Can probability theory deal with entrepreneurship?
 Vlad Tarko
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The Austrian theory of entrepreneurship emphasizes the importance of epistemic heterogeneity and the unlistability of the set of all possibilities. A similar concern with what has been called “the art of choosing the space of possibilities” is an important part of Bayesian model selection. Both Austrian and Bayesian authors view the common knowledge assumption as an unrealistic and unnecessary restriction. This coincidence of concerns leads to a joint theory of entrepreneurship. Three important benefits result from this merger: (1) the ability to use Itti & Baldi’s Bayesian theory of surprise to empirically measure radical surprise and improve the Betrand competition model as a consequence, (2) dealing with the unlistability problem, and (3) better understanding why the emergence of common knowledge is always the outcome of a social process rather than an inherent consequence of “rationality”.
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Within this Article
 Introduction
 Three approaches to the question of entrepreneurial rationality
 The Bayesian riskuncertainty distinction
 The mathematical measure of surprise
 Is there an unlistability problem?
 Why there is no automatic tendency toward common knowledge
 Conclusion
 References
 References
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 Title
 Can probability theory deal with entrepreneurship?
 Journal

The Review of Austrian Economics
Volume 26, Issue 3 , pp 329345
 Cover Date
 20130901
 DOI
 10.1007/s1113801201935
 Print ISSN
 08893047
 Online ISSN
 15737128
 Publisher
 Springer US
 Additional Links
 Topics
 Keywords

 Kiznerian entrepreneurship
 Bayesian surprise
 Unknown unknowns
 Radical uncertainty
 Bertrand competition
 D01
 D83
 D84
 C11
 Authors

 Vlad Tarko ^{(1)}
 Author Affiliations

 1. Economics Department, Mercatus Center, George Mason University, 4400 University Drive, 3G4, Fairfax, VA, 22030, USA