Uncertainty inescapably affects all economic decisions and actions. Core neoclassical theory does not, and cannot, treat uncertainty seriously, because its constrained maximization requires the reduction of all uncertainties to different forms of perfect knowledge. Other economic schools do take uncertainty seriously, however, giving it independent, determining roles rather than eliminating it by assumptions. The treatment of uncertainty in four schools is discussed – the deficient neoclassical approach, followed by the better approaches of post-Keynesian, Austrian and institutionalist economics, all of which link economic theorizing to key features of reality, so embracing uncertainty instead of ignoring or trivializing it.
Keynes was a philosopher before also becoming an economist. His 1908 Fellowship dissertation (equivalent to a PhD), after many interruptions, was published as his philosophical magnum opus, A Treatise on Probability in 1921. This advanced the logical theory of probability to replace its main contemporary rivals, the classical theory and frequency theory. In Keynes’s treatment, probability is the general theory of logic covering all situations, regardless of whether the available information is sufficient or insufficient to deliver certainty. Probability thus arises in the context of arguments from premises to conclusions, and expresses the degree of rational belief one is entitled to have in the conclusion, given the premises. The extent to which the philosophy of the Treatise on Probability influenced Keynes’s economics and politics, especially regarding uncertainty, rationality, formal analysis (mathematical and econometric), methodology and rational action, has been much discussed and debated, with divergent standpoints being taken.