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NOTE VI. Uncertainty

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Chapter 6. Uncertainty 1. Uncertainty and Acting

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The uncertainty of the future is already implied in the very notion of action. That man acts

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and that the future is uncertain are by no means two independent matters. They are only

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two different modes of establishing one thing.

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We may assume that the outcome of all events and changes is uniquely determined by eternal,

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unchangeable laws governing becoming and development in the whole universe.

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We may consider the necessary connection and interdependence of all phenomena, that is,

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their causal concatenation, as the fundamental and ultimate fact.

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We may entirely discard the notion of undetermined chance.

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But however that may be, or appear to the mind of a perfect intelligence, the fact remains

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that to acting man, the future is hidden.

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If man knew the future, he would not have to choose, and would not act.

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He would be like an automaton, reacting to stimuli without any will of his own.

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Some philosophers are prepared to explode the notion of man's will as an illusion and self-deception

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because man must unwittingly behave according to the inevitable laws of causality.

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They may be right or wrong from the point of view of the prime mover or the cause of

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itself.

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However, from the human point of view, action is the ultimate thing.

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We do not assert that man is free in choosing and acting.

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We merely establish the fact that he chooses and acts, and that we are at a loss to use

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the methods of the natural sciences for answering the question why he acts this way and not

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otherwise.

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Natural science does not render the future predictable.

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It makes it possible to foretell the results to be obtained by definite actions.

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But it leaves unpredictable two spheres, that of insufficiently known natural phenomena

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and that of human acts of choice.

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Our ignorance with regard to these two spheres taints all human actions with uncertainty.

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Apodictic certainty is only within the orbit of the deductive system of a prioristic theory.

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The most that can be attained with regard to reality is probability.

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It is not the task of praxeology to investigate whether or not it is permissible to consider

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as certain some of the theorems of the empirical natural sciences.

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This problem is without practical importance for praxeological considerations.

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At any rate, the theorems of physics and chemistry have such a high degree of probability that

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And we are entitled to call them certain for all practical purposes.

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We can practically forecast the working of a machine constructed according to the rules

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of scientific technology.

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But the construction of a machine is only a part in a broader program that aims at supplying

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the consumers with the machine's products.

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Whether this was or was not the most appropriate plan depends on the development of future

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Future Conditions, which, at the time of the plan's execution, cannot be forecast

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with certainty.

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Thus, the degree of certainty with regard to the technological outcome of the machine's

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construction, whatever it may be, does not remove the uncertainty inherent in the whole

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action.

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Future needs and valuations, the reaction of men to changes in conditions, future scientific

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Ludwig and technological knowledge, future ideologies and policies can never be foretold

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with more than a greater or smaller degree of probability. Every action refers to an

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unknown future. It is, in this sense, always a risky speculation.

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The problems of truth and certainty concern the general theory of human knowledge. The

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The problem of probability, on the other hand, is a primary concern of praxeology.

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2.

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The Meaning of Probability

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The treatment of probability has been confused by the mathematicians.

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From the beginning, there was an ambiguity in dealing with the calculus of probability.

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When the Chevalier de Maire consulted Pascal on the problems involved in the games of dice,

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The great mathematician should have frankly told his friend the truth, namely that mathematics

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cannot be of any use to the gambler in a game of pure chance. Instead, he wrapped his answer

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in the symbolic language of mathematics. What could easily be explained in a few sentences

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of mundane speech was expressed in a terminology which is unfamiliar to the immense majority

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and therefore regarded with reverential awe. People suspected that the puzzling formulas

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contained some important revelations, hidden to the uninitiated. They got the impression

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that a scientific method of gambling exists, and that the esoteric teachings of mathematics

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provide a key for winning. The heavenly mystic Pascal unintentionally became the patron saint

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of Gambling.

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The textbooks of the Calculus of Probability gratuitously propagandize for the gambling

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casinos precisely because they are sealed books to the layman.

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No less havoc was spread by the equivocations of the Calculus of Probability in the field

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of scientific research.

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The history of every branch of knowledge records instances of the misapplication of the Calculus

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Methods of Probability, which, as John Stuart Mill observed, made it the real opprobrium

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of mathematics. Some of the worst errors have arisen in our day in the interpretation of

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the methods of physics. The problem of probable inference is much bigger than those problems

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which constitute the field of the calculus of probability. Only preoccupation with the

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A mathematical treatment could result in the prejudice that probability always means frequency.

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A further error confused the problem of probability with the problem of inductive reasoning as

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applied by the natural sciences.

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The attempt to substitute a universal theory of probability for the category of causality

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characterizes an abortive mode of philosophizing, very fashionable only a few years ago.

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A statement is probable if our knowledge concerning its content is deficient.

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We do not know everything which would be required for a definite decision between true and not

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true.

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But, on the other hand, we do know something about it.

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We are in a position to say more than simply non liquid or ignoramus.

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There are two entirely different instances of probability.

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We may call them class probability, or frequency probability, and case probability, or the

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specific understanding of the sciences of human action.

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The field for the application of the former is the field of the natural sciences, entirely

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Class probability means, we know or assume to know, with regard to the problem concerned,

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everything about the behavior of a whole class of events or phenomena, but about the actual

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For all singular events or phenomena, we know nothing but that they are elements of this class.

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We know, for instance, that there are ninety tickets in a lottery and that five of them

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will be drawn.

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Thus, we know all about the behavior of the whole class of tickets.

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But with regard to the singular tickets, we do not know anything but that they are elements

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of this class of tickets.

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We have a complete table of mortality for a definite period of the past in a definite

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area.

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If we assume that with regard to mortality, no changes will occur, we may say that we

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know everything about the mortality of the whole population in question.

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But with regard to the life expectancy of the individuals, we do not know anything but

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that they are members of this class of people.

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For this defective knowledge, the calculus of probability provides a presentation in

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symbols of the mathematical terminology.

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It neither expands nor deepens nor complements our knowledge.

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It translates it into mathematical language.

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Its calculations repeat in algebraic formulas what we knew beforehand.

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They do not lead to results that would tell us anything about the actual singular events.

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And of course, they do not add anything to our knowledge concerning the behavior of the

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whole class, as this knowledge was already perfect, or was considered perfect, at the

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very outset of our consideration of the matter.

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It is a serious mistake to believe that the calculus of probability provides the gambler

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with any information which could remove or lessen the risk of gambling.

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It is, contrary to popular fallacies, quite useless for the gambler, as is any other mode

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of logical or mathematical reasoning. It is the characteristic mark of gambling that it

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deals with the unknown, with pure chance. The gambler's hopes for success are not based

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on substantial considerations. The non-superstitious gambler thinks, there is a slight chance,

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Cool reasoning must show the gambler that he does not improve his chances by buying

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two tickets instead of one of a lottery in which the total amount of the winnings is

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is smaller than the proceeds from the sale of all tickets. If he were to buy all the

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tickets, he would certainly lose a part of his outlay. Yet every lottery customer is

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firmly convinced that it is better to buy more tickets than less. The habitués of the

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casinos and slot machines never stop. They do not give a thought to the fact that because

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Because the ruling odds favor the banker over the player, the outcome will the more certainly

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result in a loss for them the longer they continue to play.

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The lure of gambling consists precisely in its unpredictability and its adventurous vicissitudes.

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Let us assume that ten tickets, each bearing the name of a different man, are put into

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a box.

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One ticket will be drawn, and the man whose name it bears will be liable to pay $100.

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Then an insurer can promise to the loser full indemnification if he is in a position to

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insure each of the ten for a premium of $10.

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He will collect $100 and will have to pay the same amount to one of the ten.

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But if he were to insure only one of them at a rate fixed by the calculus, he would

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would embark not upon an insurance business but upon gambling.

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He would substitute himself for the insured.

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He would collect ten dollars and would get the chance either of keeping it or of losing

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that ten dollars and ninety dollars more.

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If a man promises to pay at the death of another man a definite sum and charges for this promise

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the amount adequate to the life expectancy as determined by the calculus of probability,

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He is not an insurer, but a gambler. Insurance, whether conducted according to business principles

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or according to the principle of mutuality, requires the insurance of a whole class or

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what can reasonably be considered as such. Its basic idea is pooling and distribution

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of risks, not the calculus of probability. The mathematical operations that it requires

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are the four elementary operations of arithmetic. The calculus of probability is mere by-play.

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This is clearly evidenced by the fact that the elimination of hazardous risk by pooling

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can also be effected without any recourse to actuarial methods. Everybody practices

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it in his daily life. Every businessman includes in his normal cost accounting the compensation

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and for losses which regularly occur in the conduct of affairs.

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Regularly means, in this context, the amount of these losses is known as far as the whole

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class of the various items is concerned.

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The fruit dealer may know, for instance, that one of every 50 apples will rot in this stock.

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But he does not know to which individual apple this will happen.

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He deals with such losses as with any other item in the bill of costs.

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The definition of the essence of class probability as given above is the only logically satisfactory

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one.

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It avoids the crude circularity implied in all definitions referring to the equiprobability

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of possible events.

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In stating that we know nothing about actual singular events, except that they are elements

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The characteristic mark of insurance is that it deals with the whole class of events.

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As we pretend to know everything about the behavior of the whole class, there seems to

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There may be no specific risk involved in the conduct of the business.

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Neither is there any specific risk in the business of the keeper of a gambling bank or in the enterprise of a lottery.

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From the point of view of the lottery enterprise, the outcome is predictable, provided that all tickets have been sold.

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If some tickets remain unsold, the enterprise is in the same position with regard to them

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as every buyer of a ticket is with regard to the tickets he bought.

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4. Case Probability

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Case probability means we know with regard to a particular event some of the factors which determine its outcome,

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but there are other determining factors about which we know nothing.

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Case probability has nothing in common with class probability but the incompleteness of

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our knowledge.

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In every other regard, the two are entirely different.

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There are, of course, many instances in which men try to forecast a particular future event

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on the basis of their knowledge about the behavior of the class.

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A doctor may determine the chances for the full recovery of his patient if he knows that

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70% of those afflicted with the same disease recover.

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If he expresses his judgment correctly, he will not say more than that the probability

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of recovery is 0.7, that is, that out of 10 patients, not more than 3 on the average die.

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All such predictions about external events, that is, events in the field of the natural

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sciences, are of this character.

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They are, in fact, not forecasts about the issue of the case in question, but statements

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about the frequency of the various possible outcomes.

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They are based either on statistical information, or simply on the rough estimate of the frequency

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derived from non-statistical experience.

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So far as such types of probable statements are concerned, we are not faced with case

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probability. In fact, we do not know anything about the case in question except that it

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is an instance of a class, the behavior of which we know or think we know.

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A surgeon tells a patient who considers submitting himself to an operation that 30 out of every

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300 undergoing such an operation die.

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If the patient asks whether this number of deaths is already full, he has misunderstood

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the sense of the doctor's statement.

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He has fallen prey to the error known as the gambler's fallacy.

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Like the roulette player who concludes from a run of ten red in succession that the probability

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of the next turn being black is now greater than it was before the run, he confuses

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His Case Probability with Class Probability

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All medical prognoses, when based only on physiological knowledge, deal with class probability.

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A doctor who hears that a man he does not know has been seized by a definite illness

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will, on the basis of his general medical experience, say, his chances for recovery

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are 7 to 3.

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If the doctor himself treats the patient, he may have a different opinion.

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The patient is a young, vigorous man.

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He was in good health before he was taken with the illness.

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In such cases, the doctor may think the mortality figures are lower.

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The chances for this patient are not 7 to 3, but 9 to 1.

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The logical approach remains the same, although it may be based not on a collection of statistical

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Data, but simply on a more or less exact resume of the doctor's own experience with

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previous cases.

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What the doctor knows is always only the behavior of classes.

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In our instance, the class is the class of young, vigorous men seized by the illness

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in question.

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Case probability is a particular feature of our dealing with problems of human action.

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Here, any reference to frequency is inappropriate, as our statements always deal with unique

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events which, as such, that is, with regard to the problem in question, are not members

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of any class.

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We can form a class, American presidential elections.

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This class concept may prove useful or even necessary for various kinds of reasoning, as,

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for instance, for a treatment of the matter from the viewpoint of constitutional law.

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But if we are dealing with the election of 1944, either before the election, with its

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future outcome, or after the election, with an analysis of the factors which determined

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the outcome, we are grappling with an individual, unique and non-repeatable case.

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The case is characterized by its unique merits. It is a class by itself. All the marks which

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make it permissible to subsume it under any class are irrelevant for the problem in question.

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Two football teams, the Blues and the Yellows, will play tomorrow. In the past, the Blues

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have always defeated the Yellows. This knowledge is not knowledge about a class of events.

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If we were to consider it as such, we would have to conclude that the blues are always

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victorious and that the yellows are always defeated.

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We would not be uncertain with regard to the outcome of the game.

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00:21:12.380 --> 00:21:16.620
We would know for certain that the blues will win again.

227
00:21:16.620 --> 00:21:22.700
The mere fact that we consider our forecast about tomorrow's game as only probable shows

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that we do not argue this way.

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00:21:26.140 --> 00:21:31.100
On the other hand, we believe that the fact that the blues were victorious in the past

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00:21:31.100 --> 00:21:36.240
is not immaterial with regard to the outcome of tomorrow's game.

231
00:21:36.240 --> 00:21:42.160
We consider it as a favorable prognosis for the repeated success of the blues.

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If we were to argue correctly according to the reasoning appropriate to class probability,

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we would not attach any importance to this fact.

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00:21:52.260 --> 00:21:57.820
If we were not to resist the erroneous conclusion of the gambler's fallacy, we would, on the

235
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contrary, argue that tomorrow's game will result in the success of the yellows.

236
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If we risk some money on the chance of one team's victory, the lawyers would qualify

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our action as a bet.

238
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They would call it gambling if class probability were involved.

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Understanding that outside the field of class probability is commonly implied in the term

240
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probability, refers to the peculiar mode of reasoning involved in dealing with historical

241
00:22:28.740 --> 00:22:36.860
uniqueness or individuality, the specific understanding of the historical sciences.

242
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Understanding is always based on incomplete knowledge.

243
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We may know the motives of the acting men, the ends they are aiming at, and the means

244
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as they plan to apply for the attainment of these ends.

245
00:22:50.340 --> 00:22:55.200
We have a definite opinion with regard to the effects to be expected from the operation

246
00:22:55.200 --> 00:22:59.580
of these factors, but this knowledge is defective.

247
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We cannot exclude beforehand the possibility that we have erred in the appraisal of their

248
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influence or have failed to take into consideration some factors whose interference we did not

249
00:23:11.360 --> 00:23:15.680
don't foresee at all, or not in a correct way.

250
00:23:15.680 --> 00:23:21.440
Gambling, engineering and speculating are three different modes of dealing with the

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future.

252
00:23:23.140 --> 00:23:29.400
The gambler knows nothing about the event on which the outcome of his gambling depends.

253
00:23:29.400 --> 00:23:35.800
All that he knows is the frequency of a favorable outcome of a series of such events, knowledge

254
00:23:35.800 --> 00:23:38.720
which is useless for his undertaking.

255
00:23:38.720 --> 00:23:43.860
He trusts to good luck. That is his only plan.

256
00:23:43.860 --> 00:23:50.080
Life itself is exposed to many risks. At any moment it is endangered by disastrous accidents

257
00:23:50.080 --> 00:23:57.960
which cannot be controlled, or at least not sufficiently. Every man banks on good luck.

258
00:23:57.960 --> 00:24:04.040
He counts upon not being struck by lightning and not being bitten by a viper. There is

259
00:24:04.040 --> 00:24:07.680
Man is an element of gambling in human life.

260
00:24:07.680 --> 00:24:14.000
Man can remove some of the crematistic consequences of such disasters and accidents by taking

261
00:24:14.000 --> 00:24:16.680
out insurance policies.

262
00:24:16.680 --> 00:24:21.080
In doing so, he banks upon the opposite chances.

263
00:24:21.080 --> 00:24:25.040
On the part of the insured, the insurance is gambling.

264
00:24:25.040 --> 00:24:29.840
His premiums were spent in vain if the disaster does not occur.

265
00:24:29.840 --> 00:24:35.800
In life insurance, the insured's stake spent in vain consists only in the difference between

266
00:24:35.800 --> 00:24:41.280
the amount collected and the amount he could have accumulated by saving.

267
00:24:41.280 --> 00:24:49.240
With regard to non-controllable natural events, man is always in the position of a gambler.

268
00:24:49.240 --> 00:24:54.980
The engineer, on the other hand, knows everything that is needed for a technologically satisfactory

269
00:24:54.980 --> 00:24:59.560
solution of his problem, the construction of a machine.

270
00:24:59.560 --> 00:25:05.080
As far as some fringes of uncertainty are left in his power to control, he tries to

271
00:25:05.080 --> 00:25:08.940
eliminate them by taking safety margins.

272
00:25:08.940 --> 00:25:14.600
The engineer knows only soluble problems, and problems which cannot be solved under

273
00:25:14.600 --> 00:25:17.280
the present state of knowledge.

274
00:25:17.280 --> 00:25:22.940
He may sometimes discover from adverse experience that his knowledge was less complete than

275
00:25:22.940 --> 00:25:28.740
he had assumed, and that he failed to recognize the indeterminateness of some issues which

276
00:25:28.740 --> 00:25:36.100
which he thought he was able to control. Then he will try to render his knowledge more complete.

277
00:25:36.100 --> 00:25:42.640
Of course, he can never eliminate altogether the element of gambling present in human life.

278
00:25:42.640 --> 00:25:50.060
But it is his principle to operate only within an orbit of certainty. He aims at full control

279
00:25:50.060 --> 00:25:56.060
of the elements of his action. It is customary nowadays to speak of social

280
00:25:56.060 --> 00:25:57.700
and Engineering.

281
00:25:57.700 --> 00:26:04.180
Like planning, this term is a synonym for dictatorship and totalitarian tyranny.

282
00:26:04.180 --> 00:26:09.940
The idea is to treat human beings in the same way in which the engineer treats the stuff

283
00:26:09.940 --> 00:26:14.820
out of which he builds his bridges, roads and machines.

284
00:26:14.820 --> 00:26:20.560
The social engineer's will is to be substituted for the will of the various people he plans

285
00:26:20.560 --> 00:26:24.860
to use for the construction of his utopia.

286
00:26:24.860 --> 00:26:31.180
is to be divided into two classes, the almighty dictator on the one hand, and the underlings

287
00:26:31.180 --> 00:26:37.460
who are to be reduced to the status of mere pawns in his plans, and cogs in his machinery

288
00:26:37.460 --> 00:26:39.340
on the other.

289
00:26:39.340 --> 00:26:44.060
If this were feasible, then of course the social engineer would not have to bother about

290
00:26:44.060 --> 00:26:46.700
understanding other people's actions.

291
00:26:46.700 --> 00:26:52.820
He would be free to deal with them as technology deals with lumber and iron.

292
00:26:52.820 --> 00:26:57.960
In the real world, acting man is faced with the fact that there are fellow men acting

293
00:26:57.960 --> 00:27:01.780
on their own behalf as he himself acts.

294
00:27:01.780 --> 00:27:07.700
The necessity to adjust his actions to other people's actions makes him a speculator for

295
00:27:07.700 --> 00:27:15.260
whom success and failure depend on his greater or lesser ability to understand the future.

296
00:27:15.260 --> 00:27:18.980
Every investment is a form of speculation.

297
00:27:18.980 --> 00:27:26.820
There is, in the course of human events, no stability and, consequently, no safety.

298
00:27:26.820 --> 00:27:29.780
5.

299
00:27:29.780 --> 00:27:34.220
Numerical Evaluation of Case Probability

300
00:27:34.220 --> 00:27:39.620
Case probability is not open to any kind of numerical evaluation.

301
00:27:39.620 --> 00:27:45.460
What is commonly considered as such exhibits, when more closely scrutinized, a different

302
00:27:45.460 --> 00:27:47.260
character.

303
00:27:47.260 --> 00:27:53.640
On the eve of the 1944 presidential election, people could have said, A. I am ready to

304
00:27:53.640 --> 00:28:01.380
bet $3 against one that Roosevelt will be elected. B. I guess that out of the total

305
00:28:01.380 --> 00:28:08.140
amount of electors, 45 millions will exercise their franchise, 25 millions of whom will

306
00:28:08.140 --> 00:28:16.560
vote for Roosevelt. C. I estimate Roosevelt's chances as 9 to 1.

307
00:28:16.560 --> 00:28:22.240
D. I am certain that Roosevelt will be elected.

308
00:28:22.240 --> 00:28:25.600
Statement D is obviously inexact.

309
00:28:25.600 --> 00:28:30.680
If asked under oath on the witness stand whether he is as certain about Roosevelt's future

310
00:28:30.680 --> 00:28:35.840
victory as about the fact that a block of ice will melt when exposed to a temperature

311
00:28:35.840 --> 00:28:41.020
of 150 degrees, our man would have answered no.

312
00:28:41.020 --> 00:28:46.120
He would have rectified his statement and would have declared, I am personally fully

313
00:28:46.120 --> 00:29:01.200
The case of statement A is similar.

314
00:29:01.200 --> 00:29:06.020
This man believed that he risked very little when laying such a wager.

315
00:29:06.020 --> 00:29:11.900
The relation 3 to 1 does not assert anything about the chances of the candidates.

316
00:29:11.900 --> 00:29:18.020
It is the outcome of the interplay of two factors, the opinion that Roosevelt will be elected

317
00:29:18.020 --> 00:29:22.380
and the man's propensity for betting.

318
00:29:22.380 --> 00:29:27.300
Statement B is an evaluation of the outcome of the impending event.

319
00:29:27.300 --> 00:29:33.180
Its figures refer not to a greater or smaller degree of probability but to the expected

320
00:29:33.180 --> 00:29:35.820
result of the voting.

321
00:29:35.820 --> 00:29:41.060
Such a statement may be based on a systematic investigation like the Gallup poll or simply

322
00:29:41.060 --> 00:29:43.660
on Estimates.

323
00:29:43.660 --> 00:29:50.160
It is different with Statement C. This is a proposition about the expected outcome couched

324
00:29:50.160 --> 00:29:52.620
in arithmetical terms.

325
00:29:52.620 --> 00:29:58.380
It certainly does not mean that out of ten cases of the same type, nine are favorable

326
00:29:58.380 --> 00:30:01.700
for Roosevelt and one unfavorable.

327
00:30:01.700 --> 00:30:05.740
It cannot have any reference to class probability.

328
00:30:05.740 --> 00:30:08.700
But what else can it mean?

329
00:30:08.700 --> 00:30:11.720
It is a metaphorical expression.

330
00:30:11.720 --> 00:30:17.420
Most of the metaphors used in daily speech imaginatively identify an abstract object

331
00:30:17.420 --> 00:30:23.020
with another object that can be apprehended directly by the senses.

332
00:30:23.020 --> 00:30:28.540
Yet this is not a necessary feature of metaphorical language, but merely a consequence of the

333
00:30:28.540 --> 00:30:35.420
fact that the concrete is, as a rule, more familiar to us than the abstract.

334
00:30:35.420 --> 00:30:41.220
As metaphors aim at an explanation of something which is less well known by comparing it with

335
00:30:41.220 --> 00:30:46.980
something better known, they consist for the most part in identifying something abstract

336
00:30:46.980 --> 00:30:49.900
with a better known concrete.

337
00:30:49.900 --> 00:30:55.620
The specific mark of our case is that it is an attempt to elucidate a complicated state

338
00:30:55.620 --> 00:31:02.420
of affairs by resorting to an analogy borrowed from a branch of higher mathematics, the calculus

339
00:31:02.420 --> 00:31:04.660
of probability.

340
00:31:04.660 --> 00:31:10.580
As it happens, this mathematical discipline is more popular than the analysis of the epistemological

341
00:31:10.580 --> 00:31:13.860
nature of understanding.

342
00:31:13.860 --> 00:31:21.020
There is no use in applying the yardstick of logic to a critique of metaphorical language.

343
00:31:21.020 --> 00:31:26.460
Analogies and metaphors are always defective and logically unsatisfactory.

344
00:31:26.460 --> 00:31:31.380
It is usual to search for the underlying tertium comparationis.

345
00:31:31.380 --> 00:31:36.820
And even this is not permissible with regard to the metaphor we are dealing with.

346
00:31:36.820 --> 00:31:42.580
For the comparison is based on a conception which is in itself faulty in the very frame

347
00:31:42.580 --> 00:31:48.280
of the calculus of probability, namely, the gambler's fallacy.

348
00:31:48.280 --> 00:31:53.920
In asserting that Roosevelt's chances are nine to one, the idea is that Roosevelt is

349
00:31:53.920 --> 00:32:00.240
in regard to the impending election in the position of a man who owns 90% of all tickets

350
00:32:00.240 --> 00:32:08.000
of a Lottery in regard to the first prize. It is implied that this ratio 9 to 1 tells

351
00:32:08.000 --> 00:32:13.960
us something substantial about the outcome of the unique case in which we are interested.

352
00:32:13.960 --> 00:32:18.360
There is no need to repeat that this is a mistaken idea.

353
00:32:18.360 --> 00:32:24.240
No less impermissible is the recourse to the calculus of probability in dealing with hypotheses

354
00:32:24.240 --> 00:32:31.020
Hypotheses in the field of the Natural Sciences Hypotheses are tentative explanations consciously

355
00:32:31.020 --> 00:32:34.920
based on logically insufficient arguments.

356
00:32:34.920 --> 00:32:42.020
With regard to them, all that can be asserted is, the hypothesis does or does not contradict

357
00:32:42.020 --> 00:32:47.420
either logical principles or the facts as experimentally established and considered

358
00:32:47.420 --> 00:32:49.460
as true.

359
00:32:49.460 --> 00:32:52.280
In the first case, it is untenable.

360
00:32:52.280 --> 00:32:59.480
In the second case it is, under the present state of our experimental knowledge, not untenable.

361
00:32:59.480 --> 00:33:03.880
The intensity of personal conviction is purely subjective.

362
00:33:03.880 --> 00:33:10.680
Neither frequency probability nor historical understanding enters into the matter.

363
00:33:10.680 --> 00:33:18.320
The term hypothesis applied to definite modes of understanding historical events is a misnomer.

364
00:33:18.320 --> 00:33:23.360
If a historian asserts that in the fall of the Romanov dynasty, the fact that this house

365
00:33:23.360 --> 00:33:30.380
was of German background played a relevant role, he does not advance a hypothesis.

366
00:33:30.380 --> 00:33:34.960
The facts on which his understanding is founded are beyond question.

367
00:33:34.960 --> 00:33:41.400
There was a widespread animosity against Germans in Russia, and the ruling line of the Romanovs,

368
00:33:41.400 --> 00:33:47.800
having for 200 years intermarried exclusively with scions of families of German descent,

369
00:33:47.800 --> 00:33:56.800
was viewed by many Russians as a Germanized family, even by those who assumed that Tsar Paul was not the son of Peter III.

370
00:33:56.800 --> 00:34:05.800
But the question remains what the relevance of these facts was in the chain of events which brought about the dethronement of this dynasty.

371
00:34:05.800 --> 00:34:13.800
Such problems are not open to any elucidation other than that provided by understanding.

372
00:34:13.800 --> 00:34:23.960
6. Betting, gambling and playing games A bet is the engagement to risk money or

373
00:34:23.960 --> 00:34:29.400
other things against another man on the result of an event about the outcome of which we

374
00:34:29.400 --> 00:34:36.440
know only so much as can be known on the ground of understanding. Thus people may bet on the

375
00:34:36.440 --> 00:34:42.840
result of an impending election or a tennis match, or they may bet on whose opinion concerning

376
00:34:42.840 --> 00:34:49.100
Gambling the content of a factual assertion is right and whose is wrong. Gambling is the

377
00:34:49.100 --> 00:34:55.180
engagement to risk money or other things against another man on the results of an event about

378
00:34:55.180 --> 00:35:00.100
which we do not know anything more than is known on the ground of knowledge concerning

379
00:35:00.100 --> 00:35:07.740
the behavior of the whole class. Sometimes betting and gambling are combined. The outcome

380
00:35:07.740 --> 00:35:19.740
The outcome of horse racing depends both on human action, on the part of the owner of the horse, the trainer and the jockey, and on non-human factors, the qualities of the horse.

381
00:35:19.740 --> 00:35:29.740
Most of those risking money on the turf are simply gamblers, but the experts believe they know something by understanding the people involved.

382
00:35:29.740 --> 00:35:34.740
As far as this factor influences their decision, they are betters.

383
00:35:34.740 --> 00:35:40.340
Furthermore, they pretend to know the horses. They make a prognosis on the ground of their

384
00:35:40.340 --> 00:35:45.620
knowledge about the behavior of the classes of horses to which they assign the various

385
00:35:45.620 --> 00:35:51.340
competing horses. So far, they are gamblers.

386
00:35:51.340 --> 00:35:56.180
Later chapters of this book deal with the methods business applies in handling the problem

387
00:35:56.180 --> 00:36:02.460
of the uncertainty of the future. On this point of our reasoning, only one more observation

388
00:36:02.460 --> 00:36:05.300
must be made.

389
00:36:05.300 --> 00:36:09.940
Embarking upon games can be either an end or a means.

390
00:36:09.940 --> 00:36:14.460
It is an end for people who yearn for the stimulation and excitement with which the

391
00:36:14.460 --> 00:36:20.220
vicissitudes of a game provide them, or whose vanity is flattered by the display of their

392
00:36:20.220 --> 00:36:26.780
skill and superiority in playing a game which requires cunning and expertness.

393
00:36:26.780 --> 00:36:32.180
It is a means for professionals who want to make money by winning.

394
00:36:32.180 --> 00:36:35.860
Playing a game can therefore be called an action.

395
00:36:35.860 --> 00:36:41.900
But it is not permissible to reverse this statement and to call every action a game,

396
00:36:41.900 --> 00:36:46.160
or to deal with all actions as if they were games.

397
00:36:46.160 --> 00:36:51.160
The immediate aim in playing a game is to defeat the partner according to the rules

398
00:36:51.160 --> 00:36:52.900
of the game.

399
00:36:52.900 --> 00:36:57.160
This is a peculiar and special case of acting.

400
00:36:57.160 --> 00:37:01.440
Most actions do not aim at anybody's defeat or loss.

401
00:37:01.440 --> 00:37:04.920
They aim at an improvement in conditions.

402
00:37:04.920 --> 00:37:10.300
It can happen that this improvement is attained at some other men's expense.

403
00:37:10.300 --> 00:37:13.900
But this is certainly not always the case.

404
00:37:13.900 --> 00:37:19.240
It is, to put it mildly, certainly not the case within the regular operation of a social

405
00:37:19.240 --> 00:37:22.940
system based on the division of labor.

406
00:37:22.940 --> 00:37:27.940
There is not the slightest analogy between playing games and the conduct of business

407
00:37:27.940 --> 00:37:30.400
within a market society.

408
00:37:30.400 --> 00:37:35.020
The card player wins money by outsmarting his antagonist.

409
00:37:35.020 --> 00:37:41.240
The businessman makes money by supplying customers with goods they want to acquire.

410
00:37:41.240 --> 00:37:47.200
There may exist an analogy between the strategy of a card player and that of a bluffer.

411
00:37:47.200 --> 00:37:50.360
There is no need to investigate this problem.

412
00:37:50.360 --> 00:37:56.440
He who interprets the conduct of business as trickery is on the wrong path.

413
00:37:56.440 --> 00:38:02.160
The characteristic feature of games is the antagonism of two or more players or groups

414
00:38:02.160 --> 00:38:04.440
of players.

415
00:38:04.440 --> 00:38:11.520
Patience or solitaire is not a one-person game, but a pastime, a means of escaping boredom.

416
00:38:11.520 --> 00:38:17.380
It certainly does not represent a pattern for what is going on in a communistic society,

417
00:38:17.380 --> 00:38:21.740
as John von Neumann and Oscar Morgenstern assert.

418
00:38:21.740 --> 00:38:27.000
The characteristic feature of business within a society, that is, within an order based

419
00:38:27.000 --> 00:38:32.520
on the division of labor, is concord in the endeavors of its members.

420
00:38:32.520 --> 00:38:40.580
As soon as they begin to antagonize one another, a tendency toward social disintegration emerges.

421
00:38:40.580 --> 00:38:46.500
Within the frame of a market economy, competition does not involve antagonism in the sense in

422
00:38:46.500 --> 00:38:51.900
in which this term is applied to the hostile clash of incompatible interests.

423
00:38:51.900 --> 00:38:58.540
Competition, it is true, may sometimes, or even very often, evoke in the competitors

424
00:38:58.540 --> 00:39:04.060
those passions of hatred and malice which usually accompany the intention of inflicting

425
00:39:04.060 --> 00:39:07.480
evil on other people.

426
00:39:07.480 --> 00:39:12.420
Psychologists are therefore prone to confuse combat and competition.

427
00:39:12.420 --> 00:39:18.500
But praxeology must beware of such artificial and misleading equivocations.

428
00:39:18.500 --> 00:39:23.960
From its point of view, there exists a fundamental difference between catalactic competition

429
00:39:23.960 --> 00:39:26.700
and combat.

430
00:39:26.700 --> 00:39:31.700
Competitors aim at excellence and preeminence in accomplishments within a system of mutual

431
00:39:31.700 --> 00:39:33.840
cooperation.

432
00:39:33.840 --> 00:39:39.640
The function of competition is to assign to every member of a social system that position

433
00:39:39.640 --> 00:39:45.400
in which he can best serve the whole of society and all its members.

434
00:39:45.400 --> 00:39:50.540
It is a method of selecting the most able man for each performance.

435
00:39:50.540 --> 00:39:57.520
Where there is social cooperation, there some variety of selection must be applied.

436
00:39:57.520 --> 00:40:03.040
Only where the assignment of various individuals to various tasks is affected by the dictator's

437
00:40:03.040 --> 00:40:09.620
decisions alone, and the individuals concerned do not aid the dictator by endeavors to represent

438
00:40:09.620 --> 00:40:23.780
We will have to deal at a later stage of our investigations with the function of competition.

439
00:40:23.780 --> 00:40:29.060
At this point we must only emphasize that it is misleading to apply the terminology of

440
00:40:29.060 --> 00:40:37.340
mutual extermination to the problems of mutual cooperation as it works within a society.

441
00:40:37.340 --> 00:40:42.440
Praxeology terms are inappropriate for the description of business operations.

442
00:40:42.440 --> 00:40:48.160
It is, for example, a bad metaphor to speak of the conquest of a market.

443
00:40:48.160 --> 00:40:53.440
There is no conquest in the fact that one firm offers better or cheaper products than

444
00:40:53.440 --> 00:40:55.280
its competitors.

445
00:40:55.280 --> 00:41:01.360
There is strategy in business, only in a metaphorical sense.

446
00:41:01.360 --> 00:41:03.800
7.

447
00:41:03.800 --> 00:41:07.040
Praxeological Prediction

448
00:41:07.040 --> 00:41:12.560
Practical knowledge makes it possible to predict with apodictic certainty the outcome of various

449
00:41:12.560 --> 00:41:14.600
modes of action.

450
00:41:14.600 --> 00:41:21.820
But of course, such prediction can never imply anything regarding quantitative matters.

451
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Quantitative problems are in the field of human action, open to no other elucidation

452
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than that by understanding.

453
00:41:29.700 --> 00:41:36.120
We can predict, as will be shown later, that, other things being equal, a fall in the demand

454
00:41:36.120 --> 00:41:43.160
for A will result in a drop in the price of A. But we cannot predict the extent of this

455
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drop. This question can be answered only by understanding.

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00:41:49.440 --> 00:41:54.920
The fundamental deficiency implied in every quantitative approach to economic problems

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consists in the neglect of the fact that there are no constant relations between what are

458
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are called economic dimensions. There is neither constancy nor continuity in the valuations

459
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and in the formation of exchange ratios between various commodities. Every new datum brings

460
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about a reshuffling of the whole price structure. Understanding by trying to grasp what is going

461
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on in the minds of the men concerned can approach the problem of forecasting future conditions.

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We may call its method unsatisfactory, and the positivists may arrogantly scorn it.

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But