Rakow on Knight’s Risk …

Rakow, Tim Risk, uncertainty and prophet: The psychological insights of Frank H. Knight Judgment and Decision Making, Vol. 5, No. 6, October 2010, pp. 458–46


… A discussion of Knight’s potential contribution to psychological decision theory emphasises the importance of a historical perspective on theory development, and the potential value of sourcing ideas from other disciplines or from earlier periods of time.

Concluding Remarks

Why should we concern ourselves with the ideas of an economist born in 1885? Have not all of the ideas discussed above found a clearer expression and a more precise application in the theories and experimentation of the past 50 years?

… What I hope to have shown is how decision research in the late 20th century could have benefited from a close reading of Knight’s RU&P, particularly as a source of useful hypotheses to pursue. … The point is: we should be open to the possibility that the best sources for “fresh” ideas may lay outside the confines of our own discipline, or may be found in literature much older than we typically examine. Decision psychologists have been keen to emphasise that their theories and insights have important implications for economic theory. A reading of Knight’s Risk Uncertainty and Profit emphasises that important psychological insights may manifest themselves in the writing of those who do not describe themselves as psychologists.


This is not how science is done

Daniel Kahneman Department of Psychology, Princeton University

It will be interesting to the readers of Judgment and Decision Making that Knight (more or less clearly) knew so much in 1921. However, I think that the assertion in the last paragraph that: “What I hope to have shown is how decision research in the late 20th century could have benefited from a close reading of Knight’s RU&P, particularly as a source of useful hypotheses to pursue” makes no sense at all. This is not how science is done. Science is essentially a conversation in which people respond to what others have most recently said, or to the ideas that are currently dominant.

… Amos and I often noted that our grandmothers knew most of what we discovered and published — which does not imply that we would have done better work if we had listened to them more attentively.

Past work is one source of inspiration among many

Jonathan Baron Department of Psychology, University of Pennsylvania

In some cases, historical scholarship has apparently influenced modern researchers in ways I think are beneficial. For example, Eleanor Rosch claimed to get her ideas about “family resemblance” from Wittgenstein. …

In other cases early work has been ignored and wheels have been re-invented. The invention of the very important distinction between normative and prescriptive models happened without any explicit reference to parallel ideas in the writing of J. S. Mill and Henry Sidgwick, or anything other than the immediate need. …

On the whole, I think that a lot of creative work is the result of the juxtaposition of views that do not often touch each other. This might have happened in Prospect Theory. One of its essential ideas, diminishing sensitivity, could have resulted from the juxtaposition of economics and psychophysics, which had been separate for many decades. If I am right about this, then reading old books in another field is as legitimate (and as potentially misleading) a source of inspiration as opium-inspired pipe-dreams.

My Comment

As a mathematician who has engaged with practitioners from other fields with varying success I hadn’t expected eminent psychologists to be so openly cynical about the benefits of looking outside their own ‘silo’.

For myself, I found the distinction between ‘normative’ and ‘prescriptive’ models interesting. Contra Kahneman and Baron, I suspect that if I had some shared some understanding of these concepts with psychologists and others they have influenced, we might have come to a greater mutual understanding of Knight’s work (which was first brought to my attention by social scientists.)

It seems to me that Kahneman et al did a good job in drawing attention to:

  1. The espoused norms of then fashionable (‘mainstream’) economists.
  2. Their belief /observation that scientists respond to what others [in their circle] have most recently said, or to the ideas that are currently dominant.’

The first point is addressed on my blog under the ‘economics’ tab.

The second point certainly seems true of many scientists, including psychologists and economists. In so far as ‘peer review’ is a norm, one might also see it as a norm. But it is surely a description of a failing, rather than being an acceptable norm, much less a viable prescription? Isn’t the essence of science to be open-minded and to seek out and take seriously relevant evidence?

Some economists quote Einstein on this.:

it is by no means an idle game if we become practiced in analyzing the long commonplace concepts and exhibiting those circumstances upon which their justification and usefulness depend, how they have grown up, individually, out of the givens of experience.  By this means, their all-too-great authority will be broken.

For example, as a mathematician I accept that certain economic and decision theories are norms in their fields and have valid mathematical models. But mere ‘mainstreamness’ (fashion) is not enough to justify a prescription. As someone who is often perplexed by social sciences I would also prefer it if ‘scientists’ responded to reasonable comments and questions from people outside their own fields, beyond simply citing their own dismal norms.

More prosaically, the view that scientists should stick to their own fields would seem to preclude a scientist acting in the role of a ‘chief scientist’ or ‘chief scientific adviser’, working across many fields. It is also inconsistent with contemporary usage of the term ‘data science’. But then maybe mathematics (and statistics) are not ‘sciences’ in the psychologists’ sense, but instead provide foundational concepts that all scientists should be guided by? 😉

Dave Marsay

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