Citation:

Zhaoyong Geng, Yuquan Cui. "Measurement Methods of Risk Positions with Knight Uncertainty" International Research Journal of Economics and Management Studies, Vol. 2, No. 3, pp. 187-196, 2023.

Abstract:

This paper attempts to expand the scope of risk measurement to those risk positions with Knight uncertainty, which not only have "unknown unknown" but also have "known unknown". The first problem is the description of Knight's uncertainty. This paper summarizes and proposes a variety of definitions of Knight's uncertainty, describing the existence of Knight's uncertainty from subjective and objective perspectives. On this basis, several reasonable forms of risk measure that can simultaneously measure Knight uncertainty and risk are discussed. A method to measure the event's Knight uncertainty is proposed under the decision theory, and I have shown that this method of quantifying Knight uncertainty is consistent with Epstein's definition of unambiguous events and 𝜆-systems. For the case of multiple prior probabilities, this paper uses the expectation of the maximum-minimum formula to define the measurement function. It takes the spectral risk measurement as an example to show that under certain conditions, the consistency condition of this measurement function is not different from the traditional spectral risk measurement function.

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Keywords:

Risk, Risk measure, Knight Uncertainty, Decision Theory, Coherence.