On Risk

Abstract

1. In dealing with uncertainty of price it is usually assumed that the entrepreneur who tries to predict a price has in mind several possible magnitudes of the price in question and various chances are attributed to these magnitudes. A distribution of the chances of various possible prices is drawn up, and the dispersion of this distribution is used to measure uncertainty.² This definition of uncertainty is purely formal, because we are not told what the entrepreneur expects in the concrete.³ Further, there is no explanation of how the entrepreneur comes to hold his particular assumption about the degree of uncertainty of price (or profit, sales, cost, etc.). But the degree of uncertainty is needed as an explanation, chiefly of the various rates of profit in different lines or enterprises; conceived as a purely subjective feeling, like a taste, it is no help for statistical investigation.

Originally published in Oxford Economic Papers, no. 5, June 1941; slightly revised.

I have to thank Mr Kalecki for his advice and criticism which alone enabled me to give the article its present shape.