From general equilibrium theory to the economics of uncertainty: a personal perspective

Abstract

This note is concerned with the question of why and how my research interest has been changed from general equilibrium theory to the economics of uncertainty. Although it is fundamentally a personal perspective, it is expected to have historical implications as well, thus serving as a good guide toward the new horizon of integrated social science. When I started my research life, so many people were involved in the “Cold War” between the capitalist bloc and the socialist bloc. In 1968, to escape from the Japanese university disturbance, I applied for the graduate program at the University of Rochester, with Professor Lionel W. McKenzie being a towering figure. Later, when I took care of the math econ sequence at the University of Pittsburgh, I began to have a feeling of doubt about the practical applicability of general equilibrium theory a la McKenzie. Partly being motivated by a suggestion from Professor Oscar Morgenstern, who came to Pittsburgh for an academic lecture, I started to shift my research area from pure and abstract theories to more practical and applied subjects including the economics of uncertainty. In 1989, all of a sudden, the seemingly invincible Berlin Wall turned down, being followed by the collapse of the mighty Soviet Union. In the dreadful year of 2008, the world economies were involved in the most serious crisis since the Great Depression on the 1930s. At present, we are living in the “New Age of Uncertainty,” hoping for the coming of the second Keynes and/or the second Knight. Thomas Piketty’s new book on economic inequality would possibly lead to the promotion of an integrated social science in the new century.