If there is such a thing as growing human knowl-
edge, then we cannot anticipate today, what we will
only know tomorrow.—Karl R. Popper, The Poverty of Historicism
Market outcomes (such as asset prices) or overall levels of economic activity, consumption, or investment result from the decisions of many individuals. In analyzing how outcomes unfold over time, Hayek, Knight, Keynes, and other early modern economists related their accounts to individual decisionmaking. Their profound insight was to place nonroutine change and market participants’ imperfect knowledge at the center of economic analysis. This focus led them to discover the limits of economists’ own knowledge—and thus of economics itself.
Knight’s arguments concerning the importance of “radical uncertainty” led him to question the relevance of standard probability theory for understanding profit-seeking decisions. He argued that such decisions “deal with situations which are far too [nonroutine] … for any sort of [unique] statistical tabulations to have any value for guidance” (Knight, 1921, p. 198). The key implication of this claim is that standard probabilistic portrayals of individual decisions—which presume that their future consequences, and
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