Knight's uncertainty

from Wikipedia, the free encyclopedia

The concept of Knight'schen uncertainty goes to the economist Frank Knight back in the uncertainty ( uncertainty ) between the measurable risk ( risk ) and the actual uncertainty ( fundamental uncertainty , even ambiguity is different). The latter cannot be foreseen by a probability distribution or calculated in any other way (“not calculable”). If one assumes that most probabilities can only be estimated subjectively and not measured objectively anyway, the distinction between uncertainty and risk becomes less sharp; However, uncertainty can still be meaningfully interpreted as the degree of subjective conviction of the correctness of an estimation of the probability of an event occurring ( estimation of estimation ). Jan Pieter Krahnen , Peter Ockenfels and Christian Wilde showed with an experimental attitude study that aversion to ambiguity is in many cases greater than aversion to known risks.

Real meaning of the concept

Although Knight's uncertainty was never completely forgotten and was also mentioned by John Maynard Keynes - albeit without quoting Knight - it did not fit into the concept of an economy that relies on the mathematical formalization of discipline and the calculation of seemingly precise probabilities on the basis of past-related probabilities Data was interested. Only after the financial crisis in 2008 , but also because of the increasing number of unforeseen central bank interventions or changes of government that brought about tax changes, regulatory interventions, structural breaks or trade crises , the term is used more widely again. Modern political populism and its consequences (e.g. Brexit ) have given the concept renewed impetus. Stability and predictability of an economic situation are now generally assumed to be 6 to 12 months; this is considerably lower than before 2008 and significantly reduces the company's ability to plan. In view of the poor predictability of the environmental factors, today it is more a question of identifying early indicators and trends that point to discontinuities in developments that have hitherto been more or less linear. For corporate management theory , this means that intuition and the ability to quickly take advantage of unforeseen opportunities can play a greater role than exact long-term planning. This also makes Knight interesting as a theorist of entrepreneurship .

Further development

Keynes points out that only liquidity hedging ( hedge provides) of fundamental uncertainty that following his performance as uncertainty Keynesian is called: If investors are their expectations of future income from the investment are not sure they are long-term investments avoid. Ricardo Caballero of the Massachusetts Institute of Technology points out that a particular shock situation arises when financial investors discover that the risks they are taking are in fact Knight's uncertainty. Then set in a panicked flight into the very safest investment opportunities, which makes risk assessments for the other asset classes obsolete. In a study, economists from the University of Chicago show that the very slow recovery phase after the severe crisis in 2008 was due to Knight's uncertainty due to incalculable political interventions. For the theory of economic policy, this results in the need to focus more on not only microeconomic but also systemic risks ( macroprudential regulation ). Robert Higgs of the Mises Institute in Auburn, Alabama uses the term regime uncertainty for the politically induced uncertainty .

literature

Individual evidence

  1. ^ F. Knight: Risk, Uncertainty, and Profit . Mifflin, Boston, New York 1921.
  2. ^ Project communication from the Center for Financial Studies
  3. ↑ In Chapter 12 of his 1936 work The General Theory of Employment, Interest and Money . Palgrave Macmillan, Basingstoke 1936.
  4. ^ R. Caballero, A. Krishnamurthy: Knightian Uncertainty and Its Implications for the TARP. Financial Times Economists' Forum, November 24, 2008.
  5. ↑ S. Baker, N. Bloom, S. Davis: Measuring Economic Policy Uncertainty. Working Paper No. 13-02. University of Chicago, Booth School of Business 2013.
  6. ^ P. Clement: The term "macroprudential": Origins and evolution. BIS Quarterly Review, March 2010.
  7. ^ R. Higgs: Regime Uncertainty. Independent Review 1 (1997) 4, pp. 561-590.