Wednesday, March 2, 2011

Keynes on the Probability of Events in the Future

Keynes believed that the probability of future events under uncertainty came in different forms, and divided the probability of events into these 4 types:
“(i) that there are no probabilities at all (fundamental uncertainty),
(ii) that there may be some partial ordering of probable events but no cardinal numbers can be placed on them,
(iii) that there may be numbers but they cannot be discovered for some reason, and
(iv) that there may be numbers but they are difficult to discover” (Barkley Rosser 2001: 559).
We can also say that overarching these is another type of uncertainty caused by David Hume’s problem of induction. If we argue with Hume that we have no basis for believing that induction is rational, then even belief in the future uniformity of nature becomes uncertain. The radical sense of uncertainty that emerges in the absence of (1) a justification for induction and (2) belief in the future uniformity of nature is a fundamental philosophical problem indeed - and certainly for everyone who holds an economic theory (for a solution to the problem for Keynesians, see “Risk and Uncertainty in Post Keynesian Economics,” December 8, 2010).


Barkley Rosser, J. 2001. “Alternative Keynesian and Post Keynesian Perspectives on Uncertainty and Expectations,” Journal of Post Keynesian Economics 23.4: 545–566


  1. So let me get this straight.

    A person who does not agree with the rationality of induction has to accept that nothing is certain - to the point that just because the law of gravity has held true 100% of the time in the past does not mean that gravity will hold true in the future. Isn't that what we are saying here?

    Yes, I find the idea interesting myself. It comes to a point under which if induction is not rational, perhaps no human thought is ever rational. It is an interesting circle where because human predictions about the future are subjective, people trying to predict how humans will behave in the future, for business or investment decisions, are also being purely subjective, and that too about purely subjective decisions. But I think you have made that point before?

  2. "It comes to a point under which if induction is not rational, perhaps no human thought is ever rational."

    Induction is rational if the uniformity of nature continues to hold. But that can only be justifed by an inductive argument so it is a vicious circle (or so the anti-inductivists maintain).

    And for human reason there is, in any case, an good alternative: Karl Popper's falsification by hypothetico-deduction.

    Popper and Popperians maintain that the natural sciences can do perfectly well without induction.

  3. P.S.
    and even the social sciences too.