Radical Uncertainty: Decision making for an unknowable future is a new book from eminent British economists Professor John Kay CBE, FRSE, FBA, FAcSS and former Bank of England Governor Lord Mervyn King. Economics Explained host Gene Tunny interviews Professor Kay about the book in this episode. 

Timestamps

Use these (approximate) timestamps to jump right to the highlights:

• 2:34 – John Kay on what is meant by Radical Uncertainty, beginning with references to Maynard Keynes and Frank Knight
• 8:40 – discussion of what Kay and King see as the critical question, “What is going on here?”, in the context of coronavirus
• 14:35 – discussion of non-stationary process
• 16:25 – discussion of the usefulness of economic models, with Gene asking John to explain the statement in the book “"You cannot derive a probability or a forecast or a policy recommendation from a model..."
• 26:10 – John explains the importance of robustness and resilience in systems in response to a question referencing climate change

Kay and King’s lessons on the appropriate use of economic models include:

• deploy simple models (as you’re trying to “illuminate part of the large world of radical uncertainty”, rather than trying to precisely describe it)
• identify the most important parameters and undertake research to determine sensible values of those parameters,
• simple models are more flexible, and
• under radical uncertainty, options provided by a particular policy can be extremely important.

It goes without saying that this book is highly recommended reading. 

This episode was recorded on Friday 24 April 2020 using Zoom.