Abstract
At the centenary of Frank H. Knight’s Risk, Uncertainty, and Profit (1921), we explore the
continuing relevance of Knightian uncertainty to the theory and practice of entrepreneurship.
There are three challenges facing such assessment. First, RUP is complex and difficult to
interpret. The key but neglected element of RUP is that Knight’s account is not solely about
risk and uncertainty as states of nature, but about how an agent’s beliefs about uncertain
outcomes and confidence in those beliefs guide their choices. Second, RUP is Knight’s only
effort in this area. His subsequent career led elsewhere, so he did not engage with subsequent
interpretations of this work. Third, much of the current literature emphasizes that decisions
must be different under the two states of nature with a consequent misunderstanding of
entrepreneurial agency. This paper addresses each challenge in sequence. First, we explicate
Knight’s (1921) approach and explain why that approach is murky. Second, as a complement to Knight’s interpretation, we examine Frank P. Ramsey’s approach to subjective
probabilities to help clarify Knight’s murky approach. What links Knight and Ramsey is a
shared pragmatism about entrepreneurial agency under uncertainty that depends upon the
beliefs about, and confidence in, their judgments of possible outcomes. This Knight-Ramsey
approach does not require actor’s behaviors to be determined by the class of uncertain
environment (whether risk, uncertainty, or ambiguity) they face. We focus on the response
by the entrepreneur to the existence of uncertainty in all its forms. We argue that this
reductive account provides a foundation to examine common problems in management,
including managerial hubris, the interaction between entrepreneurs and venture capitalists,
and the need for experimentation (such as prototyping and market research) in advance of
new product and venture launches. Third, we critique current literature that favors epistemic
purism about the ontology of risk and uncertainty and ignores Knight-Ramsey pragmatism
in meeting uncertainty, such as using formal and informal institutions for uncertainty
mitigation. Our account locates Frank Knight’s subtleties in entrepreneurial behavior firmly
in the literature on entrepreneurial agency a century later.