How Using Greenspan’s Continuum Can Bridge the Huge Abyss That Exists Between Orthodox and Heterodox Economists Who Are Dealing With the Concept of Uncertainty

Abstract

In spite of the detailed work, done by Keynes in 1908 ,1921,and 1936 in his second Fellowship dissertation for Cambridge University, A Treatise on Probability, and the General Theory, respectively ,and by Knight in 1921 in Risk, Uncertainty and Profit ,that argued convincingly that uncertainty was a range that extended from complete ignorance to complete knowledge, economists are completely divided over what uncertainty means and its relevance. Orthodox economists place emphasis on using the extreme outcome of complete knowledge ,since this allows them to assume that all decision makers know the probability distributions, while heterodox economists place emphasis on using the other extreme outcome of complete ignorance, since this allows them to assume that decision makers do not know the probability distributions. Greenspan’s continuum specifies that the entire range or continuum between complete ignorance and complete knowledge is important to consider, not just the extremes. The current polarization of the economics profession could only benefit from agreeing to use Greenspan’s continuum as a planning tool for economic analysis. There are very significant difficulties with the concept of rational expectations as developed by Muth in 1960 regarding the interpretation of probability he is using. Was it subjective or objective? It can't be both.