Re-Reading Keynes after the Crisis: Probability and Decision

Quaderni del Dipartimento di Economia Politica - Working Paper No. 646

31 Pages Posted: 10 Jul 2012 Last revised: 12 Jul 2012

See all articles by Carlo Zappia

Carlo Zappia

University of Siena - Department of Economics and Statistics

Date Written: July 10, 2012

Abstract

The recent financial crisis has renewed the interest in Keynes's thought and his analysis of the role played by individual agents in financial markets. George Akerlof and Robert Shiller, in particular, have drawn on the growing interest in behavioral interpretations of financial markets to hold that Keynes’s insistence on “the spontaneous urge to action” of individuals is the most relevant message conveyed by the General Theory. This paper starts off from a brief summary of Akerlof and Shiller’s influential stance and aims to provide an historically motivated assessment of their claim. The paper mostly concentrates on Keynes’s Treatise on Probability and discusses how Keynes applied his philosophy of probability to decision-making. It is argued that a fresh reading of this part of Keynes’s work can contribute to an understanding of how individual agents behave under uncertainty, and that the violations of the Bayesian creed scrutinized in behavioral finance, and in some current proposals to amend mainstream decision theory, were already implicitly discussed by Keynes in his critique of frequency probability.

Keywords: uncertainty, probability, decision theory

JEL Classification: B21, D81

Suggested Citation

Zappia, Carlo, Re-Reading Keynes after the Crisis: Probability and Decision (July 10, 2012). Quaderni del Dipartimento di Economia Politica - Working Paper No. 646, Available at SSRN: https://ssrn.com/abstract=2103094 or http://dx.doi.org/10.2139/ssrn.2103094

Carlo Zappia (Contact Author)

University of Siena - Department of Economics and Statistics ( email )

Piazza San Francesco 7
Siena, Siena 53100
Italy

HOME PAGE: http://docenti-deps.unisi.it/carlozappia/

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