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J. M. Keynes on probability versus F. H. Knight on uncertainty: reflections on the miracle year of 1921

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  • Yasuhiro Sakai

    (Shiga University)

Abstract

The purpose of this paper is to discuss and compare the two giants in the history of economic thought, J. M. Keynes and F. H. Knight, with special reference to risk, probability, and uncertainty. It is in 1921 that both of them published apparently similar books on the economics of risk and uncertainty. While Knight’s contribution on risk and uncertainty is now well recognized, Keynes’ accomplishments on probability and uncertainty have been rather ignored in the shadow of his most famous book The General Theory of Employment, Interest and Money (1936). This paper aims to focus on his earlier yet equally important book A Treatise on Probability (1921), and shed a new light on his outstanding ideas and everlasting influences on his later work including The General Theory. It is really interesting to see how Keynes’s concept of probability and uncertainty can be compared to Knight’s distinction between a measurable risk and a non-measurable uncertainty. This paper also contains some new materials such as J. R. Hicks on decision and probability, thus intensively discussing how he has been influenced by the two predecessors, Keynes and Knight.

Suggested Citation

  • Yasuhiro Sakai, 2016. "J. M. Keynes on probability versus F. H. Knight on uncertainty: reflections on the miracle year of 1921," Evolutionary and Institutional Economics Review, Springer, vol. 13(1), pages 1-21, June.
    • Handle: RePEc:spr:eaiere:v:13:y:2016:i:1:d:10.1007_s40844-016-0039-0
    DOI: 10.1007/s40844-016-0039-0
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    References listed on IDEAS

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    1. 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.
    2. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
    3. 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..
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    Citations

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    Cited by:

    1. Yasuhiro Sakai, 2019. "Daniel Ellsberg on J.M. Keynes and F.H. Knight: risk ambiguity and uncertainty," Evolutionary and Institutional Economics Review, Springer, vol. 16(1), pages 1-18, June.
    2. Katarzyna Boratyńska, 2021. "A New Approach for Risk of Corporate Bankruptcy Assessment during the COVID-19 Pandemic," JRFM, MDPI, vol. 14(12), pages 1-14, December.
    3. Yasuhiro Sakai, 2016. "Liverpool Merchants versus Ohmi Merchants:How and Why They Dealt with Risk and Insurance Differently," Discussion Papers CRR Discussion Paper Series A: General 19, Shiga University, Faculty of Economics,Center for Risk Research.
    4. Yasuhiro Sakai, 2018. "Liverpool merchants versus Ohmi merchants: how and why they dealt with risk and insurance differently," Asia-Pacific Journal of Regional Science, Springer, vol. 2(1), pages 15-33, April.
    5. Yasuhiro Sakai, 2020. "From general equilibrium theory to the economics of uncertainty: a personal perspective," Evolutionary and Institutional Economics Review, Springer, vol. 17(1), pages 133-143, January.

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    More about this item

    Keywords

    J. M. Keynes; F. H. Knight; J. R. Hicks; Risk; Probability; Uncertainty;
    All these keywords.

    JEL classification:

    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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