Information, Decisions and Uncertainty
Mainstream perspectives involving uncertainty presume that expectations are
based on either (i) a statistical analysis of past data, with market signals
providing information about immutable objective probabilities, or (ii) a subjective
perception of these probabilities founded on the axioms of expected
utility theory. In the mainstream perspective on uncertainty, probabilistic risk
and uncertainty are synonymous.
Post Keynesians (Davidson, 1978, 1982–3) have developed a different
perspective about uncertainty, where probability distributions are not the
basis for comprehending real-world behaviour under uncertainty. According
to this analysis, there are many important situations where ‘true’ uncertainty
exists regarding future consequences of today’s choices. In these cases of true
uncertainty, today’s decision makers believe that no expenditure of current
resources can provide reliable statistical or intuitive clues regarding future
prospects. In terms of the theory of stochastic processes, such an uncertain
future would be the result of a non-ergodic stochastic system that makes
predicting future outcomes on the basis of past or current probability distributions
obtained from market data unreliable.
Given this Post Keynesian perspective on uncertainty, decision makers
may, in an uncertain environment, either avoid choosing between alternatives
because they ‘haven’t got a clue’ about the future, or follow their ‘animal
spirits’ for positive action in a ‘damn the torpedoes, full speed ahead’ approach.
This perspective on uncertainty provides a more general theory
explaining long-run decisions regarding liquidity demands and investment
decisions, the existence of long-period underemployment equilibrium, the
long-run non-neutrality of money, and the unique and important role Keynes
assigned to nominal contracts and especially the money-wage contract.
Mainstream perspectives involving uncertainty presume that expectations are
based on either (i) a statistical analysis of past data, with market signals
providing information about immutable objective probabilities, or (ii) a subjective
perception of these probabilities founded on the axioms of expected
utility theory. In the mainstream perspective on uncertainty, probabilistic risk
and uncertainty are synonymous.
Post Keynesians (Davidson, 1978, 1982–3) have developed a different
perspective about uncertainty, where probability distributions are not the
basis for comprehending real-world behaviour under uncertainty. According
to this analysis, there are many important situations where ‘true’ uncertainty
exists regarding future consequences of today’s choices. In these cases of true
uncertainty, today’s decision makers believe that no expenditure of current
resources can provide reliable statistical or intuitive clues regarding future
prospects. In terms of the theory of stochastic processes, such an uncertain
future would be the result of a non-ergodic stochastic system that makes
predicting future outcomes on the basis of past or current probability distributions
obtained from market data unreliable.
Given this Post Keynesian perspective on uncertainty, decision makers
may, in an uncertain environment, either avoid choosing between alternatives
because they ‘haven’t got a clue’ about the future, or follow their ‘animal
spirits’ for positive action in a ‘damn the torpedoes, full speed ahead’ approach.
This perspective on uncertainty provides a more general theory
explaining long-run decisions regarding liquidity demands and investment
decisions, the existence of long-period underemployment equilibrium, the
long-run non-neutrality of money, and the unique and important role Keynes
assigned to nominal contracts and especially the money-wage contract.
No comments:
Post a Comment