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).

BIBLIOGRAPHY

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