Uncertainty Outside and Inside Economic Models
We must infer what the future situation would be without our interference, and what changes will be wrought by our actions. Fortunately, or unfortunately, none of these processes is infallible, or indeed ever accurate and complete. Knight (1921)
This manuscript was prepared in conjunction with the 2013 Nobel Prize in Economic Sciences. I thank Manuel Arellano, Amy Boonstra, Philip Barrett, Xiaohong Chen, John Cochrane, Maryaam Farboodi, Eric Ghysels, Itzhak Gilboa, Massimo Marinacci, Nan Li, Monika Piazzesi, Eric Renault, Scott Richard, Larry Samuelson, Enrique Sentana, José Scheinkman, Martin Schneider, Stephen Stigler, Harald Uhlig, Amir Yaron, an anonymous referees and especially Jaroslav Borovička, James Heckman, Thomas Sargent and Grace Tsiang for helpful comments. I receive support from the Alfred P. Sloan Foundation and the CME Group Foundation in my capacity as research director of the Becker Friedman Institute. I am also a co-Primary Investigator on a National Science Foundation (NSF) grant that supports the Center for Robust Decision Making on Climate and Energy Policy (RDCEP). The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.