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Uncertainty - Definition and Classification for the Task of Economic Forecasting

Author

Listed:
  • Mihail Yanchev

    (Sofia University St. Kliment Ohridski, Faculty of Economics and Business Administration)

Abstract
The aim of this text is to establish a working definition and classification of uncertainty for the task of economic forecasting. This is necessary in order to arrive at a common understanding of the term, reduce semantic ambiguity and define a clear distinction when it comes to quantifying forecast uncertainty. Two fundamental sources on uncertainty by John Maynard Keynes and Frank H. Knight are reviewed from the perspective of the classification of uncertainty into aleatoric and epistemic, which is a separation of growing use in engineering and machine learning. The concepts of aleatoric and epistemic uncertainty are explored and the possible ambiguity and interaction between them are discussed. Finally, a working definition and classification of uncertainty is laid out and refined for practical use in the context of economic forecasting.

Suggested Citation

  • Mihail Yanchev, 2023. "Uncertainty - Definition and Classification for the Task of Economic Forecasting," Bulgarian Economic Papers bep-2023-03, Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski - Bulgaria // Center for Economic Theories and Policies at Sofia University St Kliment Ohridski, revised Mar 2023.
    • Handle: RePEc:sko:wpaper:bep-2023-03
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    File URL: https://www.uni-sofia.bg/index.php/eng/content/download/284336/1855980/file/BEP-2023-03.pdf
    File Function: First version, 2023
    Download Restriction: no
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Frank H. Knight; John Maynard Keynes; uncertainty; economic forecasting;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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