Nabil Al-Najjar, Northwestern University

Knight and Knightian Uncertainty

I recently re-read Knight's book. The book, submitted as his Ph.D. thesis at Cornell in 1914, is difficult to read but is full of ideas. What is clear is that: ``Knight shared the modern view that agents can be assumed always to act as if they have subjective probabilities.'' (LeRoy and Singell,
Knight on Risk and Uncertainty, JPE 1987)

In one-shot situations, such as the Ellsberg urn experiments, Knight indicated very clearly that there cannot be a distinction between risk and uncertainty, and that rationality requires Bayesian reasoning and behavior. Whatever motivates Ellsberg experimental subjects, be it paranoia or probabilistic illiteracy, is not Knightian uncertainty--at least as far as Frank Knight is concerned.

Selection of passages from Knight’s Risk, Uncertainty, and Profit.

Towards a Bayesian Foundations of Knightian Uncertainty

These papers summarize my attempts to make sense of Knightian uncertainty within a coherent, rational choice framework.

A Bayesian Framework for Precautionary Policies

Forthcoming, Journal of Legal Studies

Paper prepared for a law conference. Its style has in mind a general audience of legal scholars, climate scientists, and practitioners interested in Knightian Uncertainty.

Link to paper, Slides summarize this paper and other ideas on modeling Knightian Uncertainty.

A Bayesian Model of Knightian Uncertainty

with Jonathan Weinstein. Forthcoming in Theory and Decision.

Link to paper, slides

Subjective Probability

with Luciano de Castro. The Wiley Encyclopedia of Operations Research and Management Science, 2011.

Link to paper

The Ambiguity Aversion Literature: A Critical Assessment

with Jonathan Weinstein. Economics and Philosophy, 2009
(lead paper in a special issue on ambiguity with replies and rejoinder).

Links to paper, slides.