Uncertainty goes mainstream: Savage, Koopmans and the measurability of uncertainty at the Cowles Commission

Abstract

This paper discusses the engagement of economists with the issue of the measurability of uncertainty. After a summary of the meaning attributed by authors such as Knight, Keynes, Shackle and Ellsberg to the contention that uncertainty is irreducible to risk and therefore unmeasurable, the paper investigates why this view did not emerge as a significant alternative to the mainstream up until recently. A main reason, never openly discussed in the literature, is shown to be the close link between Leonard Savage and the group of decision theorists at the Cowles Commission under the directorship of Jacob Marschak and Tjalling Koopmans. The paper aims to show that Koopmans, in particular, had a significant role in convincing economists that Savage’s axiomatization of a subjective version of expected utility was a decisive advance in the definition of rational behaviour.