Post Keynesian approaches to uncertainty

15 December, 2013 at 19:52 | Posted in Theory of Science & Methodology | 1 Comment

4273570080_b188a92980Two Post-Keynesian approaches to the nature and source of uncertainty and irreducible uncertainty have been considered, each with significantly different foundations and conclusions. The Human Abilities/Characteristics approach, related to epistemological uncertainty, has its primary foundations in human ignorance and inability; in Keynes’s case, the foundations lie in his logical interpretation of probability and his economic theorising from 1936 onwards. The Ergodic/Non-ergodic approach, related to ontological uncertainty, has its primary foundations in an ontological theory of the investigated world based on the presence or absence of ergodicity, as well as in Knight’s and Shackle’s reflections on probability, risk and uncertainty.

For some purposes, these differences may not matter. All of Keynes’s revolutionary contributions that rely on irreducible uncertainty are (apparently) unaffected – the principle of effective demand, suboptimal equilibria, non-neutral money, liquidity preference, state policy action and so on. And in relation to Post-Keynesian model building, irreducible uncertainty can still enter as an exogenous factor influencing a range of variables, with its deeper origins being of no particular relevance to such exercises.

For other purposes, however, the differences do matter. One reason concerns the history of ideas or, more narrowly, of economic thought, where the origins, nature and development of concepts are of central importance. Paramount here are the contributions and conceptual frameworks of Keynes, along with those of Knight, Shackle and the ergodicity theorists. A second is the need to have reasonably good understandings of these approaches before sensibly probing and evaluating them in relation to the further development of Post-Keynesianism – should one continue with more or less unchanged conceptions, modify these conceptions, or radically re-theorise them with a new approach? … A third relates to clarity of thought – unambiguous and reasonable meanings of terms (knowledge and uncertainty, for example), and the avoidance of any oversimplified dichotomies, are important in discussion and theorising. Finally, there are questions concerning deeper foundations, which relate not only to a range of methodological, philosophical and interdisciplinary issues, but also to the characterisation of a school of thought and its differences from other schools. In summarising Post-Keynesianism, explaining its key tenets, debating with orthodoxy, and even arguing over its own membership, Post-Keynesians need a set of adequate foundational concepts in which to theorise and discuss it.

Rod O’Donnell

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  1. “Whereas ergodic domains generate probabilities, knowledge, risk and predictability, it is only nonergodic domains that generate uncertainty.”

    When one tosses a coin, the next outcome is certain or uncertain? The only certainty is that there will be an outcome but not about the event itself.

    Economic policy is about the next outcome, not about an ensemble of outcomes. While probability can be considered to be knowledge, IMO this is a red herring. The real distinction is not between probability and uncertainty but between probability and randomness. I wrote something about this within the constraints of my epistemology a few days ago

    If the world is inherently random but manifests itself as probabilistic, then there can be no effective economic policy. Uncertainty plays no role in it because the outcome of all processes, ergodic or non-ergodic is uncertain by virtue of lacking knowledge of initial condition.

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