Radical Ignorance and Knightian Uncertainty: Bryan’s Thinking Too Hard …

Lynne Kiesling

… or he’s being fatuous; I prefer to think he’s trying too hard.

Bryan Caplan’s got a challenge to come up with an example of radical ignorance/Knightian uncertainty that’s better than the Trojan horse example. Arnold Kling’s got a response for him, as does Tyler Cowen. They are all focused on the important distinction between situations in which you can reasonably assume that there is a known probability distribution and situations in which there is not.

I think they are all thinking too hard, although perhaps Bryan, Arnold, Tyler (and Robin, in Tyler’s comments) will all say that my example is degenerate: technological change and consumer adoption of new technologies. Sure, we can say that there is some path dependence in the development and adoption of new technologies ex post. But ex ante, given that we live in a non-ergodic world (to use Doug North’s phrase), can we really say that which inventions get invented, and which inventions get adopted, can be draws from a known probability distribution?

For example, in 2000 we could reasonably have argued that there was a known probability distribution out of which we could draw a probability that Apple would develop a music player. But that’s too obvious a question. The real problem of radical ignorance comes in the form that their innovation would take, and whether or how consumers would adopt it and use it, and adapt it to their various heterogeneous purposes. Could we have drawn those outcomes out of a known probability distribution?

No. And the precise reason we couldn’t is because of the non-ergodic nature of life. We simply cannot know either the exact form of future technologies, or how they will interact with and shape consumer preferences.

For me, that’s the canonical example of radical ignorance.

UPDATE: I said “ergodic” when I meant “non-ergodic”; that’ll learn me to post when I’m rushing off somewhere! Thanks to Gabriel for the catch.

6 thoughts on “Radical Ignorance and Knightian Uncertainty: Bryan’s Thinking Too Hard …

  1. On radical uncertainty, what about the situation when a batter goes out to the plate? I originally formulated this in cricket but the same principles apply.

    The problem was “What will he score?”. In cricket that can be 0 to some hundreds.

    The obvious starting point is the batter’s average, but which average, the lifetime average, career average, the season average, the average against this pitcher, etc.

    The point is that whatever calculations you do with averages and frequency distributions, you simply cannot calculate what the batter will score with certainty or even a degree of probabiity of getting the right answer. You may appear to do better in baseball than cricket because you have less numbers in the range (0 to 4?) And 0 will feature more than it does in cricket. So the example works better in cricket but I think it still works.

    Given radical uncertainty, the next questions are, how can we make any kind of plans or predictions for the future, and how come there is any pattern to events at all, how come it is not all a Lachmann type of mess?

    The answer is that the fabric or tapestry of life is held together by two categories of things, like the warp and the weft of the fabric. One category of constraints runs crossways, these are the impersonal and “out of human control” laws of nature (of the natural world and the catallaxy) that impose limits on the things that can happen. Limits but not DIRECTION, in the way that the laws of nature limit how fast your car will go, but not where you choose to drive it.

    The other category of things are the rules, human laws and traditions which can be tacit or conscious, written or unwritten, they change over time, can be ignored or challenged. They include rules for the interpretation of rules. The rules and laws exert plastic control (not completely rigid). The traditions (and institutions) are rather different, they account for the goals that people set and the plans that they make. Actually the boundary between rules and traditions is fluid but you get the drift!

  2. Rafe,

    While I agree with your argument regarding uncertainty vs. risk, I don’t think it’s fair to say that Lachmann got into a “Lachmann type of mess.” Indeed, the last paragraph of your comment could have been written by Lachmann. Shackle might be a more appropriate target (he said something about institutions just being a group marching off in the same bad direction). But towards the end of his life, he apparently changed his mind and conceded the stabilizing role of institutions as well, according to a book about Shackle that was edited by P Earl (I can’t remember the title — returned it to the library several months ago, but there was an interesting chapter on Shackle’s correspondence, which included some information on his correspondence with Lachmann).

    David A

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