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The businessman may be compared with two other types of individuals who are essentially concerned with behavior under uncertainty ― the scientist and… - Kenneth Arrow
" "The businessman may be compared with two other types of individuals who are essentially concerned with behavior under uncertainty ― the scientist and the statistician. The scientist must choose, on the basis of limited information, among the innumerable logically conceivable laws of nature, a limited number. He cannot know whether his decisions are right or wrong, and, indeed, it is none too clear what is meant by those terms. There is a long history of attempts to reduce scientific method to system, including many which introduce probability theory, but it cannot be said that any great formal success has attended these efforts. If we were to compare the businessman to the scientist, we would be forced to the melancholy conclusion that little of a systematic nature can be said about the former’s decision-making processes.
The statistician typically finds himself in situations more similar to that of the businessman. The problem of statistics can be formulated roughly as follows. It is known that one out of a number of hypotheses about a given situation is true. The statistician has the choice of one of a number of different experiments (a series of experiments can be regarded as a single experiment, so that drawing a sample of any size can be included in this schema), the outcome of any one of which is a random variable with a probability distribution depending on which of the unknown hypotheses is correct. On the basis of that outcome, the statistician must take some action (accept or reject a hypothesis, estimate the mean of a distribution to be some particular value, accept or reject a lot of goods, recommend a change in production methods, and so on), the consequences of which depend on the action taken and on the hypothesis that is actually true.
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About Kenneth Arrow
Kenneth Joseph Arrow (August 23, 1921 – February 21, 2017) was an American economist, who was Professor Emeritus of Economics in Stanford, and joint winner of the Nobel Memorial Prize in Economics with John Hicks in 1972.
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Kenneth Joseph Arrow
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Kenneth J. Arrow
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Ken Arrow
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Additional quotes by Kenneth Arrow
Because the costs of transmission are nonnegligible, even situations which are basically certain become uncertain for the individual; the typical economic agent simply cannot acquire in a meaningful sense the knowledge of all possible prices, even where they are each somewhere available. Markets are thus costly to use, and therefore the multiplication of markets, as for contingent claims as suggested above, becomes inhibited.
There are two approaches to a theory of general equilibrium in an imperfectly competitive environment; most writers who touch on public policy questions implicitly accept one or the other of these prototheories without always recognizing that they have made such a choice. One assumes that all transactions are made according to the price system, that is, the same price is charged for all units of the same commodity; this is the monopolistic competition approach. The alternative approach assumes unrestricted bargaining; this is the game theory approach. The first might be deemed appropriate if the costs of bargaining were high relative to the costs of ordinary pricing, while the second assumes costless bargaining.
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As a general rule, the greater the uncertainty, the better to avoid large and irreversible commitments, to the extent that it is possible. When the famous 1930s gangster, Dutch Schultz, was dying, his incoherent last remarks were taken down by a stenographer. One of them was. "Don't make no bull moves." His words are a lesson for the kind of future that one might choose. Maintaining flexibility or keeping ones options open, is key in these matters.
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