Frank Knight and the paradox of uncertainty

Abstract

Frank Knight sees a paradox in the attempt to resolve uncertainty. People try to reduce it rationally, but at the same time they do not want life without it, otherwise life would lose its interest. From this perspective, we show that Knight’s critique of theoretical and real competition is not necessarily aimed at denying competition tout court, as some claim, nor at accepting laissez-faire as the best system despite its problems, as others claim. On the contrary, we argue that as an alternative to theoretical perfect competition with zero uncertainty and real laissez-faire with its unbalanced uncertainty, Knight imagines the possibility of a different competitive game in which uncertainty is better distributed among the players. This game allows all its players to deal with uncertainty in a way they enjoy. In it, competition is no longer a goad for most people, but a lure for all, not just a few.