A Note on Knight ' S Concepts of " Risk " and " Uncertainty

In his classic book, Risk, Uncertainty, and Profit [9] , F.H . Knight proposed that one should distinguish sharply between "risk" and "uncertainty" as descriptions of imperfect knowledge about the economic environment ; risk being a quantitative measure and uncertainty a non-quantitative one . These two concepts have since become standard in microeconomics, especially in the theory of profit (5] . And recently, Knight's ideas have been used as the basis of a critique of monetary theory by Davidson [2] . Briefly, Davidson's thesis is that the demand for money is a consequence of Knightian uncertainty, so that the standard works in this field,' which use a numerical probability model Knightian risk are mistaken about the foundations ofmonetary theory .