Summary
The empirical facts seem to indicate that in “real economies” the effect of uncertainty tends to decrease production. The limitations of empirical investigations presented should be stressed: they were performed mainly on an aggregate level, they mainly refer to Austrian manufacturing, they rely heavily on questionnaires. Above all empirical investigation will never be able to decide normative questions or to explain the behavior in the general equilibrium. Nevertheless in the short run, given all the rigidities and disequilibria which exist, uncertainty tends to lower optimal production even in absence of risk aversion. Risk aversion becomes important for large, for once-for-all decisions, but it is not the only channel through which uncertainty changes decisions.
“Technological concavity” created by concave marginal revenues or by convex marginal costs, marginal costs of uncertainty in disequilibria model or asymmetric costs of revisions of the preliminary decision are able to bias the decision downward in a real world economy without invoking
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Paper presented to the 2nd Conference on the Foundations of Risk and Utility (FUR), Venezia, 1984.
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Aiginger, K. The impact of risk attitude, uncertainty and disequilibria on optimal production and inventory. Theor Decis 19, 51–75 (1985). https://doi.org/10.1007/BF00134354
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DOI: https://doi.org/10.1007/BF00134354