Header

UZH-Logo

Maintenance Infos

The order of knowledge and robust action. how to deal with economic uncertainty?


Falkinger, Josef (2016). The order of knowledge and robust action. how to deal with economic uncertainty? Economics, 10(24):online.

Abstract

Uncertainty in economics is generated by “nature” but also by the model we use to “produce the future”. The production of the future comprises besides the allocation of resources on different instruments (technologies, financial products) also the design of the instruments. Specialization and diversification considerations point to the advantages of targeting instruments to a rich set of possible future states. But, if a rich state space comes with unreliable probability measures, the actions based on such a set will be unreliable, too. The proliferation of financial products is a salient example. This paper argues that an appropriate model for dealing with uncertainty keeps the knowledge required by the model from its user in line with the available knowledge. In particular, it proposes to order state spaces by their “granularity” and “coverage”. Appropriate upper bounds are derived for these characteristics. A practical implication of the presented approach would be to limit financial product innovation.

Abstract

Uncertainty in economics is generated by “nature” but also by the model we use to “produce the future”. The production of the future comprises besides the allocation of resources on different instruments (technologies, financial products) also the design of the instruments. Specialization and diversification considerations point to the advantages of targeting instruments to a rich set of possible future states. But, if a rich state space comes with unreliable probability measures, the actions based on such a set will be unreliable, too. The proliferation of financial products is a salient example. This paper argues that an appropriate model for dealing with uncertainty keeps the knowledge required by the model from its user in line with the available knowledge. In particular, it proposes to order state spaces by their “granularity” and “coverage”. Appropriate upper bounds are derived for these characteristics. A practical implication of the presented approach would be to limit financial product innovation.

Statistics

Citations

Altmetrics

Downloads

11 downloads since deposited on 19 Jan 2017
10 downloads since 12 months
Detailed statistics

Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Limited knowledge; robustness; reliable information; risk and uncertainty; crisis
Language:English
Date:October 2016
Deposited On:19 Jan 2017 07:31
Last Modified:02 Feb 2018 10:56
Publisher:Kiel Institute for the World Economy
ISSN:1864-6042
OA Status:Gold
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.5018/economics-ejournal.ja.2016-24

Download

Download PDF  'The order of knowledge and robust action. how to deal with economic uncertainty?'.
Preview
Content: Published Version
Filetype: PDF
Size: 726kB
View at publisher
Download PDF  'The order of knowledge and robust action. how to deal with economic uncertainty?'.
Preview
Content: Accepted Version
Filetype: PDF
Size: 229kB