9 March 2018

Uncertainty, narrative economics, and the need for a diversity of modelling approaches

Richard Bronk

London School of Economics and Political Science

Bronk – Essex – 2018

Understanding uncertainty in economics Distinguish ‘uncertainty’ from calculable ‘risk’ (Knight, 1921)

Uncertainty: ‘The outstanding fact is the extreme precariousness of … knowledge’(Keynes, 1936); the problem of knowledge (Hayek, 1948)

Distinguish shortcomings of knowing agents, models or institutions

(bounded rationality, information asymmetries and framing biases)

from ontological aspects of uncertainty:

• multifaceted nature of reality
• increasing returns and threshold effects
• innovation and novelty causing ontological indeterminacy

Ontological indeterminacy ‘symmetrical ignorance’ (Skidelsky, 2009) and ‘fundamental uncertainty (Dequech, 2001):

• What does not yet exist cannot now be known’ (Shackle, 1972)

The future is not ‘statistical shadow of past’ (Davidson, 1996) but rather unknowable until critical choices and creative inventions made

Bronk – Essex – 2018