SFB 303 Discussion Paper No. A - 233
Author: Bewley, Truman F.
Title: Market Innovation and Entrepreneurship: A Knightian View
Abstract: Stimulated by Frank Knight's work, Risk, Uncertainty and Profit, a
theory of innovation is presented using what is termed Knightian decision
theory. This theory includes a concept of uncertainty aversion. Uncertainty
aversion makes people reluctant to undertake new unevaluatable risks. This
aversion is compounded when individuals are obliged to cooperate in
undertaking a risk. The theory leads naturally to the conclusion that
innovation in business would be the natural domain of individual investors
with unusually low levels of uncertainty aversion. Uncertainty aversion
would also make it difficult to innovate new markets for insurance of
unevaluatable risks, for the success of a new market requires that many
people overcome their aversion to uncertainty and enter the market.
Keywords: Nonparametric regression, kernel regression, bandwidth selection, bias
correction, mean squared error
Creation-Date: April 1989
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