Uncertainty, Probability and Gambling
In the first place we are going to see how we can understand uncertainty, we will start with Mises pointing out the proximity that exists between uncertainty and human action. We will emphasize that they are inextricably linked, and although uncertainty cannot be made disappear, we will see, following Professor Huerta de Soto, ways to mitigate it.We will rely on Rothbard’s opinion to see the two possible origins that uncertainty can have, according to him, that is, the impossibility of prediction and the lack of knowledge.
Later we will see what we can understand by probability and its usual use in areas that are not the most appropriate for it. Next we will review the two types of probability: the one that is typical of the natural sciences, and that is characterized by being the only one that can be insurable and is capable of being expressed numerically, and which is known by the name of ‘class probability’ according to Mises, or ‘risk’ according to Frank H. Knight.
And the other one, that occurs before a unique event, which we cannot label into any class, since it is the only one of its kind and its typical of human action and is called, according to Mises’s terminology, ‘case probability’ and according to Knight’s, ‘uncertainty’.
We will see that Mises and Rothbard point out the differences between gambling, on the one hand, and entrepreneurship, on the other. Mises, in the sense that games are not based on cooperation, and that they are characterized as ‘zero-sum games’, in which some have to lose for others to win, while business is based on social cooperation. For his part, Rothbard will point out that by exposing himself to gambling, what he will do is generate, voluntarily, new risks that did not exist before, while the businessman with his actions, for his part, will try to achieve exactly the opposite, mitigate the uncertainty through the correct use of the business function.
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