Time Ignorance And Uncertainty In Economic Models

Formal economic analysis using Shackle's ideas of historical time and nonprobabilistic uncertainty

A careful reconsideration of time in economics leads to a new paradigm of choice

The Economics of Time and Ignorance is one of the seminal works in modern Austrian economics. Its treatment of historical time and of uncertainty helped set the agenda for the remarkable revival of work in the Austrian tradition which has led to an ever wider interest in the once heretical ideas of Austrian economics. It is here reprinted with a substantial new introductory essay, outlining the major developments in the area since its original publication a decade ago.

Austrian Economics Re-examined: The Economics of Time and Ignorance is an expanded version of the 1996 edition of The Economics of Time and Ignorance. This work is a classic statement of the role of subjectivism, radical uncertainty and change through real time in Austrian economics specifically, and in modern economics more generally. The new book contains the full text and Introductions of the earlier edition as well as the comprehensive previously-unpublished essay "What is Austrian Economics?" and a new Introduction. The essay is a comprehensive overview of the central themes of the book from a somewhat different perspective than in the book itself. It supplements the analysis in the book. The new Introduction explains that the 2007-8 financial crisis and recent developments in behavioural economics have made the book more relevant than ever before. Austrian Economic Re-examined develops and systematizes the fundamental principles of the Austrian tradition to the analysis of rational expectations, business cycles, monetary theory competition and monopoly, and capital theory.

Written by Lars Peter Hansen (Nobel Laureate in Economics, 2013) and Thomas Sargent (Nobel Laureate in Economics, 2011), Uncertainty within Economic Models includes articles adapting and applying robust control theory to problems in economics and finance. This book extends rational expectations models by including agents who doubt their models and adopt precautionary decisions designed to protect themselves from adverse consequences of model misspecification. This behavior has consequences for what are ordinarily interpreted as market prices of risk, but big parts of which should actually be interpreted as market prices of model uncertainty. The chapters discuss ways of calibrating agents' fears of model misspecification in quantitative contexts.

Born of a belief that economic insights should not require much mathematical sophistication, this book proposes novel and parsimonious methods to incorporate ignorance and uncertainty into economic modeling, without complex mathematics. Economics has made great strides over the past several decades in modeling agents' decisions when they are incompletely informed, but many economists believe that there are aspects of these models that are less than satisfactory. Among the concerns are that ignorance is not captured well in most models, that agents' presumed cognitive ability is implausible, and that derived optimal behavior is sometimes driven by the fine details of the model rather than the underlying economics. Compte and Postlewaite lay out a tractable way to address these concerns, and to incorporate plausible limitations on agents' sophistication. A central aspect of the proposed methodology is to restrict the strategies assumed available to agents.

The need to understand the theories and applications of economic and finance risk has been clear to everyone since the financial crisis, and this collection of original essays proffers broad, high-level explanations of risk and uncertainty. The economics of risk and uncertainty is unlike most branches of economics in spanning from the individual decision-maker to the market (and indeed, social decisions), and ranging from purely theoretical analysis through individual experimentation, empirical analysis, and applied and policy decisions. It also has close and sometimes conflicting relationships with theoretical and applied statistics, and psychology. The aim of this volume is to provide an overview of diverse aspects of this field, ranging from classical and foundational work through current developments. Presents coherent summaries of risk and uncertainty that inform major areas in economics and finance Divides coverage between theoretical, empirical, and experimental findings Makes the economics of risk and uncertainty accessible to scholars in fields outside economics