Entrepreneurs, risk managers, and uncertainty
Hyman Minsky offered profound thoughts about the economic dialectic between, as he characterized it, ‘entrepreneurs and bankers.’

Thomas Stanton’s 2012 study of comparative organizational performance during the great 21st-century financial crisis, Why Some Firms Thrive While Others Fail, cites Frank Knight’s 1921 classic, Risk, Uncertainty, and Profit. I consider Stanton’s theme to be how to address the unavoidable reality stated thus by Knight: “Uncertainty is one of the fundamental facts of life. It is … ineradicable from business decisions.”1

As Stanton says, "Knight long ago distinguished risk, which can be quantified, from uncertainty, which requires judgment. Successful firms used judgment to add more protection than quantitative modeling would have suggested."2

Edmund Phelps reflects on Knight’s dictum as follows:

Knight … took the unprecedented position … that most business decisions, especially strategic ones, are to varying degree steps into the unknown. Each of the possible outcomes of a business venture can be considered to have some probability of occurring, but those probabilities are not known.

Read the full text of the article on The American.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Alex J.
Pollock

What's new on AEI

Rebuilding American defense: A speech by Governor Bobby Jindal
image Smelling liberal, thinking conservative
image Stopping Ebola before it turns into a pandemic
image All too many reasons for pessimism about Europe
AEI on Facebook
Events Calendar
  • 20
    MON
  • 21
    TUE
  • 22
    WED
  • 23
    THU
  • 24
    FRI
Monday, October 20, 2014 | 2:00 p.m. – 3:30 p.m.
Warfare beneath the waves: The undersea domain in Asia

We welcome you to join us for a panel discussion of the undersea military competition occurring in Asia and what it means for the United States and its allies.

Tuesday, October 21, 2014 | 8:30 a.m. – 10:00 a.m.
AEI Election Watch 2014: What will happen and why it matters

AEI’s Election Watch is back! Please join us for two sessions of the longest-running election program in Washington, DC. 

Wednesday, October 22, 2014 | 1:00 p.m. – 2:30 p.m.
What now for the Common Core?

We welcome you to join us at AEI for a discussion of what’s next for the Common Core.

Thursday, October 23, 2014 | 10:00 a.m. – 11:00 a.m.
Brazil’s presidential election: Real challenges, real choices

Please join AEI for a discussion examining each candidate’s platform and prospects for victory and the impact that a possible shift toward free-market policies in Brazil might have on South America as a whole.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.