Right conduct when knowledge is not enough
What, according to Keynes, is right conduct? Keynes develops a concept of rational economic decision different from the maximisation of expected value. In his A Treatise on Probability the stress is on intuitive judgement. The distinction between deliberate reasoning and intuition has engaged the interest of many authors in recent decades (such as D. Kahneman, A. Tversky, and D. McFadden.) and prompts us to stress the topicality of Keynes's thinking about right conduct. Intuition represents all the forms of prior knowledge that guide agents' inductive inferences. In particular, Kahneman (2002, p. 451), when exploring the psychology of intuitive choices and examining their bounded rationality, maintains that 'the label "intuitive" is applied to judgements that directly reflect impressions', where impressions can be defined as opinions, ideas about facts, not grounded on certain elements and on logical reasoning but suggested by subjective impulses. Intuitive judgement is more frequent than judgements produced by deliberate reasoning, since agents are in general observed making choices according to a limited number of heuristics 'which reduce the complex tasks of assessing probabilities and predicting values to simpler judgmental operations' (Kahneman, 2002, p. 465).
In Keynesian terms, if
the question of a right action is under all circumstances a determinate problem, it must be in virtue of an intuitive judgement directed to the situation as a whole, and not in virtue of an arithmetical deduction derived from a series of separate judgements directed to the individual alternatives each treated in isolation. We must accept the conclusion that, if one good is greater than another, but the probability of attaining the first less than that of attaining the second, the question of which it is our duty to pursue may be indeterminate, unless we suppose it to be within our power to make direct quantitative judgements of probability and goodness jointly.
(1973a , p. 345; emphasis added)
In this way Keynes (1972e , p. 446) emphasises 'the right to judge every individual case on its merits, and the wisdom, experience and selfcontrol to do so successfully'.
In addition, since moral good may be non-measurable and knowledge for establishing a numerical probability may be not enough, we cannot rationalize our behaviour by resorting to the principle of indifference, or 'by arguing that to a man in a state of ignorance errors in either direction are equally probable, so that there remains a mean actuarial expectation based on equi-probabilities. For it can easily be shown that the assumption of arithmetically equal probabilities based on a state of ignorance leads to absurdities' (1973b , p. 152).10 As reason cannot be defeated if we do not know the numerical value of probability, Keynesian rationality is more comprehensive than Bayesian rationality, since it can be applied to uncertain situations where Bayes's solution cannot be determined - that is, when the existence of an a priori distribution cannot be postulated, or when, even if the existence of an a priori distribution can be assumed, it is unknown to the experimenter (Wald, 1950, p. 16).
This firm belief influenced The General Theory of Employment, Interest and Money (1973b ), where Keynes deals with the complexities of economic relations considered as a whole, which may compel agents to behave in situations of fundamental uncertainty. More specifically, the Keynesian formation of expectations about economic decisions affecting the future is considered in the short term and in the long term. In the short term, expectations generally have a high weight, because changes are mainly slow and each short term seems similar to the previous one. Since the amount of available information is great, it is possible to arrive at a probable inductive generalization. In the long term, in contrast, the amount of evidence is generally small, and so the weight of evidence is low, because there is no stability and expectations cannot be generalized through induction. Since our knowledge about long-term consequences is very vague and really uncertain, a rational basis for establishing numerical probability does not exist, so that mathematical expectation cannot be computed; and so agents would discard 'the calculus, the mensuration and the duty to know exactly what one means and feels' (Keynes, 1972e , p. 442).