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Decisions in Economics and Finance 
November 2002, Volume 25, Issue 2, pp 79–110 | Cite as

Knightian decision theory. Part I


A theory of choice under uncertainty is proposed which removes the completeness assumption from the Anscombe–Aumann formulation of Savage's theory and introduces an inertia assumption. The inertia assumption is that there is such a thing as the status quo and an alternative is accepted only if it is preferred to the status quo. This theory is one way of giving rigorous expression to Frank Knight's distinction between risk and uncertainty.

Mathematics Subject Classification (2000): 91B06
Journal of Economic Literature Classification: D81

Received: 8 October 2001 / Accepted: 8 November 2001

The author is grateful to Martin Shubik for encouragement and long discussions. He is also grateful to Donald Brown, Edward Leamer, David Schmeidler, Martin Shubik, Sidney Winter, Asad Zaman and Arnold Zellner for calling his attention to relevant literature.

Note of the Editor: Except for a few minor editorial changes, this article publishes content formerly circulated as Discussion Paper no.~807 of the Cowles Foundation at Yale University, November 1986.




© Springer-Verlag Italia 2002



Bewley, T. DEF (2002) 25: 79. https://doi.org/10.1007/s102030200006





