George Lennox Sharman Shackle, The Logic of Surprise (1953)

Shackle’s journal article begins with an apparent contradiction: can someone expect to be surprised on a particular occasion? Its answer distinguishes an outcome judged implausible from one never imagined, then shows how acknowledged gaps in imagination can shape economic conduct.

Expectation, in Shackle’s weaker sense, means attaching zero “potential surprise” to an outcome, without necessarily excluding alternatives. In its stronger sense, it means attaching positive potential surprise to every rival. Neither definition initially seems to permit expecting surprise. The decisive distinction concerns what has entered the individual’s imagination:

A counter-expected hypothesis, that is to say, is in rough language a hypothesis that has been looked at and rejected.

A counter-expected outcome has been considered and assigned high potential surprise; an unexpected outcome has never been envisaged. Expecting the former would contradict its rejection. Expecting surprise must therefore concern the latter. Yet whether something has been envisaged depends on the specificity of its description: expecting to find a lost key at home does not mean having imagined finding it in a child’s money-box. Surprise concerns the inadequacy of an anticipated picture, not simply the occurrence of an event outside a broad category.

Shackle accordingly separates exposure to an unimagined outcome from awareness of that exposure. Simple yes-or-no or numerical questions generally allow all conceivable answers to be surveyed, at least implicitly. Complex answers can contain overlooked characteristics or combinations: a dividend’s size can be counter-expected, whereas a Budget’s combination of measures can be unexpected. Awareness of such incompleteness introduces the article’s central conceptual device:

If so, in order to make the set of hypotheses exhaustive he will have to include a residual hypothesis, which will be simply a recognition of the non-exhaustiveness of his list of precisely stated hypotheses.

The residual heading acknowledges an answer without specifying its content. An individual may find every fully articulated explanation doubtful while attaching zero potential surprise to this unspecified alternative. Thus expecting an answer to fall under the residual heading is compatible with expecting its details to surprise. Shackle illustrates this with a nineteenth-century physicist confronted by an electronic computer: convinced that the performance occurs but unable to explain it, the observer could reject his own conjectures while anticipating a surprising explanation.

A residual hypothesis is necessary to this resolution because an exhaustive list of fully specified possibilities would leave no unimagined content. Shackle also argues that it is sufficient to permit expecting surprise, taking the observer’s bafflement as evidence that the explanation will exceed what he can presently conceive:

I think the very fact that he has been baffled in his attempt to formulate in detail an exhaustive set of rival hypotheses indicates that he will necessarily be surprised by the truth which resolves this bafflement: anything not capable of surprising him would have occurred to him.

The stronger claim gives expectation positive confidence, rather than mere absence of disbelief. The underlying distinction remains between anticipating that blanks will be filled and anticipating how they will be filled. Recognised incompleteness makes expected surprise logically coherent without supplying the missing details.

The concluding economic application translates complex imagined outcomes into a single gain-or-loss variable. Shackle argues that an unspecified residual possibility can be represented only by widely separated desirable and undesirable values. If these become the decision-maker’s “focus outcomes,” the resulting position on his gambler indifference map may be less attractive than assured neither-gain-nor-loss. Ignorance can therefore make holding cash preferable to action.

This effect becomes especially consequential when uncertainty concerns the uncontrollable framework shared by many decisions, rather than the consequences of one particular choice. Conflicting or opaque news about powerful actors can leave all adventurous policies dependent on residual hypotheses. Business then contracts not necessarily because participants expect adverse events, but because they cannot form intelligible pictures of possible outcomes. The article’s economic relevance lies in this connection between the limits of imagination and inactivity: uncertainty affects choice through acknowledged failures to specify possibilities, not merely through unfavourable assessments of already specified ones.