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Risk, Uncertainty and Profit
Abstract
Examines the role played by true uncertainty, defined as the possibility of alternative outcomes whose probabilities are not capable of measurement, in an economic system, and distinguishes uncertainty from risk. Classical economic theory teaches that perfect competition ought to drive an economy into equilibrium and eliminate opportunities for economic profit. Nevertheless, economic profit persists in the real world. The introductory sections of the book provide a historical and critical review of early attempts to reconcile theory and observation. Then, beginning with a simplified model economy of individuals as producers-and-consumers, the author derives familiar features of static economics. The model goes through further refinements of joint production, and changes with uncertainty absent with similar results. The final model is one that demonstrates how perfect competition tends to eliminate profit. The author then takes up the question of how risk and uncertainty may upset the equilibrium. Risk is the possibility of alternative outcomes whose probabilities are capable of measurement; uncertainty is the possibility of alternative outcome whose probabilities are not capable of measurement. When probabilities are known, adverse outcomes may be insured against. Uncertainty is handled by judgment, an unequally distributed ability. The successful entrepreneur is one who has the sound judgment, either in the direction of the enterprise itself or in the selection of its managers (as shareholders do). The recompense for this talent is profit. (CAR)
... Essentially, this pertains to an alternative to the Homo oeconomicus, who optimizes with Olympic rationality. If one considers genuine uncertainty (Knight 1921) as a characteristic of innovations, the use of typical neoclassical assumptions, such as perfect foresight, profit maximization, and the resulting equilibrium concept, is prohibited. The actors become, as Kurt Dopfer (2004) has formulated it, the Homo sapiens oeconomicus, with the consequence that error-prone search and learning processes become possible. ...
... In this context, the space for innovation and creative action is only opened up by explicitly including the factor of uncertainty and the derived, only limited, abilities of the actors. The necessary consideration of real uncertainty (Knight 1921) represents from an evolutionary economic perspective the decisive difference. Innovations are genuinely uncertain: If their result was already known in advance, one could no longer speak of innovations. ...
... Decision-making is a complex process influenced by many factors, one of which is the degree of knowledge of the probabilities of the results for all the alternatives of a decision. When they are known, the individual acts in conditions of risk, and when they cannot be known, decisions are made in conditions of uncertainty (Knight, 2014). Most decisions are made under uncertainty, and the application of Bayesian statistical rules in these situations does not provide the desired results. ...
... In the everyday world, outside the laboratory, we always have to choose between risky and uncertain problems (Volz & Gigerenzer, 2012). This distinction was first made by Knight (2014) and introduced into psychological thinking by Edwards (1954). When deciding under conditions of risk, the probability associated with the possible result is known, and in the case of decisions under conditions of uncertainty (the term is sometimes used for ambiguity), these probabilities are unknown. ...
This study explores the possibility of using anchoring biases to change the risk-taking behavior assessed by the Balloon Analogue Risk Task (BART). The study involved 90 military aviators who participated in a United Nations-led peacekeeping mission. We used an experimental design in which participants performed BART tasks distributed differently in the experimental groups to change the risk-taking behavior. After three stages, our results showed that the values of the indicator measuring risk-taking behavior were reduced in the low-anchor experimental group when operating in conditions of uncertainty. This indicator is influenced, in risk conditions, by both motor impulsivity and anchoring bias. Impulsivity is moderately associated with risk-taking behavior. The results also show that Big Five personality factors are not significantly associated with risk-taking behavior. In conclusion, these results confirm the role of the anchoring mechanism in changing risk-taking behavior and verify the strong relationship between impulsivity and risk behavior when individuals act in risky conditions.
... Bu dəyişikliklər, xərclərin azaldılması, miqyas iqtisadiyyatı və daha güclü bazar payı əldə etmək məqsədilə həyata keçirilir. Bu tendensiya aviasiya holdinqlərinin yaranmasının əsas səbəblərindəndir (Knight, 1921). ...
... Onun fikrincə, aviasiya holdinqləri müxtəlif aviasiya şirkətlərini bir dam altında birləşdirərək, sinergik effekt yaratmaqla əməliyyat xərclərini azaltmağa və yüksək iqtisadi səmərəliliyi təmin etməyə qadirdir. O qeyd edir ki, bu proses "aşağı qiymətli" aviasiya modeli ilə paralel həyata keçirilərsə, xüsusilə uğurlu olar (Knight, 1921). ...
... Desde una perspectiva teórica, la incertidumbre empresarial se ha abordado desde diversas disciplinas, incluyendo la economía, la teoría de la decisión, la gestión estratégica y la psicología organizacional. En la economía, el autor Knight, F.H. (1921) han distinguido entre riesgo (situaciones en las que se pueden calcular probabilidades) e incertidumbre (situaciones en las que las probabilidades son desconocidas). Esta distinción ha sido fundamental para comprender cómo las organizaciones toman decisiones en contextos de incertidumbre. ...
... Desde una perspectiva teórica, el concepto de incertidumbre empresarial se ha convertido en un tema de gran interés y estudio en diversas disciplinas, en la economía, la distinción fundamental entre riesgo, donde las probabilidades son conocidas, y la incertidumbre, donde las probabilidades son desconocidas, planteada por Knight (1921), ha sido esencial para comprender cómo las organizaciones enfrentan situaciones de incertidumbre. Esta diferenciación proporciona una base sólida para abordar las decisiones empresariales en contextos impredecibles. ...
Business uncertainty is a constant concern in the realm of investment projects, especially in a global context where change is the only constant. This article examines how four key variables—risk, budget, human resources, and regulatory framework—affect a company’s ability to adapt and thrive amidst uncertainty. Drawing on previous studies by authors such as Wright, Goodwin, Stewart, Montibeller, Schroeder, and Lambert, it analyzes how irrational emotions, described by Keynes as “animal spirits,” and highly improbable events, as argued by Taleb, contribute to business uncertainty. The gap between necessary and available information is highlighted, which can hinder strategic planning and long-term decision-making. Flexibility in strategic planning, as proposed by Drucker, is presented as a crucial response to this uncertainty. Furthermore, Lorenz and Mandelbrot’s chaos theory is explored to understand how uncertainty can lead to unpredictable outcomes. To address this uncertainty, organizations are argued to adopt strategic planning incorporating tools such as foresight and logistics. The article discusses how risk, budget, regulatory framework, and human resources can be affected by uncertainty, emphasizing the importance of managing these variables properly to minimize their negative impacts on investment projects. Ultimately, the article aims to deepen the understanding of the relationship between business uncertainty and these critical variables, offering strategies to enhance organization’s ability to achieve its business goals and objectives in an ever-changing business environment.
... Enterprises serve as the primary driver of technological innovation, which is essential for market adaptation, sustainable growth, and competitiveness. Knight (1921) suggests that enterprises emerge to manage uncertainty, inspiring subsequent enterprise theories, including team production theory, entrepreneurial value theory, and firm growth theory (Hart, 2011). Schumpeter (1934) analyzes the economic activities of enterprises from an innovation perspective, examining the impact of creative destruction on economic development. ...
... Schumpeter (1934) analyzes the economic activities of enterprises from an innovation perspective, examining the impact of creative destruction on economic development. Aligning with Knight (1921) and building on Schumpeter's (1934) innovation theory, the resource-based view of enterprises posits that the essence of a firm lies in the innovative resource integration (Wernerfelt, 1984). In other words, enterprises respond to uncertainty by developing new technologies or methods, delivering new value to the market (Lazonick, 2003). ...
This article constructs a climate policy uncertainty index for China through textual analysis of public media reports and examines its impact on corporate technological innovation, with a particular focus on the role of environmental, social, and governance (ESG) performance. Using data from A-share listed companies between 2014 and 2022, the findings indicate that increased climate policy uncertainty drives companies to invest more in technological innovation, with both patent output and green patents increasing. Furthermore, climate policy uncertainty encourages companies to enhance their ESG performance, which further facilitates technological advancement. This enhancement effect is particularly pronounced among low-tech, heavily polluting, and high-carbon enterprises. These findings suggest that policymakers should adopt proactive and targeted climate policies to strengthen guidance on corporate ESG transformation, promote technological innovation, and achieve sustainable development.
... In the complex real world where entrepreneurs are bringing new goods to market and are differentiating their products in ways that they hope consumers will prefer to previously existing products, they are making judgments regarding an uncertain future, as Foss and Klein (2012) have emphasized. They face genuine uncertainty, not just risk, to use Knight (1921) terminology. Entrepreneurs are doing something new, so they cannot know how their entrepreneurial innovations will be received based on past data. ...
... An innovation, by definition, is something that has never been carried out before, or at least never in exactly the same way." Entrepreneurs are acting under a condition of uncertainty, following Knight (1921), because one can never know the outcome of something that has not been tried before. Humans are able to do this because as conscious beings, they can not only visualize the world that is revealed to them by their senses but also imagine future states of the world that could exist. ...
A substantial interdisciplinary literature on consciousness considers what it means to be conscious and what are the distinguishing characteristics of conscious behavior. Economists have played almost no role in this literature, despite the fact that the economy operates as a result of the conscious decisions of producers and consumers. This paper explores implications from incorporating conscious behavior into the decisions of entrepreneurs on the nature of firms and the evolution of markets. It explains how small firms are able to build on innovations to gain market share, and why as firms grow larger, the bureaucratic oversight necessary to organize a large firm stifles innovation. As a result, over time firms tend to stagnate and are displaced by rising competitors.
... In this sense firm or farm enterprise emerges to minimise transaction costs or to reduce market or exchange uncertainty(Knight, 1921), it merges as a device to coordinate or exploit the worker(Marglin, 1974) or it emerges as an organisational equilibrium of a bargaining process among corporate actors(Aoki, 1984). ...
... The concept of ambiguity was introduced by Knight (1921) as a crucial aspect of uncertainty measurement. Knight differentiates between uncertainties with known probability distributions, which he terms as risk, and those with unknown distributions, referred to as ambiguity 1 . ...
We consider singular control in inventory management under Knightian uncertainty, where decision makers have a smooth ambiguity preference over Gaussian-generated priors. We demonstrate that continuous-time smooth ambiguity is the infinitesimal limit of Kalman-Bucy filtering with recursive robust utility. Additionally, we prove that the cost function can be determined by solving forward-backward stochastic differential equations with quadratic growth. With a sufficient condition and utilising variational inequalities in a viscosity sense, we derive the value function and optimal control policy. By the change-of-coordinate technique, we transform the problem into two-dimensional singular control, offering insights into model learning and aligning with classical singular control free boundary problems. We numerically implement our theory using a Markov chain approximation, where inventory is modeled as cash management following an arithmetic Brownian motion. Our numerical results indicate that the continuation region can be divided into three key areas: (i) the target region; (ii) the region where it is optimal to learn and do nothing; and (iii) the region where control becomes predominant and learning should inactive. We demonstrate that ambiguity drives the decision maker to act earlier, leading to a smaller continuation region. This effect becomes more pronounced at the target region as the decision maker gains confidence from a longer learning period. However, these dynamics do not extend to the third region, where learning is excluded.
... Adam Smith"in iktisadi analizinde belirsizliğin önemli bir yeri olmasına rağmen, David Ricardo"yla birlikte iktisadın kendi içinde tutarlı ancak, aĢırı soyut, tümdengelimci bir yapıya dönüĢmesi (Alada, 1988;35), belirsizliğin ihmal edilmesine neden olmuĢtur. F. H. Knight, 1921 yılında yazdığı "Risk, Belirsizlik ve Kâr" isimli eserinde, risk ve belirsizliği birbirinden ayırmıĢtır. Knight"a göre risk; değiĢik giriĢimlerin, içerdiği risklere göre sınıflandırılmasına dayanan bir sigorta sistemi yardımıyla, bir dereceye kadar kontrol altında tutulabilecek bir unsurdur. ...
İktisadi teoride belirsizlik ve risk kavramları, bireylerin karar alma süreçlerini etkileyen temel unsurlar olarak değerlendirilmektedir. Geleneksel yaklaşımlar bireylerin her koşulda rasyonel davrandığını varsaysa da kriz dönemleri ve belirsizlik ortamlarında bu varsayım geçerliliğini kaybetmektedir. Bu çerçevede, bireylerin ekonomik kararlarının sadece mantıksal değil; aynı zamanda psikolojik ve duygusal faktörlerden de etkilendiği görülmektedir. Özellikle pandemi süreci, ekonomik aktörlerin davranışlarını yeniden şekillendirmiş; dijital varlıklara ve alternatif yatırım araçlarına olan ilgiyi artırmıştır. Çalışmanın amacı doğrultusunda, Türkiye’de Covid-19 süreciyle birlikte artan risk ve belirsizlik ortamının, kripto para piyasalarındaki talep üzerindeki etkisi analiz edilmiştir. Bu kapsamda, 2018-2022 yılları arasında aylık veriler kullanılarak ekonometrik bir model oluşturulmuş ve analizler VAR modeli çerçevesinde yürütülmüştür. Bağımlı değişken olarak kripto piyasalarındaki toplam talep hacmini temsil eden CRYPTOTLPHCM değişkeni seçilmiştir. Enflasyon oranı, CDS primi, ihtiyaç kredisi ve borçlanma düzeyi ile işsizlik oranı ise bağımsız değişkenler olarak modele dâhil edilmiştir. Serilerin durağanlığı Augmented Dickey Fuller (ADF) ve Phillips Perron (PP) testleri ile test edilmiş, otokorelasyon ve değişen varyans problemleri Standart En Küçük Kareler yöntemiyle kontrol edilmiştir. Değişkenler arası ilişki ve nedensellik yönü Granger Nedensellik Testi ile incelenmiştir. Analizler, EViews 10 programı aracılığıyla gerçekleştirilmiştir. Elde edilen bulgular, ekonomik belirsizliklerin kripto piyasalara yönelen talebi doğrudan etkilediğini ve karar alma süreçlerinde geleneksel finansal araçlara olan güvenin zayıflamasıyla dijital alternatiflerin öne çıktığını göstermektedir.
Anahtar Kelimeler: Makroekonomik Belirsizlik, Kripto Para Talebi, VAR Analizi.
... L'incertitude dans les environnements commerciaux actuels est exacerbée par des facteurs tels que la mondialisation, les crises économiques, et les avancées technologiques rapides (Knight, 1921). La mondialisation a intensifié la concurrence mondiale, introduisant une volatilité accrue des marchés et une complexité opérationnelle plus grande (Friedman, 2007). ...
En contexte turbulent et incertain marqué par la montée croissante de la notion de la transformation digitale. Dans un monde en perpétuelle mutation, les entreprises doivent réviser leurs méthodes de gestion pour rester performantes. Cette communication explore comment l'intelligence artificielle (IA) et le big data peuvent révolutionner le contrôle de gestion, les systèmes d'information et le management de la performance. Objectif : Adapter les pratiques de gestion des entreprises pour les rendre agiles et connectées grâce à l'IA et au big data. Méthodologie : Cette recherche est menée à travers une approche qualitative combinant entre une revue de littérature et des entretiens semi directifs. Résultats : L'IA permet l'automatisation des tâches et l'analyse des données pour une prise de décision éclairée ; Le big data enrichit les systèmes d'information en offrant une vue globale et en temps réel de l’activité ; Le management de la performance bénéficie d'une évaluation plus précise et individualisée grâce à ces technologies. Conclusion : L'intégration de l'IA et du big data dans les pratiques de gestion permet aux entreprises d’anticiper les changements, d'optimiser leurs ressources et de saisir les opportunités de croissance. Ces technologies offrent un potentiel considérable pour piloter la performance de manière proactive et agile dans un environnement incertain.
... In the extreme we may be unable to express a preference for one alternative. Indeed Knight (1921) in his work Risk, Uncertainty, and Profit characterised this as a situation of 'unmeasurable uncertainty' when making decisions in the real world, in comparison to the quantitative certainties of classical risk theory. ...
From it's origins system safety has had to deal with the challenges of complex, novel and disruptive technologies. This paper explores the inherent limitations of the classical formulation of risk and proposes a four-quadrant risk model to better manage the challenges of novel and disruptive technologies.
... (1) Lack of exposure to the world of entrepreneurship (Fayolle et al., 2006). (2) Lack of access to entrepreneurial practices (Neck & Greene, 2011); 3. Limited support from parents and the environment (Krueger et al., 2000); 4. Fear of risk and uncertainty (Knight, 1921). (5) The influence of technology that has not been optimally utilized (Budiman et al., 2023). ...
The purpose of this study is to investigate how entrepreneurship education influences Indonesian high school students' desire to start their own businesses and to determine the elements that encourage and inhibit this desire. The research sample consisted of 150 students randomly selected from one high school. The research employed a survey with a questionnaire, and the study's data were evaluated by multiple linear regression. The results showed that interest in entrepreneurship increased significantly through entrepreneurship education with a coefficient of 0.50 (p < 0.0001). Family support, practical experience, and positive attitudes towards risk that significantly influence the desire to start a business. with coefficients of 0.20, 0.30, and 0.15, respectively. The main inhibiting factors include lack of family support and practical experience while supporting factors include relevant curriculum and support from teachers. These findings are in line with the theory of planned behavior and experiential learning theory which emphasize the importance of practical education and social support.
... A relação entre desemprego e o trabalho por conta-própria tem encontrado evidência empírica contraditória que reflete a ambiguidade da relação no plano teórico. De Knight (1921) aos contemporâneos Blanchflower e Meyer (1994) e Evans e Jovanovic (1989), a teoria prevê que o aumento do desemprego leva ao crescimento do trabalho por conta-própria, porque o custo de oportunidade de iniciar uma empresa cai, quando há mais desemprego. ...
É de aceitação geral que o empreendedorismo desempenha um papel de grande relevância no crescimento e desenvolvimento econômico. Por tal importância, o assunto é discutido com frequência tanto no meio acadêmico como midiático, porém vários termos e questões permanecem vagos, carecendo de vigor descritivo. Assim, o presente artigo objetiva realizar uma discussão criteriosa acerca das diferenças entre trabalho informal e empreendedorismo, levantado literaturas que contraponha a visão mais generalista propagada pelos meios de informação mais influentes. Acompanhado dessa discussão teórica foi realizada regressão linear múltipla com objetivo verificar quais variáveis podem diminuir ou aumentar a atividade empreendedora. Foram estudados e comparados 52 países, com diferentes características, presentes nos estudos GEM. Se constatou a influência da taxa de desemprego e dos pilares da competitividade definidos pelo GCI (a saber: instituições, ambiente macroeconômico Ensino e treinamento superior, Desenvolvimento do Mercado, Prontidão tecnológica, Tamanho do mercado, Inovação) na promoção do empreendedorismo. Todos os pressupostos da pesquisa foram atendidos e as variáveis utilizadas no trabalho obtiveram um nível de significância razoável para o modelo proposto.
... Theories regarding how novelty could impact the valuation of physical reward come from emerging developments in machine learning, largely inspired by psychology, economics, and education research (Aubret et al., 2023;Berlyne, 1950Berlyne, , 1954Berlyne, , 1966Caplin & Dean, 2015;Caplin & Leahy, 2001;Cohen et al., 2007;Dubey & Griffiths, 2020;Gittins et al., 2011;Gottlieb et al., 2016;Gottlieb & Oudeyer, 2018;Hall & Smith, 1903;Jaegle et al., 2019;James, 1913James, , 1983Kahneman & Tversky, 1979;Knight, 1921;Kreitler et al., 1975;Kreps & Porteus, 1978;Modirshanechi, Kondrakiewicz, et al., 2023;Murayama et al., 2019;Poli et al., 2024;Smock & Holt, 1962). For example, artificial agents that endow novelty with value have a behavioral advantage in many foraging environments (Aubret et al., 2023;Bellemare et al., 2016;Burda et al., 2018;Gottlieb et al., 2016;Houillon et al., 2013;Jaegle et al., 2019;Kakade & Dayan, 2002; Y. Kim et al., 2019;Modirshanechi, Kondrakiewicz, et al., 2023;Modirshanechi, Lin, et al., 2023;Oudeyer et al., 2007;Poli et al., 2024;Savinov et al., 2019;Tang et al., 2017;H. ...
Perceptually novel objects have profound impacts on our daily decisions. People often pay to try novel meals over familiar ones, or to see novel visual scenes at art exhibits and travel destinations. This suggests that perceptual novelty and the value of physical rewards, such as food, interact at the level of neural circuits to guide decisions, but where and how is unknown. We designed a behavioral task to study this novelty-reward interaction in animals and to uncover its neural underpinnings. Subjects chose among familiar offers associated with different expectations of novel objects and different expectations of juice rewards. Expectation of novel objects increased the preference for expected rewards. This novelty-reward interaction was reflected by neural activity in the anterior ventral temporal cortex (AVMTC) – a region previously implicated in the detection and prediction of novelty – and in the orbitofrontal cortex (OFC) – an area that receives prominent AVMTC inputs and is known for its capacity to signal subjective value of visual objects. Neural activity patterns suggested that AVMTC was upstream of OFC in the decision process. Chemogenetic disruption of the AVMTC → OFC circuit altered the impact of expected novelty on the valuation of physical reward. Hence, the ventral visual system impacts novelty-reward interactions during decisions through direct projections to OFC.
... C'est surtout le cas pour les femmes, dont la sexualité à l'étranger demeure souvent l'objet de soupçons et d'interrogations, et qui courent le risque du mépris social au sein des communautés d'origine (Bastide, 2015b). 3 On retient la distinction « canonique », en théorie du risque, entre risque et incertitude : le risque est de nature stochastique (Knight, 1921 ;Renn, 2008). Il est donc identifiable, quantifiable et pondérable. ...
Face aux risques majeurs associés à la migration, les travailleurs migrants indonésiens présents en Malaisie et à Singapour développent des pratiques rituelles, magiques et religieuses (i.e. spirituelles) pour conjurer le mauvais sort. À première vue, cette approche semble incompatible avec le concept sociologique de risque, lié à un rapport sécularisé à l’avenir indissociable de la modernité européenne. Cependant, elle reflète bien une prise en compte active des aléas migratoires, irréductible au fatalisme. L’analyse met notamment en lumière les convergences et tensions entre cette conception de l’avenir et les théories sociologiques du risque. L’article aborde ainsi la migration sous l’angle des épreuves vécues par les migrants et interroge la notion de risque depuis leur perspective, contribuant aux débats sociologiques sur l’intégration cognitive et pratique de l’avenir en termes d’incertitude, de risque, de possibilités et d’aspirations.
... The preceding discussion also assumes that the number, magnitude, and probability of outcomes are known to experts, politicians, and the public alike. In reality, new technologies are often subject to Knightian uncertainty, that is, there are known unknowns and unknown unknowns (Knight, 1921). As a result, for every tale of a technology leading to a possible extinction event, there is an equally plausible tale of technology saving humanity from a different extinction event. ...
This paper critiques the dominance of the precautionary principle (PP) in shaping global regulation of generative artificial intelligence (GenAI), arguing that its bias toward risk aversion suppresses innovation and entrepreneurial discovery. While Austrian economists have traditionally resisted regulatory engagement, this paper advances a second-best approach that accepts regulation as inevitable and seeks to shape it in ways consistent with Austrian insights. Drawing on Israel Kirzner’s framework of regulatory perils, the paper develops an Austrian-friendly regulatory agenda rooted in robust political economy. This agenda includes rebuttable presumptions of non-intervention, red teaming, sunset clauses, and soft-law alternatives aimed at preserving decentralized experimentation under uncertainty. Rather than retreating to idealized laissez-faire, the paper offers a pragmatic path for engaging with policymakers to ensure that regulation of GenAI remains adaptive, knowledge-sensitive, and discovery-compatible. By reframing Austrian economics as a contributor to governance under radical ignorance, the paper provides both a critique of current AI regulatory trends and a constructive alternative grounded in the Austrian tradition.
... Uncertainty is usually conflated with risk, the Knightian conceptualization of uncertainty (Knight, 1921(Knight, , 1923, if mentioned, is described as a minority view, although there is ample argument for regarding today's business context as baseline uncertainty (Shubik, 1954;Spender, 1989Spender, , 2014Spender, , 2018Spender, , 2021. In other words, we could say that we live in the Age of Unreason (Handy, 1991). ...
How we see decisions has changed significantly over the past few decades. However, what has not changed is that any decision requires knowledge, and this knowledge needs to be validated. In a traditional view, choice is preceded by intelligence and design, more recently, it has been argued that choice is often the first step, followed by intelligence and design to provide an explanation to the stakeholders. We introduce a process of knowledge validation for decision making, useful in both types of decision situations. In this paper we suggest a process of knowledge validation for decision making that comprises three facets: consistency, relevance, and applicability. The increased transparency of the validation process, however, does not enable competitors to copy knowledge, as due to the personal nature of knowledge and decisions only the stakeholders will be able to make sense of the consistent, relevant and applicable knowledge.
... One of the most fundamental problems of economics as a science is the problem of knowledge about the future. As Knight (1921) already emphasized, economic action is inherently forward-looking: investment, production, innovation, and exchange all presuppose some orientation towards what has not yet occurred. Yet the future, by definition, seems to resist any knowledge in the ordinary sense. ...
This paper develops an enactivist theory of expectation formation by introducing the concept of temporal affordances: the institutionally structured possibilities for engaging with the future. Unlike standard economic accounts—which model expectations as internal beliefs shaped by information, and treat institutions as external constraints or coordination mechanisms—this paper argues that institutions actively co-constitute emerging expectations. It also challenges subjectivist approaches that locate expectations in individual imagination while treating institutions as heuristics. Drawing on the theory of affordances and the anthropology of time, the framework identifies four dimensions of temporal affordances through which institutions shape how actors orient toward the future: horizon (how far into the future institutional possibilities extend), openness (whether the future is flexible or determinate), grounding (the basis from which temporal orientation is formed), and valence (whether the future is coded as positive or negative). Rather than understanding expectations as internal mental representations, I argue that practical engagement with institutional temporal affordances gives rise to distinct modes of expectation—institutionally enacted ways of relating to the future. By showing how different combinations of affordances generate heterogeneity in these modes, the paper offers a conceptual tool for comparative institutional analysis of the varieties of temporal orientations across institutional environments.
... It has therefore become a core topic in modern approaches to financial markets to replace a single model P by a suitable class of models P and develop methodologies which perform well for the whole class. The set P is often called uncertainty set, since this idea can be traced back to Frank Knights' famous notion of uncertainty introduced in Knight (1921). ...
We establish a quantitative version of the classical Halmos-Savage theorem for convex sets of probability measures and its dual counterpart, generalizing previous quantitative versions. These results are then used to derive robust versions of the fundamental theorem of asset pricing (FTAP) in large financial markets in discrete time, characterizing the absence of arbitrage under Knightian uncertainty. To this end, we consider robust formulations of no asymptotic arbitrage of first kind (NAA1), which is the large market analogue of ``No unbounded profit with bounded risk'' (NUPBR), as well as no asymptotic arbitrage of second kind (NAA2). We illustrate our theoretical results with an example of a sequence of robust binomial models converging to a robust Black-Scholes model.
... EStratEgIaS PoSIbLES Para La IMPoSIbLE MEDIcIón DEL Futuro de diferentes escenarios supone un mapa de posibilidades en el que ir incluyendo la evolución de los acontecimientos de manera que se mantiene una cierta sensación de control y comprensión de la realidad. Al mismo tiempo, como han señalado algunos estudios clásicos (Knight 1921) el problema fundamental de la prospectiva es que inevitablemente se apoya en las experiencias pasadas y es incapaz de prever la novedad, de manera que la pretensión de conocer el futuro es imposible (Urry 2016). Crear distintos escenarios no se convierte así en un intento de describir con precisión el futuro, sino de contar con modelos explicativos que pueden ser completados para entender mejor la evolución de los estados de cosas y adquirir una mayor experiencia de cara a las acciones que conviene realizar. ...
Las investigaciones sobre la evolución de los estados de equilibrio de Ilya Prigogine, y su aplicación a otros campos de conocimiento, nos han mostrado que no existe un universo determinista, que existe el tiempo y que la realidad se dirige hacia el futuro. De la misma manera, no podemos conocer con precisión el desarrollo que seguirán los acontecimientos. En estas circunstancias el artículo analiza la influencia de estos descubrimientos sobre la acción política y las mejores estrategias, especialmente dentro de los sistemas democráticos, para intentar predecir un futuro que es imposible conocer con precisión.
... Emergence is primarily approached with creation mechanisms that explain why some places nurture more productive entrepreneurship than others. This is a central aspect of the entrepreneurial ecosystem approach (Audretsch & Belitski, 2017;Leendertse et al., 2022;Stam, 2015;Stam & Van der Ven, 2021), which provides a more appropriate model to study entrepreneurship and its inherent uncertainty (Knight, 1921) and out-of-equilibrium dynamics (Schumpeter, 1934) than general equilibrium models (Lucas, 1978). ...
The quality of entrepreneurial ecosystems not only enables local startups, but also affects the attraction and supply of non-local founders. We conceptualize entrepreneurial ecosystems as open systems with inflows and outflows of entrepreneurial talent. Beyond individual agency, these talent flows are driven by the quality of the origin and destination entrepreneurial ecosystems. We use network analysis and gravity models to study the interregional flows of founders of non-local startups within Italy and find empirical evidence for the creation, attraction, and supply mechanisms of entrepreneurial ecosystems. Entrepreneurial ecosystems not only provide a supportive environment for the creation of local startups, but also attract non-local founders. In addition, we reveal an escalator mechanism: (prospective) entrepreneurs tend to move from good to better entrepreneurial ecosystems.
Definimos el espacio organizacional estratégico” como el rango dinámico de condiciones internas y externas dentro del cual una organización puede operar, adaptarse y prosperar. Mosramos como este espacio está en constante evolución, reflejando la capacidad de las organizaciones para gestionar riesgos e incertidumbre y enfrentar los desafíos del entorno cambiante.
The concept of moral hazard has acquired political power in the European Union (EU); attempts to address it have the effect of limiting public risk sharing and of increasing constraints on behaviour. Yet, despite the potential negative implications of such effects in terms of social welfare and fairness, and that moral hazard is in the realm of uncertainty, the politics of moral hazard’s use in European economic governance has rarely been the subject of scrutiny. When not taken for granted, the political power of moral hazard in the EU is often explained in relation to Germany. This article argues that this explanation is partial and does not reflect the broader usefulness of the concept, a conclusion based on an analysis of the discourse on moral hazard of the European Commission. While contestation of moral hazard is expected from an actor in favour of further risk sharing, this article finds that the Commission used moral hazard to help it achieve greater centralisation of fiscal policies at the EU level. This article contributes to the literature on ideas in politics by focusing on an under-researched yet influential concept and by proposing an original operationalisation of power through, over, and in ideas.
Natural Property Rights presents a novel theory of property based on individual, pre-political rights. The book argues that a just system of property protects people's rights to use resources and also orders those rights consistent with natural law and the public welfare. Drawing on influential property theorists such as Grotius, Locke, Blackstone, and early American statesmen and judges, as well as recent work in in normative and analytical philosophy, the book shows how natural rights guide political and legal reasoning about property law. It examines how natural rights justify the most familiar institutions in property, including public property, ownership, the system of estates and future interests, leases, servitudes, mortgages, police regulation, and eminent domain. Thought-provoking and comprehensive, the book challenges leading contemporary justifications for property and shows how property both secures individual freedom and serves the common good.
In the global conflict between the two economic systems, Capitalism (free market economy) and Socialism, Capitalism seems to have undoubtedly prevailed. Historians and political analysts attribute the causes of this to the weaknesses and mistakes of the socialist system, although they all see serious problems in the capitalist system as well. The purpose of this book is to shed light on a side that has escaped society's attention: Economic theory, which is based on the Neoclassical theory, contains mathematical errors that have the effect of leading to a market price in perfect competition equal to the minimum cost of the product, and thus to maximization of the social welfare. However, this conclusion is wrong because it is based on mathematical errors, which, if corrected, lead to a price higher than the minimum cost, thus not maximizing social welfare.
This false conclusion of economic theory that the free-market economy maximizes social welfare played a primary role in capitalism's dominance because, in this way, it also had the absolute approval of science. This book points out and demonstrates these errors and their consequences in economics, politics, and society while developing a new economic theory that results from the correction of Neoclassical theory. However, this new corrected theory leads to very different conclusions from the original.
In real-world economic situations, the decision-making processes of economic agents are heavily influenced by the presence of risk and uncertainty. Unlike idealized conditions where outcomes are predictable and certain, agents often operate in environments where the consequences of their choices are uncertain and span a spectrum of possible outcomes. This inherent unpredictability makes it challenging to assess the full implications of any given decision. This chapter seeks to provide a comprehensive yet concise exploration of the fundamental principles governing individual decision-making under uncertainty.
The theory of complexity is gaining popularity in economics, arising from the growing awareness that traditional economics models have several limitations rooted in fixed laws and axioms. Complexity theory offers a promising alternative: it defines the economy as a complex adaptative system, characterized by the interactions of multiple agents who adapt their behavior and learn from past experiences. These interactions give rise to emergent phenomena that cannot be predicted in any way from individual behaviors, highlighting the importance of studying and understanding the system as a whole. In contrast to equilibrium economics, which assumes static states of equilibrium, complexity economics embraces non-equilibrium dynamics as fundamental to economic processes. This perspective represents both an extension and a new departure point from traditional theories, suggesting that complexity is not a refinement, but a paradigm shift in economic thinking.
Recent work in strategy has examined how distinctive stakeholder engagement promotes value creation and appropriation, leading to a proposed “new stakeholder theory” (NST). In developing this new literature stream, strategy scholars have adopted an instrumental (performance-oriented) and predictive approach, thus abstracting from normative considerations informing how companies should approach their stakeholders. This paper maintains that NST should explicitly state its underpinning normative assumptions, even if it keeps its predictive focus, for four main reasons; theorists may want to rule out unacceptable managerial behavior (which may still be consistent with a value creation logic), define the criteria to set the boundaries on stakeholders’ claims (those included and especially, those excluded from the value creation process), specify the working definition of “value” (which may differ from the usual emphasis on economic value), and discuss the downstream managerial implications of the proposed theory. The paper concludes by suggesting how to incorporate such normative assumptions in NST as a first analytical stage to guide subsequent predictions or explanations. It also outlines how this effort can benefit strategy research in general in cases where the underlying theoretical mechanisms involve the presence and engagement of stakeholders.
Despite introducing the risk category into science as early as 1921, risk management as a comprehensive concept only emerged in the 1950s. At that time, it was associated mainly with losses, and management had a mostly ex-post character. It changed only in the middle of the 20th century when risk management acquired a preventive ex-ante function. The shocks of the 1970s caused significant shifts and the formation of the first coherent theories of management, which did not consider the company's key objective of market value maximisation. Systemic crises and challenges of the late XX – early XXI century caused the development of holistic and knowledge-based management. The optimal way to build effective risk management is an organic combination of traditional and newer approaches, which would offset each other's disadvantages while enhancing the advantages.
Future making, the work of enacting the yet‐to‐come by making sense of and giving form to imaginings of the future, has become topical in management studies lately. Triggered by pressing societal challenges like climate change, inequality and threatened democratic institutions vis‐à‐vis a societal ‘crisis mode’, management scholars have started to engage with the future as an open‐ended temporal category, both as an object of analysis happening in and around organizations, as well as a way of scholarly inquiry. This Point‐Counterpoint debate about future making in management research comes right on time, as future‐making research seems to be at a crossroads, potentially heading to a bright – or not so bright – future. The contributions to this debate collectively ask: What is the future of future making in management research, and they could not be more different in the pathways they envisage.
Purpose: The main objective of the article is to examine the stability of the beta parameter for the largest companies listed on the Warsaw and Frankfurt Stock Exchanges. Design/methodology/approach: The study is a comparative analysis. The hypothesis is subjected to statistical verification, stating that beta parameters are stable. The estimation of beta parameters is carried out using the least squares method and a simple rate of return in the period 2005-2021, while the verification of the stability hypothesis is carried out based on Jarque-Bera test, Breusch-Pagan test, and t-Student test. Findings: The presented research results indicate that for companies listed on the WSE, along with the extension of the period of measuring the frequency of rates of return, the beta parameter is characterized by a lower level of sensitivity. This is probably due to the greater amplitude of fluctuations in the rate of return with increasing the frequency of measurement. Practical implications: In the company's finances, the beta parameter plays a key role in measuring investment risk. Since its introduction, it has been subjected to numerous empirical studies and analyses in both developing and highly developed markets. A positive phenomenon is the insensitivity of the beta parameter to the change in the rate of return of the stock market index for the monthly measurement of the rate of return in the case of companies with the largest capitalization on the Polish stock market. Originality/value: In Poland, research is carried out on the properties of the beta parameter, however, there is no research on its comparability to the economies of countries where the capital market is highly developed.
The expression bonum arduum, which designates a future good that is difficult but possible to obtain, and which is used by Thomas Aquinas to describe the object of hope, does not appear in his economic texts. However, John Paul II refers to Aquinas in Laborem exercens as considering work to be a bonum arduum, thus opening the way to an economic application of the expression. Further investigation of Thomas's lexicon of economic activity shows that bonum arduum fills a lexical gap and is particularly well suited to describing the economic good, a rare good whose exchange is risky and takes place over time.
In the context of green sustainable development, improving the quality of green innovation (GI) has become an urgent issue for enterprises. Corporate social networks play a vital role in improving the quality of GI, but there is a lack of research on how the social networks established by management team members influence GI, the pathways of their relationships, and their moderating effects. This study uses data from Chinese ICT industry listed companies between 2012 and 2022, employing social network analysis to construct the social network connections of core management team members. Mechanism analysis indicates that degree centrality and structural holes have positive effects on GI, while network density has a negative effect. R&D expenditure and personnel investment mediate the relationship between structural holes/network density and GI. Environmental information disclosure (EID) strengthens the relationship between structural holes/network density and GI. This research integrates the mediating effect and moderating effect models to elucidate the logical relationship among corporate social networks, R&D investment, EID, and GI, which has practical significance for further optimizing government environmental governance mechanisms, adjusting corporate social network structures, and enhancing innovation capabilities.
Our article explores a lender's trust in debt recovery actions under uncertain settings through an in vivo experimental approach. Participants faced two fictional debt recovery scenarios, where they had to determine the minimum and maximum commission, they were willing to pay a collector to recover a loaned amount. Results demonstrated that participants’ trust is conditioned on recovering an average of 60% of the debt and they are willing to give up approximately 30% of the recovered sums. These discoveries highlight the influence of psychological and social factors on financial behaviors, including cognitive biases (ambiguity effect, compromise effect, and simplicity effect) and social norms (popular culture). In conclusion, our research underscores the importance of trust in recovery processes and suggests that more lenient recovery strategies can foster durable and reliable financial relationships.
This Counterpoint cautions that future making research treats the future too simplistically and fails to acknowledge the fundamental uncertainty inherent in all futures work. First, future making scholarship overlooks existing academic research, in which similar concerns have been pursued, empirically and conceptually, for years. Second, utopian futures are considered achievable if only actors have a vision of what they wish to create. Finally, most future making statements around grand challenges rely on little more than hope, failing to account for the complex relationalities shaping them. I substantiate my argument by drawing on the scenario planning literature, Knightian uncertainty, and anthropology of future research. I also critique the Point's call for future making scholars to adopt practice‐based approaches (Wenzel et al., forthcoming) in their empirical inquiries, arguing that the ‘as Practice’ move in management studies is yet to achieve its aspirations. Additionally, I caution against the other Counterpoint in this debate that future making requires the realization of desired and emancipatory futures (Comi et al., forthcoming), as this view is too restrictive for broad and deep future making theorizing to emerge.
Derivatives contracts are essential for financial markets and are supported by market practice and regulation. And yet, courts in different jurisdictions are recurrently confronted with parties claiming their voidness or unenforceability. Although the legal doctrines in each case differ, including ‘capacity’, ‘illegality’, ‘mistake’, ‘ causa ’, and ‘object’, this paper suggests that their common denominator is the complicated relationship between law and financial ‘speculation’. Speculation is protected by regulation and respected by academic thinking. The consensus behind this support, however, results from a combination of ideas that is complex, socially controversial, and unstable. Courts are often called to arbitrate conflicts, but their role in the oversight of derivatives markets is secondary, and determining whether an individual transaction is ‘speculative’ is difficult, if not impossible. To shape the broader conflict into a constructive dialogue, courts and parties use different legal doctrines. Yet, this paper argues that not all choices are equally suitable. Using a comparative analysis of case law in the United Kingdom, Germany, Portugal, Italy and Spain, it identifies how different choices can cause discontinuities and instability, a restless status quo, or a doctrinal emergence that leads to a new equilibrium, while drawing some general conclusions about courts’ role in disputes over derivatives.
In the face of a rapidly changing and increasingly complex global environment, rising economic policy uncertainty destabilizes market expectations. This makes construction companies more prudent in export decision-making, as they must navigate risks related to international investments, contract fulfillment, and long-term project management. Investigating how economic policy uncertainty affects these decisions can aid construction companies in refining their international strategies to better withstand policy volatility and devise robust risk management approaches. This research uses data from Chinese industrial and customs manufacturing enterprises, applying econometric models to empirically examine how economic policy uncertainty affects the domestic value-added rate of construction enterprises' exports and to uncover the mechanisms driving this impact. The study finds that: (1) In general, an increase in economic policy uncertainty can promote the domestic value added rate of construction enterprises' exports. (2) This promotion effect is stronger for foreign funded construction enterprises, large-scale enterprises, construction enterprises with low value chain status, and construction enterprises with medium high and high technology levels. (3) It suggests that an increase in economic policy uncertainty on exporting construction enterprises. The "forced innovation effect" is significant, which in turn brings about an increase in the domestic value-added rate of construction enterprises' exports. However, total factor productivity does not play a significant role in the process of the impact of economic policy uncertainty on the construction enterprise export domestic value added rate. This paper is of great significance for enterprises to objectively recognize the "policy divi-dend" and its accompanying risks implied by economic policy changes. ARTICLE HISTORY
There has been recent proliferation of entrepreneurship theorizing involving the true uncertainty of a system—most often labeled as Knightian. This has been noted in both individual papers and in the main partial theories that attempt to explain entrepreneurial activity more holistically. We detect a danger in this work involving such true uncertainty—defined by the condition that decisions plagued by it are non-optimizable by every interested party. It is that all the recent theorizing misinterprets that uncertainty in one of two ways: with a logical contradiction (i.e., that the non-optimizable is actually optimizable); or with a misrepresentation (i.e., that an uncertainty consisting of a knowable unknown that can be made known through known means by the time the decision must be made is true). Our concern is that such misinterpretations create unnecessary costs to academics and practitioners who are struggling to define the system they are managing. We explain this concern and its costs, detail the underlying premises, illustrate it with several examples, and then offer various specific directions to improve the theorizing over such uncertainty in entrepreneurship.
This paper investigates the joint effects of creative destruction, competition, and ambiguity aversion on firms’ optimal investment timing and capacity choices within a real options game framework. The market demand for the underlying product evolves over time according to a jump-diffusion process, and at least one of the firms exhibits ambiguity aversion regarding both diffusion risk and jump risk. Under the assumption of stochastic project lifetime, we obtain the following results: (1) In a monopoly market, the investment timing is a U-shaped function of the volatility of market demand and ambiguity aversion to diffusion risk. Meanwhile, the higher the ambiguity aversion to jump risk, the later the firm invests with less capacity. (2) In the sequential equilibrium, the leader’s decision to deter or allow the follower’s entry is significantly influenced by the volatility of market demand and the leader’s aversion to diffusion risk. (3) In the preemptive equilibrium, the ambiguity aversion towards diffusion and jump risks increases the incentive to preempt the opponent’s investment when only the follower is ambiguity-averse, while the opposite result occurs when two firms have the same ambiguity aversion preference or when only the leader is ambiguity-averse.
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