Uncertainty in Economics: A New Approach (Contributions to Economics)

In this book the author develops a new approach to uncertainty in economics, which calls for a fundamental change in the methodology of economics. It provides a comprehensive overview and critical appraisal of the economic theory of uncertainty and shows that uncertainty was originally conceptualized both as an epistemic and an ontological problem. As a result of the economic professions' attempt to become acknowledged as a science, the more problematic aspect of ontological uncertainty has been neglected and the subjective probability approach to uncertainty became dominant in economic theory. A careful analysis of ontological theories of uncertainty explains the blindness of modern economics to economic phenomena such as instability, slumps or excessive booms. Based on these findings the author develops a new approach that legitimizes a New Uncertainty Paradigm in economics.-- Provided by publisher Preface 6 References 7 Contents 8 Chapter 1: Introduction 11 1.1 Many Faces of Uncertainty 11 1.2 Framing the Issue 15 1.3 A Readers Guide: Outline and Structure of the Argument 18 References 21 Part I: Uncertainty in Economic Thought 24 Chapter 2: Uncertainty in the History of Economic Thought 26 2.1 The Uncertain Fundament of Economics 27 2.2 The Marginal Revolution and Probabilistic Utility Maximization 31 2.3 From Reason to Rational Choice Theory 33 2.4 Separating Uncertainty 36 2.5 Subjective Probability Theory and Uncertainty 40 2.6 The Janus-Face of Uncertainty in Economics 43 References 44 Chapter 3: Truth, Probability and Uncertainty 47 3.1 The Changing Meanings of Probability 47 3.2 Probabelism, Credibility and the Formalization of Science 49 3.3 The Problem of Induction 52 3.4 Conclusion 54 References 55 Chapter 4: The Principles of Economics 56 4.1 Becoming the Science of Economics 57 4.2 Rationality and Prediction 61 4.3 Econometrics 63 4.4 The Principles of Modern Economics 65 4.5 Conclusion 67 References 67 Chapter 5: Probability and Neoclassical Uncertainty 70 5.1 Between Objective and Subjective 70 5.1.1 Classical Theory of Probability 72 5.1.2 Frequency Theory of Probability 74 5.1.3 Logical Theory of Probability 74 5.1.3.1 Ethics and Probability 75 5.1.3.2 Knowledge and Probability 76 5.1.3.3 Logic and Probability 77 5.1.3.4 Ramsey ́s Critique 79 5.1.4 Subjective Theory of Probability 81 5.2 The Neoclassical Uncertainty Paradigm 86 5.2.1 Expected Utility and Subjectivity 89 5.2.2 Rational Expectations and Efficient Markets 91 5.2.3 Rational Expectations Models in Modern Economics 94 5.2.3.1 Rational Expectation Models in Macroeconomics 94 5.2.3.2 Rational Expectations and Financial Economics 95 5.3 Conclusion 97 References 98 References 25 Part II: Philosophies of Uncertainty 102 Chapter 6: The Origin of Profit 104 6.1 Uncertainty and Profit 106 6.2 Uncertainty, Knowledge and Probability 108 6.3 Uncertainty, Change and Instability 112 6.4 Conclusion 113 References 114 Chapter 7: Uncertainty and Economic Instability 115 7.1 Knowledge and Ignorance 116 7.2 Uncertainty and Reason 119 7.2.1 Conventional Knowledge 120 7.2.2 Animal Spirits 121 7.2.3 A Keynesian Model of Choice Under Conditions of Uncertainty 123 7.3 Uncertainty, Instability and Science 125 7.4 Conclusion 127 References 128 Chapter 8: The Division of Knowledge and Unknowledge 130 8.1 The Nature of the Economic Problem 131 8.2 Epistemology 133 8.3 Uncertainty and the Price Mechanism 135 8.4 Economics, Unknowledge and Surprise 136 8.5 Surprise and the Non-Numerical Theory of Uncertainty 139 8.6 Conclusion 141 References 142 Chapter 9: The Nature of Economics 143 9.1 Realism and Ontology 144 9.2 Open and Closed Systems 145 9.2.1 Critical Realism, Systems and Explanation 147 9.2.2 Structure and Dialectic 148 9.2.3 Degrees of Uncertainty 149 9.3 Non-randomness, Performativity and Uncertainty 150 9.4 Conclusion 156 References 156 References 103 Part III: Methodology of Uncertainty 159 Chapter 10: Extending the Boundaries of Economics 161 10.1 Ontological Foundations of a New Philosophy of Economics 163 10.2 A Reflexive System and Fallibility 164 10.3 Levels of Reflexivity 167 10.3.1 First Order Reflexivity 168 10.3.2 Second Order Reflexivity and the Structure of Events 169 10.3.3 Third Order Reflexivity 170 10.3.4 Complexity 171 10.4 The Uncertainty Corridor 172 10.5 Epistemological Implications for the Science of Economics 175 10.6 Conclusion 179 References 179 Chapter 11: Uncertainty and Fiction 181 11.1 The Co-emergence of Fiction and Probability 181 11.2 Uncertainty and Fiction in Economics 185 11.2.1 Fictions and Knowledge 185 11.2.2 Fictions and Understanding 186 11.2.3 Fictions, Future and Action 187 11.3 Fictional Choice 188 11.3.1 Knowledge 189 11.3.2 Fictions 190 11.3.3 Intentions and Biases 191 11.3.4 Weight of the Argument 191 11.3.5 Dynamics 192 11.3.6 The Process of Choice 192 11.4 Conclusion 194 References 194 Chapter 12: Human After All 197 12.1 Pluralism 199 12.2 Humanism 200 12.3 Normativity 201 References 203 References 160 Front Matter....Pages i-ix Introduction....Pages 1-13 Front Matter....Pages 15-16 Uncertainty in the History of Economic Thought....Pages 17-37 Truth, Probability and Uncertainty....Pages 39-47 The Principles of Economics....Pages 49-62 Probability and Neoclassical Uncertainty....Pages 63-94 Front Matter....Pages 95-96 The Origin of Profit....Pages 97-107 Uncertainty and Economic Instability....Pages 109-123 The Division of Knowledge and Unknowledge....Pages 125-137 The Nature of Economics....Pages 139-154 Front Matter....Pages 155-156 Extending the Boundaries of Economics....Pages 157-176 Uncertainty and Fiction....Pages 177-192 Human After All....Pages 193-199