Uncertainty-Denial

The uncertainty which has characterised the financial crisis has encouraged renewed attention to uncertainty in economics. Yet, not only is uncertainty seen as unpalatable in financial markets and economic life more generally, it also poses challenges for economists to the extent that uncertainty is absent from most of mainstream theory. The purpose of this paper is to consider the reasons for this in terms of attitudes to uncertainty and the coping mechanisms which society develops to deal with uncertainty. The causes, nature and consequences of uncertainty are therefore reviewed, both in the economy and among economists. This is followed by a review of mechanisms for bringing order to uncertainty. It is argued that the coping mechanism of uncertainty-denial can be counterproductive where it arises from a closed-system understanding of uncertainty as being exogenous and inevitably anathema. But an open-system understanding sees uncertainty as more integral to economic life. Further it allows for uncertainty which, as the counterpart of creativity, can be seen in some circumstances in a positive light. It is concluded that economists could profitably consider embracing uncertainty by tailoring our methodologies and theories to address uncertainty. In this way we can tailor policy to reducing uncertainty in the economy and also reduce our own uncertainty