Risk, Uncertainty and ProfitOne of the twentieth century's most influential economics texts, Risk, Uncertainty and Profit provided the theoretical basis of the entrepreneurial American economy during the post-industrial era. This revolutionary work taught the world how to systematically distinguish between risk (randomness with knowable probabilities), and uncertainty (randomness with unknowable probabilities), in order to accurately and properly ascertain a venture's potential profitability. Author Frank H. Knight's methodology served as the foundation of the Chicago School of Economics, maintaining that competition in a free market economy is the best method for achieving economic health. In this 1921 book, Knight explains why perfect competition would not necessarily eliminate profits, because of "uncertainty," rather than "risk." He contends that even in long-run equilibrium, entrepreneurs would earn profits as a return for their toleration of uncertainty. Knight's reasoning remains valid in the twenty-first century, and his definitions of risk and uncertainty continue to be taught in modern economics classes. Sociologist Edward Shils declared Risk, Uncertainty and Profit "a brilliant book," noting its interest not only to economists but also to social philosophers, sociologists, game theorists, and other specialists in social science. |
Other editions - View all
Common terms and phrases
actual alternatives amount assume assumption capital capitalization rate chapter classical economic commodity connection consume consumption cost course curve degree depends diminishing returns discussion distribution ditions duction ductive economic theory effect element enterprise entrepreneur equal equilibrium estimate exchange fact factors freedom of contract function fundamental future human important income increase individual industry interest investment involved J. S. Mill judgment justment knowledge labor large number law of large less limited loss matter means ment merely method monopoly moral hazard motives nature nomic operations organization owner perfect competition persons possible practical present principle probability problem productive agencies productive services profit progress pure question rational relation result risk secure sense separate situation social society sort static sumption supply tendency theoretical things timate tion uncertainty utility wages wants wealth