Mervyn King, former Governor of the Bank of England, joins renowned economist John Kay and MP Jesse Norman to tackle the concept of 'radical uncertainty.' They discuss decision-making in unpredictable times, arguing that traditional economic models often fail to capture real-world complexities. The conversation reflects on lessons from the 2008 financial crisis, critiques regulatory failures, and urges a deeper understanding of risk and uncertainty, emphasizing the need for holistic approaches in both public and private sectors.
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question_answer ANECDOTE
Planetary Motion vs. Economics
NASA precisely predicted a spacecraft's trajectory to Mercury after seven years due to stationary physics laws.
Planetary motion, unlike economics, remains unaffected by human observation or beliefs.
insights INSIGHT
Risk vs. Uncertainty
Keynes and Knight distinguished between risk (probabilistically definable) and uncertainty (not).
Uncertainty drives entrepreneurship and profits in capitalist economies, fostering innovation.
insights INSIGHT
Dismissed Distinction
Knight linked uncertainty to entrepreneurship, while Keynes connected it to animal spirits and macroeconomics.
Economists after WWII, influenced by Friedman, largely dismissed this crucial distinction.
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A Treatise on Probability, published in 1921, presents a comprehensive and philosophical approach to probability, diverging from classical quantified theories. Keynes explores probability as a logical relation between evidence and hypothesis, emphasizing the degree of partial implication. The book is structured into five parts, covering fundamental ideas, inference theorems, induction, objective chance, and statistical inference.
Radical Uncertainty
Decision-Making Beyond the Numbers
John Kay
Mervyn King
In 'Radical Uncertainty: Decision-Making Beyond the Numbers,' Mervyn King and John Kay discuss the concept of radical uncertainty, which involves events whose determinants are insufficiently understood for probabilities to be known or forecasting to be possible. The authors argue that many critical decisions cannot rely on forecasts or probability distributions and instead advocate for strategies that are robust to alternative futures and resilient to unpredictable events. They critique the overreliance on statistical models and rational choice theories, emphasizing the importance of narratives, abductive reasoning, and understanding the context of decision-making. The book covers various fields including economics, finance, policy studies, and more, using real-life examples to illustrate the folly of predictive models and the need for a more nuanced approach to uncertainty[1][2][3].
Risk, Uncertainty, and Profit
Frank H Knight
In these incredibly uncertain times, we're exploring the concept of 'radical uncertainty' in this episode with Mervyn King, the former Governor of the Bank of England, alongside renowned economist John Kay and Jesse Norman MP. Mervyn and John are the co-authors of a new book titled Radical Uncertainty: Decision-Making Beyond the Numbers, and in this episode they discuss the most successful - and most short-sighted - methods of dealing with an unknowable future using history, mathematics, economics and philosophy.
Intelligence Squared 
