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Investment Decisions under Uncertainty

Author

Listed:
  • Sunanda Sen
Abstract
Divergent trends, as observed, between growth in the financial and real sectors of the global economy entail the need for further research, especially on the motivations behind investment decisions. Investments in market economies are generally guided by call-put option pricing models--which rely on an ergodic notion of probability that conforms to a normal distribution function. This paper considers critiques of the above models, which include Keynes's Treatise on Probability (1921) and the General Theory (1936), as well as follow-ups in the post-Keynesian approaches and others dealing with "fundamental uncertainty." The methodological issues, as can be pointed out, are relevant in the context of policy issues and social institutions, including those subscribed to by the ruling state. As it has been held in variants of institutional economics subscribed to by John Commons, Thorstein Veblen, Geoffrey Hodgeson, and John Kenneth Galbraith, social institutions remain important in their capacity as agencies that influence individual behavior with their "informational-cognitive" functions in society. By shaping business concerns and strategies, social institutions have a major impact on investment decisions in a capitalist system. The role of such institutions in investment decisions via policy making is generally neglected in strategies based on mainstream economics, which continue to rely on optimization of stock market returns based on imprecise estimations of probability.

Suggested Citation

  • Sunanda Sen, 2018. "Investment Decisions under Uncertainty," Economics Working Paper Archive wp_918, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_918
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    References listed on IDEAS

    as
    1. Stephen P. Dunn, 2001. "Bounded Rationality Is Not Fundamental Uncertainty: A Post Keynesian Perspective," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 23(4), pages 567-587, July.
    2. Fernando J. Cardim de Carvalho, 1992. "Mr Keynes And The Post Keynesians," Books, Edward Elgar Publishing, number 79.
    3. Roberto Scazzieri, 2011. "A Theory of Similarity and Uncertainty," Palgrave Macmillan Books, in: Silva Marzetti Dall’Aste Brandolini & Roberto Scazzieri (ed.), Fundamental Uncertainty, chapter 5, pages 73-103, Palgrave Macmillan.
    4. Sunanda Sen, 2003. "Global Finance at Risk," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-4039-4380-4, March.
    5. Bernard Shull, 2012. "Too Big to Fail: Motives, Countermeasures, and the Dodd-Frank Response," Economics Working Paper Archive wp_709, Levy Economics Institute.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Uncertainty; Probability; Weights; Investment; Keynes; Institutional Economics;
    All these keywords.

    JEL classification:

    • B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian; Stockholm School
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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