Shackle’s monograph develops a theory of choice under uncertainty, especially for ventures whose outcomes cannot adequately be represented by frequencies of repeated trials. Moving from psychological foundations to investment, speculation, taxation, and bargaining, it formalises expectations’ influence on action while leaving their formation from news and experience largely unexplained.
Its starting point distinguishes future events from present acts of imagining them:
Future situations and events cannot be experienced and therefore their degree of desirableness cannot be compared; but situations and events can be imagined, and the desirableness of these experiences which happen in the imagination can be compared.
Choice depends on hopes and fears experienced now when contemplating rival actions. Uncertainty is not merely an obstacle: it gives imaginative access to exceptional success. Yet belief constrains imagination. Shackle’s “potential surprise” describes how surprising an outcome would be if the individual’s relevant knowledge remained unchanged. Unlike probabilities, these assessments need not divide a fixed total among mutually exclusive possibilities: several outcomes may each occasion zero potential surprise.
Such uncertainty is particularly significant in consequential, non-repeatable decisions:
For example, a military commander may have to choose between keeping his forces intact by attempting nothing, and throwing them into an enterprise whose outcome, for all he can tell, may be an historic victory or, for all he can tell, may be a disaster.
Shackle concentrates on the competing attractions and deterrents of imagined outcomes. A stimulation function combines desirability or hurtfulness with potential surprise. The strongest favourable and unfavourable stimuli identify a primary focus-gain and focus-loss. These need not be the most credible outcomes: their magnitude can make them compelling despite doubt. Standardisation converts each into an equally stimulating hypothetical amount carrying zero potential surprise, permitting comparison of ventures through a gambler indifference-map.
The psychological premise is non-additivity. Mutually exclusive hopes are not summed, nor are mutually exclusive fears; the strongest experience within each class determines its motivational force. Hope and fear nevertheless coexist, and the preference schedule expresses how much focus-gain compensates a given focus-loss. These focal values do not approximate a probability distribution: they model the dominance of particular imagined possibilities.
In the investment analysis, anticipated changes in knowledge can alter commitment’s timing even when their content remains unknown. Waiting may preserve a project whose feared losses could diminish, or avoid commitment before its sustaining hopes disappear. Illiquidity strengthens this incentive when equipment is worth more to its owner than others will pay. An election may consequently release investment simply by ending the reason to wait, without improving focal outcomes. Major surprises can instead favour liquidity while their implications are assimilated, helping explain why investment contractions may outpace recoveries.
The treatment of speculation connects expectation revisions to portfolio choice and price movements. Under specified preference assumptions, small revisions can induce large desired shifts, with prices reinforcing the initial change. Diversification alters expectations about a collection as a whole, potentially reducing both feared losses and exciting gains. The “floating value” of land near towns illustrates non-additivity: separate owners can each entertain development of their own plot, allowing aggregate individual valuations to exceed the valuation of the entire area.
The taxation proposal targets gains increasingly distant from the entrepreneur’s declared primary focus-gain while exempting that focal outcome. Within the model, revenue can thereby be raised without weakening the stimulus that prompted the venture; practical administration remains outside the argument. Bargaining likewise involves more than comparing valuations, since each party weighs immediate profit against breakdown and future bargaining power:
If we know the functions according to which these revisions will be made, as well as each bargainer's gambler-preference system, the outcome of the bargaining process (an agreed price or breakdown) is determinate.
This conditional determinacy marks both the ambition and the limit of the theory. The concluding engagement with probability-based approaches argues that unique, consequential ventures lack the repetitions that give frequency calculations their meaning. Shackle’s contribution is a formal account of uncertainty that preserves its imaginative and motivational character. Its conclusions depend on psychological postulates, especially the dominance of two focal outcomes, rather than demonstrated general laws of behaviour.
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