How to Use Keynes’s Conventional Coefficient of Risk and Weight, c, to Clear Up Misunderstandings and Confusions About Keynes’s Views on the Use on His Principle of Indifference Versus the Use of Laplace’s Principle of Nonsufficient Reason
International Journal of Applied Economics and Econometrics,Volume 19,No.3, July-September 2011, pp. 21-32
11 Pages Posted: 28 Nov 2010 Last revised: 4 Sep 2012
Date Written: November 27, 2010
J M Keynes’s Principle of Indifference is not the same as Laplace’s Principle of Nonsufficient Reason. The application of Keynes’s Principle of Indifference requires that the calculation of the probabilities be based on the existence of positive, symmetrical evidence. This requires that the weight of the evidence, w, be greater than 0.The application of the Principle of Nonsufficient reason has no such restriction on its range of application. Adherents of the Principle of Nonsufficient reason argue, contrary to Keynes’s views ,that probabilities can be based on purely subjective views without any evidence. An examination of the work of R. von Mises, Robert Skidelsky and Murray Rothbard on Keynes in this area shows that existing assessments of Keynes’s work are very deficient.No economist appears to understand the interval based approach to probability undertaken by Keynes in the A Treatise on Probability in 1921.This would explain the great confusion about Keynes's work in the area of decision making.
Keywords: Principle of Indifference, Weight of the Evidence, Uncertainty
JEL Classification: B22, B41, E12
Suggested Citation: Suggested Citation