One of the twentieth century's most influential economics texts, Risk, Uncertainty and Profit provided the theoretical basis of the entrepreneurial American economy during the post-industrial era. This revolutionary work taught the world how to systematically distinguish between risk (randomness with knowable probabilities), and uncertainty (randomness with unknowable probabilities), in order to accurately and properly ascertain a venture's potential profitability.
Author Frank H. Knight's methodology served as the foundation of the Chicago School of Economics, maintaining that competition in a free market economy is the best method for achieving economic health. In this 1921 book, Knight explains why perfect competition would not necessarily eliminate profits, because of "uncertainty," rather than "risk." He contends that even in long-run equilibrium, entrepreneurs would earn profits as a return for their toleration of uncertainty. Knight's reasoning remains valid in the twenty-first century, and his definitions of risk and uncertainty continue to be taught in modern economics classes.
Sociologist Edward Shils declared Risk, Uncertainty and Profit "a brilliant book," noting its interest not only to economists but also to social philosophers, sociologists, game theorists, and other specialists in social science.
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A timeless classic of economic theory that remains fascinating and pertinent today, this is Frank Knight's famous explanation of why perfect competition cannot eliminate profits, the important differences between "risk" and "uncertainty," and the vital role of the entrepreneur in profitmaking. Based on Knight's PhD dissertation, this 1921 work, balancing theory with fact to come to stunning insights, is a distinct pleasure to read.About the Author:
FRANK H. KNIGHT (1885-1972) was a graduate of the University of Tennessee where he received a Bachelor of Science degree and a Master of Arts degree. He then pursued his doctorate in Economics at Cornell University, studying under Professors Alvin Johnson and Allyn Young. This was where he completed his dissertation Cost, Value and Profit in 1916 which formed the basis of his later book Risk, Uncertainty, and Profit. Knight then joined the faculty of the University of Chicago where he eventually became chair of the Department of Economics. In this role, Knight was an early leader of what came to be known as the "first" Chicago school of economics. He was a prolific writer and had a great deal of influence on a generation of economists.
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