name | Frank Hyneman Knight |
---|---|
school tradition | Chicago school of economics |
color | maroon |
birth date | November 07, 1885 |
birth place | McLean County, USA |
death date | April 15, 1972 |
opposed | Arthur Cecil Pigou |
influenced | Ronald Coase, Steven N. S. Cheung |
contributions | Knightian uncertainty |
signature | |
repec prefix | | repec_id }} |
Knight invented the notion of what has come to be called Knightian uncertainty, where he made a distinction between "risk" and uncertainty. He argued that situations with risk were those where decision making was made faced with unknown outcomes but known ex-ante probability distributions. He argued that these situations, where decision making rules such as maximising expected utility can be applied, differ in a deep way from those where the probability distribution of a random outcome is unknown. While most economists today would recognise the difference between the two situations, there has been little progress in terms of writing models and doing empirical tests of problems with Knightian uncertainty. A possible exception is the "Markets from Networks" model developed by sociologist Harrison White in 2002.
He entered a famous debate with A.C. Pigou over social costs. He also made contributions to the arguments about toll roads. He said that rather than congestion justifying government tolling of roads, privately owned roads would set tolls to reduce congestion to its efficient level. In particular, he developed the argument that forms the basis of analysis of traffic equilibrium, and has since become known as Wardrop's Principle:
:Suppose that between two points there are two highways, one of which is broad enough to accommodate without crowding all the traffic which may care to use it, but is poorly graded and surfaced; while the other is a much better road, but narrow and quite limited in capacity. If a large number of trucks operate between the two termini and are free to choose either of the two routes, they will tend to distribute themselves between the roads in such proportions that the cost per unit of transportation, or effective returns per unit of investment, will be the same for every truck on both routes. As more trucks use the narrower and better road, congestion develops, until at a certain point it becomes equally profitable to use the broader but poorer highway.
Nobel laureate Milton Friedman studied under Knight while attending the University of Chicago.
Category:1885 births Category:1972 deaths Category:American economists Category:Cornell University alumni Category:Guggenheim Fellows Category:Historians of economic thought Category:Mont Pelerin Society members
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