This paper focuses on Keynes's understanding of individual decision-making under uncertainty and ... more This paper focuses on Keynes's understanding of individual decision-making under uncertainty and tries to address a question left mostly unexplained in the critical literature. On re-reading Keynes after the recent surge of interest induced by the financial crisis, a number of scholars have placed emphasis on well-known excerpts from the General Theory dealing with the " state of long-term expectations. " Keynes evidenced that future events conditioning economic activity in general, and investment in particular, " can only be forecasted with more or less confidence, " and that " the state of confidence, as they term it, is a matter to which practical men always pay the closest and most anxious attention, " while economic theory does not. In these instances, Keynes argued, people may fall back on " conventions, " which give them assurance that they are doing the right thing. As a result, " to behave in a manner which saves our faces as rational, economic men … we have devised for the purpose a variety of techniques. " But Keynes's main message is that under uncertainty " [a]ll these pretty, polite techniques, made for a well-panelled Board Room and a nicely regulated market, are liable to collapse. " For instance, conventional behaviour easily turns into herd behaviour, and financial markets are pervaded by alternating currents of euphoria and panic. So a question remains: how should Keynesian agents behave in markets continuously on the brink to fail? Are there, rephrasing Keynes, " impolite techniques " to be used under uncertainty or must we end up admitting that " we simply do not know, " and behave in a conventionally understood fashion? The paper offers a reading of Keynes suggesting that the thread going from Keynes's Treatise on Probability to the General Theory and its defence provides a positive analysis of decision-making under uncertainty, and argues that placing emphasis on this positive analysis simply means adhering to Keynes's long-standing commitment to interpret reasonable judgement in a (surely unconventional) probabilistic setup .
In the literature on his philosophical ideas the correspondence Keynes had with Hugh Townshend ov... more In the literature on his philosophical ideas the correspondence Keynes had with Hugh Townshend over the just-published General Theory has attracted significant attention. Excerpts from the exchange have been used as a relevant piece of evidence by scholars who claim that Keynes came to reject rational decision criteria, thus focusing on the necessity for economic agents to form expectations on market sentiment, rather than fundamentals. This note concentrates instead on the whole correspondence and tries to show that a comprehensive reading of the exchange between Keynes and Townshend, unfolding through the years 1936-1938, suggests that its discussion thread was more technical than usually understood. It is argued that the correspondence provides evidence for the fact that Keynes still had a keen interest in a problem left unsolved in the Treatise on Probability, namely, the definition of an alternative to what he termed «normal ethical theory» in the Treatise and identified with «strict mathematical calculation» in the General Theory. The correspondence reveals that the issue of whether a useful decision rule can be devised under uncertainty still appears central in Keynes’s thought in 1938.
In the history of decision theory Daniel Ellsberg is known because his seminal paper " Risk, ambi... more In the history of decision theory Daniel Ellsberg is known because his seminal paper " Risk, ambiguity and the Savage axioms " presented the counterexample to Bayesian decision-making that got the normative value of the theory into trouble. An assessment of Ellsberg's contribution in the more encompassing framework of his long unnoticed 1962 doctoral thesis suggests that, although he did not take part to the ensuing debate, Ellsberg provided a thorough philosophical and methodological background for his critique of Savage's axiomatization of decision theory. By concentrating mainly on Ellsberg's analysis of decision-making in his thesis, this paper examines the way he conceived of the possibility to test normative propositions and tries to identify the kind of normative value he attributed to his own suggested solution for the Ellsberg Paradox.
This paper focuses on Keynes's understanding of individual decision-making under uncertainty and ... more This paper focuses on Keynes's understanding of individual decision-making under uncertainty and tries to address a question left mostly unexplained in the critical literature. On re-reading Keynes after the recent surge of interest induced by the financial crisis, a number of scholars have placed emphasis on well-known excerpts from the General Theory dealing with the " state of long-term expectations. " Keynes evidenced that future events conditioning economic activity in general, and investment in particular, " can only be forecasted with more or less confidence, " and that " the state of confidence, as they term it, is a matter to which practical men always pay the closest and most anxious attention, " while economic theory does not. In these instances, Keynes argued, people may fall back on " conventions, " which give them assurance that they are doing the right thing. As a result, " to behave in a manner which saves our faces as rational, economic men … we have devised for the purpose a variety of techniques. " But Keynes's main message is that under uncertainty " [a]ll these pretty, polite techniques, made for a well-panelled Board Room and a nicely regulated market, are liable to collapse. " For instance, conventional behaviour easily turns into herd behaviour, and financial markets are pervaded by alternating currents of euphoria and panic. So a question remains: how should Keynesian agents behave in markets continuously on the brink to fail? Are there, rephrasing Keynes, " impolite techniques " to be used under uncertainty or must we end up admitting that " we simply do not know, " and behave in a conventionally understood fashion? The paper offers a reading of Keynes suggesting that the thread going from Keynes's Treatise on Probability to the General Theory and its defence provides a positive analysis of decision-making under uncertainty, and argues that placing emphasis on this positive analysis simply means adhering to Keynes's long-standing commitment to interpret reasonable judgement in a (surely unconventional) probabilistic setup .
In the literature on his philosophical ideas the correspondence Keynes had with Hugh Townshend ov... more In the literature on his philosophical ideas the correspondence Keynes had with Hugh Townshend over the just-published General Theory has attracted significant attention. Excerpts from the exchange have been used as a relevant piece of evidence by scholars who claim that Keynes came to reject rational decision criteria, thus focusing on the necessity for economic agents to form expectations on market sentiment, rather than fundamentals. This note concentrates instead on the whole correspondence and tries to show that a comprehensive reading of the exchange between Keynes and Townshend, unfolding through the years 1936-1938, suggests that its discussion thread was more technical than usually understood. It is argued that the correspondence provides evidence for the fact that Keynes still had a keen interest in a problem left unsolved in the Treatise on Probability, namely, the definition of an alternative to what he termed «normal ethical theory» in the Treatise and identified with «strict mathematical calculation» in the General Theory. The correspondence reveals that the issue of whether a useful decision rule can be devised under uncertainty still appears central in Keynes’s thought in 1938.
In the history of decision theory Daniel Ellsberg is known because his seminal paper " Risk, ambi... more In the history of decision theory Daniel Ellsberg is known because his seminal paper " Risk, ambiguity and the Savage axioms " presented the counterexample to Bayesian decision-making that got the normative value of the theory into trouble. An assessment of Ellsberg's contribution in the more encompassing framework of his long unnoticed 1962 doctoral thesis suggests that, although he did not take part to the ensuing debate, Ellsberg provided a thorough philosophical and methodological background for his critique of Savage's axiomatization of decision theory. By concentrating mainly on Ellsberg's analysis of decision-making in his thesis, this paper examines the way he conceived of the possibility to test normative propositions and tries to identify the kind of normative value he attributed to his own suggested solution for the Ellsberg Paradox.
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