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On the Economics of Risk and Uncertainty: A Historical Perspective

  • Yasuhiro Sakai
Chapter
Part of the Evolutionary Economics and Social Complexity Science book series (EESCS, volume 18)

Abstract

The economics of risk and uncertainty has a long history over 300 years. This chapter aims to systematically summarize and critically reevaluate it, with special reference to John M. Keynes and Frank H. Knight, the two giants in modern times.

In our opinion, there are the six stages of development, with each stage vividly reflecting its historical background. The first stage, named the Initial Age, corresponds to a long period before 1700, the one in which statistics was firmly established by B. Pascal as a branch of mathematics but economic theory per se was not well-developed. The second stage, called the “B-A” Age, covers the period from 1700 to 1880, is characterized by the two superstars, Daniel Bernoulli and Adam Smith. The third stage from 1880 to 1940 may be named the “K-K” Age because it was dominated by J.M. Keynes and F.H. Knight. The fourth stage, called the “N-M” Age, eyewitnesses the birth of game theory, with von Neumann and Morgenstern being its foundering fathers. The fifth stage from 1970 to 2000, named the “A-S” Age, is characterized by several distinguished scholars with their initials “A” or “S.” Finally, in 2000 and onward, while many doubts have been raised about existing doctrines, new approaches have not emerged yet, thus being named the Uncertain Age.

The relationship between Keynes and Knight is complex and even strange. It has a history of separating, approaching, separating again, and approaching again. As the saying goes, a new wine should be poured into a new bottle. We would urgently need a Keynes and/or a Knight toward a new horizon of the economics of risk and uncertainty.

Keywords

Economics of risk and uncertainty Bernoulli Keynes Knight 

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Copyright information

© Springer Nature Singapore Pte Ltd. 2019

Authors and Affiliations

  • Yasuhiro Sakai
    • 1
  1. 1.Department of EconomicsCenter for Risk Research, Shiga UniversityHikoneJapan

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