This paper introduces the Knightian Uncertainty Hypothesis (KUH), a new approach to macroeconomics and finance theory. KUH rests on a novel mathematical framework that characterizes both measurable and Knightian uncertainty about economic outcomes. Relying on this framework and John Muth's...

This paper proposes the Knightian Uncertainty Hypothesis (KUH), a new approach to macroeconomics and finance theory. KUH rests on a novel mathematical framework that characterizes both measurable and Knightian uncertainty about economic outcomes. Relying on this framework and Muth's pathbreaking...

Macroeconomic models that are based on either the rational expectations hypothesis (REH) or behavioral considerations share a core premise: All future market outcomes can be characterized ex ante with a single overarching probability distribution. This paper assesses the empirical relevance of...

Macroeconomic models that are based on either the rational expectations hypothesis (REH) or behavioral considerations share a core premise: all future market outcomes can be characterized ex ante with a single overarching probability distribution. This paper assesses the empirical relevance of...

This study introduces a novel index based on expectations concordance for explaining stock-price volatility when novel events that are each somewhat unique cause unforeseeable change and Knightian uncertainty in the process driving outcomes. Expectations concordance measures the degree to which...

We extend Lucas’s classic asset-price model by opening the stochastic process driving dividends to Knightian uncertainty arising from unforeseeable change. Implementing Muth’s hypothesis, we represent participants’ expectations as being consistent with our model’s predictions and...

This study introduces a novel index based on expectations concordance for explaining stock-price volatility when historically unique events cause unforeseeable change and Knightian uncertainty in the process driving outcomes. Expectations concordance measures the degree to which non-repetitive...

We open a New Keynesian Phillips curve model to nonrecurring structural shifts in its parameters and propose a novel implementation of Muth’s hypothesis to represent market participants’ inflation expectations under Knightian uncertainty arising from such shifts. We refer to our approach as...