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What to Do About Radical Uncertainty

A longstanding belief in the predictability of market behavior and outcomes has created plenty of fodder for academic theorizing in economics. But firms operating in the real world succeed by recognizing that the future is unknowable – and acting accordingly.

CAMBRIDGE – A central premise of neoclassical economics is that the consequences of the decisions of market participants can be known in advance and quantified as risk-adjusted estimates. As John Kay and Mervyn King showed in their 2020 book, Radical Uncertainty: Decision-Making Beyond the Numbers, such probabilistic reasoning has a long history. As applied in economics, it has operationalized the concept of “expected utility” – the desideratum that rational economic agents are defined to be maximizing.