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Our chapter discusses the myriad ways in which Frank H. Knight’s Risk, Uncertainty, and Profit (RUP) has been incorporated by different streams of scholarship dedicated to institutional analysis since 1990, when bibliometric evidence indicates a revival of interest in his classic work. Using citation analysis, the authors identify clusters of scholarship that build on Knight’s contributions, assessing which of his insights were absorbed by different subfields and how these have been connected to recent topics and concerns. The authors then qualitatively explore these results to throw new light on the recent history of institutional economics, using Knight’s RUP as a window into the evolution of (and inter-relations between) different research traditions that currently populate the field, including new economic sociology, comparative politics, evolutionary economics, entrepreneurial studies, environmental social sciences, international political economy, and the anthropology of finance. The authors conclude that Knight’s legacy remains unsettled, with different groups selectively absorbing a subset of his ideas and developing them in relative isolation from research conducted elsewhere. Nevertheless, boundary work connecting these separate areas reveals possible spaces for collaboration among scholars who study institutions building explicitly on Knightian insights.

During the last decade, there has been an increasing focus on commercialization of knowledge and technology from universities. However, universities report financing as being the main impediment to successful university spin‐off companies (USOs) creation, leaving valuable inventions un‐commercialized. The purpose of this paper is to develop a conceptual model in order to explain financing challenges experienced by USOs.

This paper presents a conceptual model illustrating financing challenges met by USOs, and provides an explanation why TTOs report that obtaining financing is their biggest impediment to spin‐off creation. Two different theoretical perspectives back this conceptual development: Knightian uncertainty and agency theory.

This theoretical examination suggests that increasing levels of uncertainty affect the investor's willingness to fund new companies in a negative way. Through the literature review, clear indications were also found for the increased uncertainty with which USOs are faced. It is therefore natural to conclude that investors are more reluctant to invest in USOs because of the level of uncertainty compared with other entrepreneurial companies.

This study made a generalization of USOs as a homogeneous group of companies, which is an oversimplification. Further research should address how different business models, types of resources and their institutional link affect USOs' capital requirements and their problems in raising the required capital.

The main contribution from this paper is the combination of theoretical insights from the concepts of Knightian uncertainty and agency theory. These combined with insights from previous empirical studies explain why USOs face specific challenges in order to raise risk capital.

This paper aims to introduce eristic decision-making in entrepreneurship. A decision is eristically made when it utilizes eristics, which are action-triggering short-cuts that draw on hedonic urges (e.g. sensation-seeking). Unlike heuristics, eristic decision-making is not intendedly rational as eristics lead to decision-making without calculating or even considering the consequences of actions. Eristics are adaptive when uncertainty is extreme. Completely novel strategies, nascent venturing, corporate venturing for radical innovation and adapting to shocks (e.g. pandemic) are typically subject to extreme uncertainties.

In light of the relevant debates in entrepreneurship, psychology and decision sciences, the paper builds new conceptual links to establish its theoretical claims through secondary research.

The paper posits that people adapt to extreme uncertainty by using eristic reasoning rather than heuristic reasoning. Heuristic reasoning allows boundedly rational decision-makers to use qualitative cues to estimate the consequences of actions and to make reasoned decisions. By contrast, eristic reasoning ignores realistic calculations and considerations about the future consequences of actions and produces decisions guided by hedonic urges.

Current entrepreneurial research on uncertainty usually focuses on moderate levels of uncertainty where heuristics and other intendedly rational decision-making approaches pay off. By contrast, this paper focuses on extreme uncertainty where eristics are adaptive. While not intendedly rational, the adaptiveness of eristic reasoning offers theoretically and psychologically grounded new explanations about action under extreme uncertainty.

The goal of this paper is to analyze the views of Frank Knight and Ludwig von Mises on the topic of uncertainty and how it influences the theory of individual decision-making and to trace out the implications of the same for the theories of entrepreneurship, equilibrium, and the firm. The paper adopts a historical approach in its analysis of the theory of uncertainty, with an extended discussion of the primary writings of Knight and Mises on this topic. It then uses the insights gleaned from this discussion in order to address issues and topics that have found a prominent place in the modern literature on entrepreneurship, equilibrium, and the firm that draws its inspiration from the Austrian School. The paper offers three main findings: in the realm of entrepreneurship it argues that there can be no theory of the entrepreneur without the concept of uncertainty provided by Knight and Mises, whereas with regard to the theory of equilibrium it focuses on highlighting the concept of an equilibrium with error prevalent in the Austrian tradition and on the implications that an explicit introduction of uncertainty has for the existence of a process of equilibration that pushes the economy toward a state of general equilibrium in real time. As regards the theory of the firm we find that a proper understanding of uncertainty ultimately reverses the direction of any causal explanation of economic organization, making the firm an outcome of dealing with uncertainty rather than a means to do so.

After briefly reviewing the past history of Bayesian econometrics and Alan Greenspan's (2004) recent description of his use of Bayesian methods in managing policy-making risk, some of the issues and needs that he mentions are discussed and linked to past and present Bayesian econometric research. Then a review of some recent Bayesian econometric research and needs is presented. Finally, some thoughts are presented that relate to the future of Bayesian econometrics.

The purpose of this paper is to analyse the implementation of risk management as a tool for internal audit activities, focusing on unexpected effects or uncertainties generated during its application.

Public and confidential documents as well as semi-structured interviews are analysed through the lens of actor-network theory to identify the effects of risk management devices in a Finnish municipality.

The authors found that risk management, rather than reducing uncertainty, itself created unexpected uncertainties that would otherwise not have emerged. These include uncertainties relating to legal aspects of risk management solutions, in particular the issue concerning which types of document are considered legally valid; uncertainties relating to the definition and operationalisation of risk management; and uncertainties relating to the resources available for expanding risk management. More generally, such uncertainties relate to the professional identities and responsibilities of operational managers as defined by the framing devices.

The paper offers three contributions to the extant literature: first, it shows how risk management itself produces uncertainties. Secondly, it shows how internal auditors can assume a central role in the risk management system. Thirdly, it develops Callon's framing/overflowing framework with the notion that multiple frames are linked and create unexpected dynamics, and applies it to the study on the effects of risk management tools in an internal audit context. It shows how, despite recurring attempts to refine risk management, further uncertainties are continuously produced, thus providing an empirical illustration of how reframing and overflowing intertwine in a continual process.

To study the effect of Knightian uncertainty – as opposed to statistical estimation error – in the evaluation of value‐at‐risk (VaR) of financial investments. To develop methods for augmenting existing VaR estimates to account for Knightian uncertainty.

The value at risk of a financial investment is assessed as the quantile of an estimated probability distribution of the returns. Estimating a VaR from historical data entails two distinct sorts of uncertainty: probabilistic uncertainty in the estimation of a probability density function (PDF) from historical data, and non‐probabilistic Knightian info‐gaps in the future size and shape of the lower tail of the PDF. A PDF is estimated from historical data, while a VaR is used to predict future risk. Knightian uncertainty arises from the structural changes, surprises, etc., which occur in the future and therefore are not manifested in historical data. This paper concentrates entirely on Knightian uncertainty and does not consider the statistical problem of estimating a PDF. Info‐gap decision theory is used to study the robustness of a VaR to Knightian uncertainty in the distribution.

It is shown that VaRs, based on estimated PDFs, have no robustness to Knightian errors in the PDF. An info‐gap safety factor is derived that multiplies the estimated VaR in order to obtain a revised VaR with specified robustness to Knightian error in the PDF. A robustness premium is defined as a supplement to the incremental VaR for comparing portfolios.

The revised VaR and incremental VaR augment existing tools for evaluating financial risk.

Info‐gap theory, which underlies this paper, is a non‐probabilistic quantification of uncertainty that is very suitable for representing Knightian uncertainty. This enables one to assess the robustness to future surprises, as distinct from existing statistical techniques for assessing estimation error resulting from randomness of historical data.

This paper aims to draw the wisdom of the prohibition of Gharar through the lens of institutional and Post‐Keynesian economics.

This research applies the theoretical contributions of the Post‐Keynesian economics and the new institutional economics to clarify the dimensions of Islamic Gharar. This research attempts to see the divergence between theory and practice, looking at empirical data including the information from an interview with one of Indonesian Islamic banks.

The lens of institutional and Post‐Keynesian economics is useful to clarify two dimensions of Gharar; incompleteness of contracting and fundamental uncertainty associated with business. As for the latter dimension of Gharar, the tradition of Post‐Keynesian economics can distinguish “animal spirit in speculation” and “animal spirit in enterprise”, the latter of which should be carefully considered. However, the interview reveals a kind of difficulty for Islamic financial institutions to tackle “Murabaha syndrome”.

This research supports an opinion such that Islamic financial institutions are not necessarily discouraged to share the associated uncertainty with the small‐sized firms in the agricultural and industrial sector, so far as their “enterprise” is based on the Islamic business ethics.

Despite very significant discussions in the literature on the prohibition of Gharar as a fundamental principle of Islamic finance, less has been done to elaborate upon it through the lens of Post‐Keynesian economics which have greatly contributed to shedding analytical lights on “uncertainty”.

The purpose of this paper is to investigate the relationship between immigration rates and business failure, where business failure is viewed as a proxy for the presence of entrepreneurship.

It employs a panel data approach to the USA, using the percentage of the population that is foreign born as the explanatory variable for the business failure rate ten years later.

The authors find the effect to be large, with a one standard deviation increase in the foreign born population corresponding to a 1.09 standard deviation increase in business failure rate, and the authors argue, entrepreneurship.

The effect the authors find is very large though perhaps also counterintuitive.