Tetiana Bilous, The Economics and Philosophy of Risk and Uncertainty

11.12.2025 15:00

Meeting room, Institute of Philosophy, CAS, Jilská 1, Prague

Abstract

The distinction between risk and uncertainty has played an important role in economic thought from Knight (1921) to the present day. Neoclassical economists employ expected utility theory to explain, predict, and guide decision-making under risk (von Neumann & Morgenstern, 1944)—often referred to as objective expected utility theory—and rely on subjective expected utility theory to account for choices under uncertainty (Savage, 1954). However, findings from experimental economics show that actual decision-makers frequently deviate from these theoretically derived standards of rationality (Kahneman & Tversky, 1979; Smith, 1991). The cognitive mechanisms underlying decision-making under risk differ from those involved in decision-making under uncertainty (Gigerenzer, 2015). In this paper, I 1) examine canonical models of decision-making under risk (including Prospect Theory) and the methodological issues raised by the “as if” approach in economics; 2) using examples from the venture-capital mindset, I present arguments for why the risk–uncertainty distinction is insufficient and should be extended to include the concept of radical (fundamental) uncertainty.