The Knightian Uncertainty Hypothesis: Unforeseeable Change and Muth’s Consistency Constraint in Modeling Aggregate Outcomes

Publikation: Working paper › Forskning

Standard

The Knightian Uncertainty Hypothesis : Unforeseeable Change and Muth’s Consistency Constraint in Modeling Aggregate Outcomes. / Frydman, Roman; Johansen, Søren; Rahbek, Anders; Tabor, Morten Nyboe.

2019.

Publikation: Working paper › Forskning

Harvard

Frydman, R, Johansen, S, Rahbek, A & Tabor, MN 2019 'The Knightian Uncertainty Hypothesis: Unforeseeable Change and Muth’s Consistency Constraint in Modeling Aggregate Outcomes'. https://doi.org/10.2139/ssrn.3341203

APA

Frydman, R., Johansen, S., Rahbek, A., & Tabor, M. N. (2019). The Knightian Uncertainty Hypothesis: Unforeseeable Change and Muth’s Consistency Constraint in Modeling Aggregate Outcomes. University of Copenhagen. Institute of Economics. Discussion Papers (Online) Nr. 19-02 https://doi.org/10.2139/ssrn.3341203

Vancouver

Frydman R, Johansen S, Rahbek A, Tabor MN. The Knightian Uncertainty Hypothesis: Unforeseeable Change and Muth’s Consistency Constraint in Modeling Aggregate Outcomes. 2019 mar. 15. https://doi.org/10.2139/ssrn.3341203

Author

Frydman, Roman ; Johansen, Søren ; Rahbek, Anders ; Tabor, Morten Nyboe. / The Knightian Uncertainty Hypothesis : Unforeseeable Change and Muth’s Consistency Constraint in Modeling Aggregate Outcomes. 2019. (University of Copenhagen. Institute of Economics. Discussion Papers (Online); Nr. 19-02).

Bibtex

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title = "The Knightian Uncertainty Hypothesis: Unforeseeable Change and Muth{\textquoteright}s Consistency Constraint in Modeling Aggregate Outcomes",
abstract = "This paper proposes the Knightian Uncertainty Hypothesis (KUH), a new approach to macroeconomics and finance theory. KUH rests on a novel mathematical framework that characterizes both measurable and Knightian uncertainty about economic outcomes. Relying on this framework and Muth{\textquoteright}s pathbreaking hypothesis, KUH represents participants{\textquoteright} forecasts to be consistent with both uncertainties. KUH thus enables models of aggregate outcomes that 1) are premised on market participants{\textquoteright} rationality, and 2) accord a role to both fundamental and psychological (and other non-fundamental) factors in driving outcomes. The paper also suggests how a KUH model{\textquoteright}s quantitative predictions can be confronted with time-series data.",
keywords = "Faculty of Social Sciences, Unforeseeable Change, Knightian Uncertainty, Muth{\textquoteright}s Hypothesis, Model Ambiguity, REH, Behavioral Finance",
author = "Roman Frydman and S{\o}ren Johansen and Anders Rahbek and Tabor, {Morten Nyboe}",
year = "2019",
month = mar,
day = "15",
doi = "10.2139/ssrn.3341203",
language = "English",
series = "University of Copenhagen. Institute of Economics. Discussion Papers (Online)",
number = "19-02",
type = "WorkingPaper",

}

RIS

TY - UNPB

T1 - The Knightian Uncertainty Hypothesis

T2 - Unforeseeable Change and Muth’s Consistency Constraint in Modeling Aggregate Outcomes

AU - Frydman, Roman

AU - Johansen, Søren

AU - Rahbek, Anders

AU - Tabor, Morten Nyboe

PY - 2019/3/15

Y1 - 2019/3/15

N2 - This paper proposes the Knightian Uncertainty Hypothesis (KUH), a new approach to macroeconomics and finance theory. KUH rests on a novel mathematical framework that characterizes both measurable and Knightian uncertainty about economic outcomes. Relying on this framework and Muth’s pathbreaking hypothesis, KUH represents participants’ forecasts to be consistent with both uncertainties. KUH thus enables models of aggregate outcomes that 1) are premised on market participants’ rationality, and 2) accord a role to both fundamental and psychological (and other non-fundamental) factors in driving outcomes. The paper also suggests how a KUH model’s quantitative predictions can be confronted with time-series data.

AB - This paper proposes the Knightian Uncertainty Hypothesis (KUH), a new approach to macroeconomics and finance theory. KUH rests on a novel mathematical framework that characterizes both measurable and Knightian uncertainty about economic outcomes. Relying on this framework and Muth’s pathbreaking hypothesis, KUH represents participants’ forecasts to be consistent with both uncertainties. KUH thus enables models of aggregate outcomes that 1) are premised on market participants’ rationality, and 2) accord a role to both fundamental and psychological (and other non-fundamental) factors in driving outcomes. The paper also suggests how a KUH model’s quantitative predictions can be confronted with time-series data.

KW - Faculty of Social Sciences

KW - Unforeseeable Change

KW - Knightian Uncertainty

KW - Muth’s Hypothesis

KW - Model Ambiguity

KW - REH

KW - Behavioral Finance

U2 - 10.2139/ssrn.3341203

DO - 10.2139/ssrn.3341203

M3 - Working paper

T3 - University of Copenhagen. Institute of Economics. Discussion Papers (Online)

BT - The Knightian Uncertainty Hypothesis

ER -

ID: 215683697