPRA Paper 75170, University Library of Munich, Germany, revised Oct 2008.
    7. Ulph, A. & Ulph, D., 1994. "The irreversibility effect revisited," Discussion Paper Series In Economics And Econometrics 9408, Economics Division, School of Social Sciences, University of Southampton.
    8. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-1148, September.
    9. Runde, Jochen, 1998. "Clarifying Frank Knight's Discussion of the Meaning of Risk and Uncertainty," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 22(5), pages 539-546, September.
    10. Zvi Griliches, 1998. "Patent Statistics as Economic Indicators: A Survey," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 287-343, National Bureau of Economic Research, Inc.
    11. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    12. Paul Davidson, 1994. "Post Keynesian Macroeconomic Theory," Books, Edward Elgar Publishing, number 124.
    13. repec:fth:harver:1473 is not listed on IDEAS
    14. Sheila C. Dow & John Hillard (ed.), 1995. "Keynes, Knowledge And Uncertainty," Books, Edward Elgar Publishing, number 148.
    15. John C. Harsanyi, 1967. "Games with Incomplete Information Played by "Bayesian" Players, I-III Part I. The Basic Model," Management Science, INFORMS, vol. 14(3), pages 159-182, November.
    16. Fusari, Angelo, 1994. "Paths of economic development: modelling factors of endogenous growth," MPRA Paper 75165, University Library of Munich, Germany, revised 1994.
    17. Morroni,Mario, 2006. "Knowledge, Scale and Transactions in the Theory of the Firm," Cambridge Books, Cambridge University Press, number 9780521862431, September.
    18. Geoffrey M. Hodgson, 1999. "Evolution and Institutions," Books, Edward Elgar Publishing, number 1481.
    19. Machina, Mark J, 1982. ""Expected Utility" Analysis without the Independence Axiom," Econometrica, Econometric Society, vol. 50(2), pages 277-323, March.
    20. Pier Saviotti & Andreas Pyka, 2004. "Economic development by the creation of new sectors," Journal of Evolutionary Economics, Springer, vol. 14(1), pages 1-35, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fusari, Angelo, 2016. "A New Economics for Modern Dynamic Economies," MPRA Paper 74008, University Library of Munich, Germany, revised 2016.
    2. Fusari, Angelo, 2015. "The question of the firm. Organizational forms and dimensions," MPRA Paper 74177, University Library of Munich, Germany, revised 2015.
    3. Engelbert Stockhammer & Lucas Grafl, 2010. "Financial Uncertainty and Business Investment," Review of Political Economy, Taylor & Francis Journals, vol. 22(4), pages 551-568.
    4. David Dequech, 2008. "Varieties of uncertainty: a survey of the economic literature," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807211223070, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    5. Fusari, Angelo, 2014. "An Explanation of Economic Change and Development," MPRA Paper 60042, University Library of Munich, Germany, revised 2014.
    6. Fusari, Angelo & Reati, Angelo, 2013. "Endogenizing technical change: Uncertainty, profits, entrepreneurship. A long-term view of sectoral dynamics," Structural Change and Economic Dynamics, Elsevier, vol. 24(C), pages 76-100.
    7. Piero Ferri & Anna Maria Variato, 2007. "Macro Dynamics in a Model with Uncertainty," Working Papers (-2012) 0704, University of Bergamo, Department of Economics.
    8. Fontana, Giuseppe & Gerrard, Bill, 2004. "A Post Keynesian theory of decision making under uncertainty," Journal of Economic Psychology, Elsevier, vol. 25(5), pages 619-637, October.
    9. Bélyácz, Iván, 2013. "Várakozások, bizonytalanság, valószínűség. Értekezés a kockázat számszerűsítésének korlátairól [Expectations, uncertainty and probability. An assessment of the limits to the quantification of risk]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 749-780.
    10. Delli Gatti,Domenico & Fagiolo,Giorgio & Gallegati,Mauro & Richiardi,Matteo & Russo,Alberto (ed.), 2018. "Agent-Based Models in Economics," Cambridge Books, Cambridge University Press, number 9781108400046, September.
    11. Marcello Basili & Carlo Zappia, 2018. "Ellsberg’s Decision Rules and Keynes’s Long-Term Expectations," Department of Economics University of Siena 777, Department of Economics, University of Siena.
    12. Michelle Baddeley, 2017. "Keynes’ psychology and behavioural macroeconomics: Theory and policy," The Economic and Labour Relations Review, , vol. 28(2), pages 177-196, June.
    13. Carlo Zappia, 2012. "Re-reading Keynes after the crisis: probability and decision," Department of Economics University of Siena 646, Department of Economics, University of Siena.
    14. David Dillenberger, 2008. "Preferences for One-Shot Resolution of Uncertainty and Allais-Type Behavior," PIER Working Paper Archive 08-036, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    15. Marcello Basili & Carlo Zappia, 2010. "Ambiguity and uncertainty in Ellsberg and Shackle," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 34(3), pages 449-474.
    16. Eckhard Hein, 2017. "Post-Keynesian macroeconomics since the mid 1990s: main developments," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 14(2), pages 131-172, September.
    17. Nathalie Moureau & Dorothée Rivaud Danset, 2004. "L'incertitude dans les théories économiques," Post-Print hal-03995208, HAL.
    18. Jan Toporowski, 2013. "The Elgar Companion to Hyman Minsky," Review of Political Economy, Taylor & Francis Journals, vol. 25(1), pages 175-177, January.
    19. Dillenberger, David, 2008. "Preferences for One-Shot Resolution of Uncertainty and Allais-Type Behavior," MPRA Paper 8342, University Library of Munich, Germany.
    20. Basili, Marcello & Zappia, Carlo, 2009. "Keynes's "non-numerical" probabilities and non-additive measures," Journal of Economic Psychology, Elsevier, vol. 30(3), pages 419-430, June.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:74015. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.