Paul Davidson's critique of O'Driscoll and Rizzo is based on an “official” philosophical position that turns on an opposition between knowledge and ignorance and a corresponding opposition between ergodic and nonergodic processes. But Davidson's substantive analysis reveals a very different “unofficial” position, based on “sensible expectations” and a realist ontology of enduring social structures. While O'Driscoll and Rizzo have the edge on Davidson in terms of their characterization of agents’ beliefs, their ontology of event regularities is ultimately the same, and (...) suffers from the same drawbacks, as Davidson's official ontology. The solution to some of these problems may lie in adopting an ontology similar to the one Davidson invokes in his unofficial capacity. (shrink)

Ramsey's critique of Keynes's ‘logical’ approach to probability is widely regarded as decisive, and his own ‘subjective’ approach and SEU framework are now familiar tools in economics. This paper challenges the standard view of Ramsey's critique and assesses the SEU model from a Keynesian viewpoint on probability. It consists of a summary of the two theories and an evaluation of Ramsey's criticisms and alternative. The two main conclusions are that although Keynes yields to Ramsey on the question of the existence (...) of logical probability relations, the formal structure of his theory is compatible with non-objectivist interpretations of probability; and that Ramsey makes far heavier demands on the capacities of the ‘rational agent’ than does Keynes. (shrink)

The success of a capitalist economy rests upon the ability of finance to sustain potentially infinite growth, based on funding today the output of tomorrow. Finance, however, needs rules. The aim of the law and finance scholarship is precisely to identify the best regulation of finance to support economic growth. Traditionally, law and finance is concerned with investor protection. This would be sufficient if the future were predictable. However, because the future is uncertain, the prices of financial assets are flawed (...) and in the short run they may result in serious mistakes, if not widespread crises. Although these mistakes are corrected in the long run, significant harm may occur in the meantime. Financial law should therefore be concerned not only with investor protection, but also with mitigating the temporary excesses of markets in allowing or restricting access to finance. The challenge of this goal is to remedy market myopia without allowing policymakers to abuse the power of governments. However imperfect, prices remain the best instrument of discipline and growth in a market economy. (shrink)

In the insurance literature, it is often argued that private markets can provide insurance against ‘risks’ but not against ‘uncertainties’ in the sense of Knight ([1921]) or Keynes ([1921]). This claim is at odds with the standard economic model of risk exchange which, in assuming that decision-makers are always guided by point-valued subjective probabilities, predicts that all uncertainties can, in theory, be insured. Supporters of the standard model argue that the insuring of highly idiosyncratic risks by Lloyd's of London proves (...) that this is so even in practice. The purpose of this article is to show that Bruno de Finetti, famous as one of the three founding fathers of the subjective approach to probability assumed by the standard model, actually made a theoretical case for uncertainty within the subjectivist approach. We draw on empirical evidence from the practice of underwriters to show how this case may help explain the reluctance of insurers to cover highly uncertain contingencies. (shrink)