Zappi A 2014

Cambridge Journal of Economics 2014, 38, 1133–1154
doi:10.1093/cje/beu023
Advance Access publication 3 July 2014
Non-Bayesian decision theory ahead of its

time: the case of G. L. S. Shackle
Downloaded from http://cje.oxfordjournals.org/ at University of California, San Francisco on December 11, 2014
Carlo Zappia*
This article deals with the reception of George L. S. Shackle’s volume Expectation
in Economics, introducing a unique attempt to discard the probability framework
in the investigation of behaviour under uncertainty. Through a fresh reading of the
textual evidence, including correspondence held at Cambridge University Library,
the article assesses why decision theorists’ interest in Shackle’s theory, substantial
during the 1950s, faded away in the early 1960s. The article argues that, apart from
Shackle’s refusal to comprehend that his critics were under the influence of a new
subjective probability perspective, a major explanation of the dismissal of his work
stays in Shackle’s stance not to establish a collaborative link with those critics who
showed a positive attitude towards his theory. The article shows, though, that the
discussion between Shackle and his critics hinged on a number of topics that are
still crucial to the current developments of decision theory.
Key words: Uncertainty, Probability, Decision Theory

JEL classifications: B21, D81
1. Introduction
This article deals with the intellectual environment in which George Shackle’s theory
of decision making, first put forward in his Expectation in Economics (1949A), was
formulated and discussed. Shackle’s main aim in this work was to provide a formal
decision theory that could accommodate ‘true’ uncertainty, as an alternative to von
Neumann and Morgenstern’s (1944) expected utility theory and its dependence on
the probability calculus. Shackle famously objected to the representation of individual
beliefs through a probability measure on the grounds that probabilities do not apply to
singular decisions that are crucial to the decision maker.
Manuscript received 2 March 2013; final version received 2 March 2014.

Address for correspondence: Carlo Zappia, Department of Economics and Statistics, Piazza San Francesco
7, 53100 Siena, Italy; email: zappia@unisi.it
* University of Siena. The final version of this article was written whilst the author was a Research Scholar
at St. Edmund’s College, University of Cambridge. The support provided through the Shackle Studentship
by St. Edmund’s College is gratefully acknowledged. Special thanks are due to Frank Bowles and the staff
of the Manuscript Reading Room at Cambridge University Library for assistance in accessing the Shackle
Papers. This article owes much to the discussion and joint work with Marcello Basili. Comments on a previ-
ous draft by Elena Aloisi, Philippe Fontaine, Omar Hamouda, Hansjoerg Klausinger, Philip Mirowski, Ivan
Moscati, Roberto Romani, Jochen Runde and two anonymous referees are gratefully acknowledged.
© The Author 2014. Published by Oxford University Press on behalf of the Cambridge Political Economy Society.
All rights reserved.
1134 C. Zappia
Shackle’s (1949A) non-probabilistic approach had some impact in the 1950s. Arrow’s
(1951) influential survey of the state of contemporary decision theory identified Shackle
as the main representative of a tradition of thought, started off by Knight and Keynes,
denying that all types of risks could be represented through probabilities. Arrow argued
that Shackle’s theory was not a viable alternative to a subjective interpretation of von
Neumann and Morgenstern’s approach, but singled it out as the sole formalised theory
that deserved examination amongst those aiming to discard the probability framework.
Savage’s (1954) seminal Foundations of Statistics, which proposed an axiomatic structure
that extended expected utility theory from objective to subjective probabilities, appeared
just three years later. The distinction between risk and uncertainty became redundant in
this new ‘Bayesian’ framework, since even when an objective probability distribution over
the state space is not available, a subjective one can be elicited from individuals’ betting
behaviour. Savage’s approach, which followed in the footsteps of Ramsey (1931) and de
Finetti (1937), soon established itself as the new mainstream reference.
Shackle was at the centre of discussions of the foundations of decision theory dur-
ing the 1950s. Theoretical economists, mathematicians, statisticians and psychologists
analysed his theory as an alternative to the then-consolidating mainstream. Many of
them showed a keen interest in the viability of a formally structured alternative to
theories of behaviour describing uncertainty through probability statements. Shackle’s
approach was debated at conferences in Liverpool and Pittsburgh and in a 1959 special
issue of Metroeconomica. Ellsberg (1961) quoted Shackle amongst the authors inspiring
his claim that Savage’s framework was unable to deal with the ambiguity surrounding
a decision maker when assessing uncertainty in real-world tasks.
However, from the early 1960s onwards, Shackle’s influence diminished considerably
in decision theory circles. Of course, a large number of authors, mainly scholars work-
ing in the Austrian and Keynesian traditions, continued to refer to his decision theory as
the only one capable of dealing with genuine uncertainty (Lachmann, 1976; Davidson,
1983).1 Moreover, Shackle’s theory of expectations and his peculiar treatment of time,
summarised in Epistemics in Economics (Shackle, 1972), remains an important reference
for economists interested in a radically subjective approach (Chick and Dow, 2012).
However, from the early 1960s onwards, despite Shackle’s (1961) attempt to revive his
theory, his influence has been stronger in methodological circles than at the theoretical
level, and he is now seldom cited by decision theorists. Remarkably, his analysis was
even ignored in the debate on alternative theories of decision making originated by the
observed violations of expected utility theory (Machina, 1987).
The purpose of the present article is to show that despite the fact that he intervened
in the debate only to defend his own theory, in its early years Shackle’s decision theory
was discussed with reference to its technical content and constituted an integral part of
the discussion on alternative decision criteria which preceded the growing influence of
Savage’s Foundations. The focus was on Shackle’s representation of the epistemic state
of the individual and his proposal to endorse a possibility measure. Shackle’s unique
method of ordering uncertain consequences, dismissed as devoid of any convincing
rationale by some critics, was considered as a possible substitute for expected utility
theory by others.
1
The enduring relevance of Shackle’s work can be gleaned from his Google Scholar profile. Citation rates
for his major books (reported since 1974) show a rising trend, with an h-index for citations in the last five
years equal to 13 (checked on February 2014).
Non-Bayesian decision theory 1135
Through the assessment of the points made by the reviewers of his work and of
Shackle’s reaction to them, including unpublished textual evidence, this article attempts
to bring to light the main reasons he failed to establish his approach as a reference point
in the subsequent developments of decision theory.2 Shackle’s inability to comprehend
that his critics were under the influence of the new subjectivist perspective constitutes
the major explanation of the dismissal of his work. The new mainstream in the making
could not tolerate a view as idiosyncratic as Shackle’s, and Shackle’s insistence on re-
stating his main point against the frequency interpretation of probability, instead of dis-
cussing the arguments of scholars working in the new subjectivist tradition, contributed
much to cutting him off from ensuing developments. Moreover, Shackle chose not to
establish a collaborative link with those critics who showed a positive attitude towards
his theory, arguably because he did not understand that although they endorsed sub-
jective probabilities, they were Bayesians of a different, less dogmatic kind than Savage
(Good, 1959). But other aspects are relevant in explaining Shackle’s failure, amongst
which two emerge from the present article. First, Shackle’s advocacy of special psy-
chological aspects of decision making was made without the support of any empirical
or experimental evidence. Second, his ability to defend his formalised apparatus in
an increasingly formalised discipline turned out to be poor. It is to be noted, though,
that the controversial relationship Shackle entertained with both mathematical econo-
mists and psychologists testifies to his commitment to an all-comprehensive approach
to decision making that was unusual in his day but widely practised today.
The motivation of this article is not simply historical. The fact that Shackle was
considered to be on the losers’ side in the late 1950s and early 1960s has obscured the
relevance of his approach to understanding the multifarious developments observed
in decision theory in the past 20 years or so. The interest in the story of Shackle’s
exchange with his contemporaries is motivated by the fact that, as argued by Basili
and Zappia (2009A, 2010), current developments in decision theory such as the
so-called non-additive probability approach (Schmeidler, 1989) aim to account for
the insights of the early authors—amongst which Shackle had a prominent place—
emphasising the role of ambiguity and uncertainty in decision making. Indeed, many
decision theorists have long been uneasy about the now standard Bayesian assump-
tion that one can derive probabilistic beliefs over anything uncertain, even before the
experimental evidence related to the paradoxical results of Allais and Ellsberg and
the ensuing descriptively motivated theories of behaviour (Camerer, 1995). In par-
ticular, both Keynes’s (1921, p 42) discussion of ‘non-numerical’ probabilities and
Knight’s (1921, p 20) reference to ‘true, unmeasurable uncertainty’ can be ascribed
to a tradition of thought emphasising the need for a normative explanation that is
alternative to the subjectivist one (Runde, 2001; Basili and Zappia, 2009B). Although
this insistence on the distinction between risk and uncertainty seemed to become
irrelevant after Savage’s axiomatisation, it pervaded the contribution of authors criti-
cal of a strictly Bayesian approach (Good, 1952; Levi, 1974; Gardenförs and Sahlin,
1982) and constitutes the core of the more recent developments (Wakker, 2008).
As shown in Basili and Zappia (2009A), Shackle’s non-probabilistic conceptualisa-
tion of individual decisions under uncertainty shares many aspects with these recent
developments.
2
Reference to the correspondence section of the George L. S. Shackle Papers held at Cambridge University
Library, and catalogued as Add. MS 7669, will be made in what follows.
1136 C. Zappia
This article is organised as follows. Section 2 presents the essential elements of
Shackle’s theory. Section 3 concentrates on Arrow’s critical remarks and shows that
Arrow’s changing attitude towards the relevance of Shackle’s theory during the 1950s
reflects a general decline of interest in his work. Sections 4 considers the arguments
of his other critics, concentrating on those who objected to his peculiar solution but
shared Shackle’s misgivings about the mainstream. Section 5 restates the themes that
have secured Shackle’s place in the history of decision theory and assesses the personal
and theoretical reasons for the marginalisation of Shackle’s work. Section 6 concludes.
2. Shackle and his non-probabilistic approach
George L. S. Shackle joined the London School of Economics as a graduate student
in 1935, at the age of 32. He started working on the Austrian theory of capital under
Hayek’s supervision, but abandoned this topic after coming into contact with the new
Keynesian ideas that were then emerging (Shackle, 1983).3 Shackle’s doctoral thesis,
published as Expectations, Investment and Income in 1938, was an attempt to clarify the
intricacies of Keynes’s writings on the volatility of investment and the expectations of
investors and put them to use in an ‘expectational dynamics’ theory of business cycle.
Shackle considered the role of expectations as described in chapter 12 of Keynes’s
General Theory of crucial relevance, but only an introduction to the question of how
individuals deal with uncertainty surrounding investment decisions.4
From the early 1940s on, Shackle confined his attention to the theoretical question
of how to represent the individual decision of an entrepreneur who is to invest in a
situation of uncertainty. In a series of papers he started elaborating his rejection of the
‘orthodox Benthamite solution’ of assigning a numerical probability to each conceiv-
able outcome and valuing alternative investment decisions in terms of their expected
value of future net earnings. Shackle’s (1943) intent was to show that a definite step
forwards in decision theory under uncertainty could be achieved only outside a simpli-
fied probabilistic set-up.
Expectation in Economics is Shackle’s most sustained contribution to the theory of
decision under uncertainty.5 Shackle’s main starting point was that ‘crucial’ decisions
investors face are non-replicable, something that precludes applying the numerical
probabilities of the frequency probability approach, which is ‘adapted to discover-
ing the tendencies of a given system under indefinitely repeated trials or experiments’
(Shackle, 1949A, p 5). Moreover, individuals are not given an exhaustive list of the
potential outcomes between which choice should be made.6 Rather, individual choices
are made amongst ‘imaginary situations’ (Shackle, 1949A, p 1), that is, subjective
3
Ford (1994) is a most authoritative work on both Shackle’s biography and his theoretical achievements.
On biographical issues see also Harcourt (1981).
4
Commenting on the General Theory, Shackle (1955, p ix) argued that ‘the whole emphasis of the book
is on the essential importance of expectations, yet the formal frame of concepts is quite unsuited to that
purpose’. Ford (1994, p 433) contends that ‘for Shackle it is only in his 1937 [Quarterly Journal of Economics]
paper that Keynes recognized the true, will-o’-the-wisp, nature of the investment demand schedule’.
5
The remaining part of this section draws on Basili and Zappia (2009A, 2010). For a detailed summary
of the theoretical aspects of Shackle’s theory, see Ford (1994).
6
Shackle’s argument that individuals are not capable of enumerating all possible contingencies, or states
of the world, has become an indispensable analytical reference in the effort of post-Keynesian economists to
represent decisions under genuine uncertainty (Davidson, 1983). But this is also the view decision theorists
like Binmore (2009, p 79) take when claiming that ‘we need to avoid fooling ourselves into thinking that we
always know how to scale down the universe into a manageable package’.
representations of alternative future consequences of an action, and not future conse-
quences themselves.7 Shackle initially opposed the objective frequency-ratio interpre-
tation of probability, but he (1961, pp 104–9) later claimed that the same argument
could be applied to a subjective interpretation of probability. However he never really
engaged with the Bayesian viewpoint that probability should be identified with betting
quotients elicited from actual betting behaviour, and that this applies to any contingent
decision, no matter whether it is repeated.8
Shackle’s argument had what is usually identified as a “Knightian” flavour, although
Shackle did not mention Knight as a primary reference in his 1949 book and his
inspiration mostly derived from his original reading of Keynes.9 However, there is a
clear parallel between Shackle’s (1961, pp 49–50) distinction between distributional
uncertainty variables, which can be used if the list of contingencies is exhaustive, and
non-distributional uncertainty variables, which must be used when ‘the list in order to
attain formal completeness must be rounded off with a residual hypothesis’ on the one
hand, and Knight’s distinction between risk, or ‘measurable uncertainty,’ and proper
uncertainty, or ‘unmeasurable uncertainty’ (Knight, 1921, p 233) on the other.
Aiming to move beyond mere critical inquiry, Shackle put forward a formal repre-
sentation of possibility, indicating the ‘plausibility’ or ‘credibility’ of a hypothesis. He
(1949–50, p 70) claimed that to describe the ‘mental state of uncertainty’ of the deci-
sion maker, what was needed was ‘a measure of acceptance by which the individual can
give to new rival hypotheses, which did not at first occur to him, some degree, and even
the highest degree, of acceptance without reducing the degrees of acceptance accorded
to any of those already present in his mind’. This measure he called ‘potential surprise’,
a function that constitutes Shackle’s substitute for a probability distribution. Shackle’s
decision maker chooses amongst alternatives on the basis of two elements: the possible
gains and losses, x, embedded in each alternative action, called ‘face values’, and a
valuation of the degree of possibility of these gains and losses. This valuation of pos-
sibility he represented through its opposite: a function, y(x), expressing the degree of
disbelief, or implausibility of an outcome.10
It should be noted that as Shackle aimed to represent the epistemic state of the indi-
vidual in terms of degrees of possibilities instead of degrees of probabilities, measuring
a degree of belief by means of its opposite, potential surprise, is not straightforward.
7
A consequence of this viewpoint is Shackle’s opinion that the interpretation of time germane to econom-
ics was ‘inside’ or ‘subjective’ time instead of ‘outside’ or mechanical time. Late in the 1950s time emerged
as the second main theme in Shackle’s economics (Shackle, 1958A, 1972). This led him to embrace a phi-
losophy of time and ignorance alien to the line of development of decision theory in the past 50 years (Ford,
1994, pp 476–80). This aspect of Shackle’s theory, on which see Loasby (2000), will not be discussed here
because it mostly concerns a period in his work not covered in this article.
8
Following Ramsey and de Finetti, adherents of the subjective probability approach argue that it is pos-
sible to deal with the kinds of unique situations on which Shackle focussed, so long as the decision maker
is able to identify equivalent probabilistic gamble to the option being considered. Degrees of belief are then
turned into numerically determined probabilities and, if coherent (de Finetti, 1937), they conform to the
rules of probability calculus.
9
In Expectation in Economics(1949A) Keynes is not widely referred to either, and indeed Keynes is rarely
quoted by Shackle in his works on decision theory. For instance, there is no reference to Keynesian ani-
mal spirits. As noted by a referee, Shackle’s advocacy of Keynes’s 1937 article in the Quarterly Journal of
Economics as providing a most accurate treatment of uncertainty becomes discernible only long after he had
developed his theory (Shackle, 1967A).
10
Remarkably, followers of Kahneman and Tversky (1979) made no reference to Shackle, despite the
fact that his representation of outcomes anticipates prospect theory when it assumes that there is a reference
point against which gains and losses are assessed.
1138 C. Zappia
Shackle (1949A, p 9) motivated his approach on two grounds. On the one hand, he
relied on a descriptive argument: he claimed that a degree of belief is not in itself a
‘sensation or an emotion’, and that the ‘concrete mental experience’ corresponding
to a belief in an hypothesis is ‘the degree of surprise to which this belief exposes us
and will subject us in case the hypothesis proves false’. On the one other hand, sur-
prise is instrumental to the construction of a non-additive index. The emergence of a
new unanticipated event does not necessarily reduce the degree of disbelief previously
assigned to other events, as it would be if (the opposite of) this degree was measured by
a probability. As a matter of fact, Shackle did not reject the idea that subjective weights
are attached to outcomes, but that these weights conform to the rules of probability.
When the possible events cannot be anticipated exhaustively, decision weights are pos-
sibilities, and they do not necessarily add up to 1 like a standard probability measure.
As a result of not adding up to 1, weights are non-additive.11
Shackle then proceeded to show how an individual attributing potential surprises to
outcomes might choose amongst actions. He (1953, p 46) determined ‘the highest bids
which the particular project in question can make for the decision-maker’s attention
and interest’, one of which ‘is the most powerful suggestion of success and the other
the most powerful suggestion of disaster that the conception of project conveys’. These
extreme values represent the limits of all possible outcomes of any feasible action, after
the outcomes and their potential surprise are valued in terms of the attitude the deci-
sion maker shows towards the uncertain situation, an attitude represented through a
function indicating the ‘degree of stimulus’ hypotheses exert on the decision maker.
The criterion for choice Shackle proposed then amounts to what may appear to be a
kind of rule of thumb by which the decision maker takes into account both ‘the best
possible’ and the ‘worst possible’ outcome of each action, respectively called ‘focus-
gain’ and ‘focus-loss’.
Well aware that he was swimming against the stream, Shackle emphasised his rejec-
tion of mathematical expectation. At times his argument appeared as if devised to
provide a descriptive explanation of decision making, but it was weakened by the fact
that he did not discuss the cognitive bases of the advocated procedure of selecting only
two values for each action. Shackle (1949A, p 124) insisted that the focus-values were
intended as ‘determinate maxima of some actual mental experience’, and that they
represented ‘psychological realities’ not ‘mere mathematical abstractions’. However he
did not provide any empirical evidence to substantiate his claim. He was eager to dis-
cover investigations supportive of his viewpoint in psychological literature, but claimed
he had ‘no opportunity for systematic psychological experiments’ (Shackle, 1949A, p
13n) and never investigated the issue further.
Nonetheless, Shackle introduced a formal procedure to select the focus-values. In
fact, the face values and the associated potential surprises implicit in an action are the
arguments of a ‘stimulation function’, φ(x,y(x)), later called the ‘ascendancy function’
(Shackle, 1961), representing the decision maker’s attitude towards uncertainty (Basili
11
This point has been rarely noticed in the post-Keynesian literature on Shackle. A notable exception
is Katzner (1986) who re-interpreted the potential surprise function as a potential confirmation function
expressing possibility through non-additive subjective weights. In a similar way, Ford (1990 pp 32–33) noted
that the derivation of the potential surprise function is similar to that of a probability distribution since
Shackle assumed that the decision maker is capable of assigning a degree of potential surprise to any con-
ceivable event. It is in the ‘editing process’, with his rejection of mathematical expectation, that Shackle
definitely distanced himself from the probability approach.
and Zappia, 2009A). The focus-values are formally determined, as they result from the
maximisation of a continuous stimulation function subject to a continuous potential
surprise function. Also, he was clear that he was suggesting an alternative theoretical
procedure with normative content. On the one hand, an axiom system was elaborated
to present the formal properties of potential surprise (Shackle, 1949A, pp 128–32).
Since the concept of potential surprise provides a formulation of decision weights
alternative to those of an additive probability distribution, Shackle had to introduce
combination rules concerning these weights, intended to replace conditional prob-
abilities. On the other hand, he compared his focus-gain/focus-loss criterion with von
Neumann and Morgenstern’s maximin criterion, which Wald (1945) had transformed
into a decision rule for complete uncertainty. Shackle (1953, p 43) approved of von
Neumann and Morgenstern’s rejection of mathematical expectation under ignorance,
but criticised their suggestion that a decision maker would choose a strategy whose
worst possible outcome is the least bad amongst the respective worst possible out-
comes of all the available strategies. Shackle maintained that in situations of sheer
uncertainty he found at least as plausible a criterion requiring that the decision maker
would take into account both the best possible and the worst possible outcome of each
strategy ‘and make these pairs of outcomes the basis of his decision’.
It is worth noting that this procedure for ordering decisions on the basis of two val-
ues only, already hinted at in Shackle (1943), was not dissimilar to Hurwicz’s (1951)
criterion for decision under ignorance. But whilst Hurwicz’s criterion was highly
regarded in the then contemporary mathematical literature on decision theory under
uncertainty (Luce and Raiffa, 1957), its link with Shackle’s was not mentioned at least
until Arrow and Hurwicz (1972).12
3. Arrow on Shackle

To assess Shackle’s role in the development of decision theory, it is appropriate to begin
with Arrow’s (1951) review article on alternative approaches to the theory of choice in
‘risk-taking’ situations, the most cited survey on decision making of the 1950s. Arrow
also made reference to Shackle in other articles on this topic, and his changing attitude
is taken as evidence for the thesis that Shackle’s inability to address the challenges to
his theory emanating from his subjectivist critics, contributed much to the way his
theory ultimately disappeared from view.
As noted in the introduction, Arrow (1951, p 404) took Shackle’s analysis seriously
because it was the single formalised theory amongst those put forward by a group of
authors who, following in Knight’s and Keynes’s footsteps, ‘do use other than prob-
ability statements in their description of behaviour under uncertainty’. Arrow first
discussed Shackle’s view on the feasibility of a representation of uncertainty alterna-
tive to probability, before moving on to his criterion for the ordering of alternative
situations. As for the first issue, Arrow (1951, pp 419–20) observed that the rules
combining potential surprises proposed by Shackle were such that ‘there is no law
12
On the basis of an axiomatic system devised for decision under complete ignorance, the Hurwicz crite-
rion orders actions with respect to the index αM + (1 – α)m, where the minimum payoff, m, and the maxi-
mum, M, of each action are weighted in terms of a parameter α that can be regarded as a degree of optimism.
If the payoffs are interpreted as focus-values, with m representing loss, Shackle’s criterion is a non-linear
generalization of Hurwicz’s index. Better known as the Arrow-Hurwicz criterion after Arrow and Hurwicz
(1972), the criterion precipitated a significant literature on decision making under ignorance (Kelsey, 1993).
1140 C. Zappia
of large numbers or elimination of risk by consolidation of independent events, for
the potential surprise function attached to a sequence of unfavourable outcomes is
as large as any one’. As a result, Shackle’s theory ‘does not lead, even in the limit, to
the probability theory’, implying that ‘the elimination of all probability elements from
Shackle’s theory cannot be regarded as satisfactory’.13 As for the second issue, Arrow
(1951, pp 432–33) commented on how Shackle had elaborated an ordering of feasible
acts in terms of pairs of gains and losses as follows: ‘Shackle has the sound impulse to
base a theory of uncertainty-bearing on the necessity of the human mind to simplify a
problem in order to be able to deal with it. However, his particular simplification seems
to be purely arbitrary’. Hence Arrow (1951, p 433) concluded, ‘this theory is not based
on consideration of rational behaviour, which Shackle specifically rejects, but on an
alleged inability of the mind to consider simultaneously mutually exclusive events’.
In his comments on Shackle, Arrow defended the crucial point that lies at the basis
of the mainstream use of probability theory in decision making, namely, the denial of
any behavioural distinction between risk and uncertainty. After approvingly reporting
Shackle’s point that if individuals do not have the possibility of repeating an experi-
ment indefinitely, frequencies are irrelevant to their conduct, Arrow (1951, p 414–15)
concluded nonetheless that ‘this argument would obviously have no validity in the
degree-of-belief theory of probability’.14 Arrow made clear that by degree-of-belief
probability theory he meant a theory in which the
fundamental description of uncertainty is couched in terms involving other than probability
statements, but certain postulates are placed on the behaviour of individuals under those condi-
tions, and it is shown that they then act as if there were an a priori distribution of probabilities.
Arrow referred to Marschak’s (1950) treatment of choice amongst uncertain prospects

and indicated that a proper axiomatisation of a subjective theory of probability was in the
pipeline, citing Savage’s (1950) presentation at a meeting of the Econometric Society.
The publication of Savage’s Foundation was still to come, but the influence of the new
Bayesian approach is apparent. As a matter of fact, as Arrow had worked at the Cowles
Commission under the influence of Marschak and Koopmans, it is natural to interpret
Arrow’s criticism as relying on the re-conceptualisation of the rational economic agent as
an information processor pursued at Cowles in those years, a project intended to estab-
lish the core normative parameters of rationality for neoclassical economics (Mirowski,
2002). If so, it may be that Shackle’s approach was under fire because it was incompat-
ible with the aim of providing a consistent corpus for decision theory.
Arrow’s changing attitude with respect to the relevance of Shackle’s theory was
reflected also in a decreasing attention to Shackle’s ideas amongst decision theorists.
In his review of Shackle (1955), Arrow (1957, p 81) considered Shackle as ‘virtually
alone today in his insistence of genuinely dynamic analysis based on expectations’, and
argued that the possibility for development on this topic was dependent on the intense
work in the foundations of the theory of behaviour under uncertainty related to the
13
Arrow’s critique was largely addressed at Shackle’s alleged inability to take into account Bayesian
updating in his axiom system. But Shackle’s problem was analogous to the one later confronted by means of
the Dempster-Shafer rule for conditioning (Shafer, 1976), and the solution he provided was recognised as
sound in the literature on belief functions (Basili and Zappia, 2009A).
14
Arrow’s evaluation of Knight’s theory matched that of Shackle’s. After reconstructing Knight’s view-
point he commented, ‘Knight’s uncertainties seem to have surprisingly many of the properties of ordinary
probabilities, and it is not clear how much is gained by the distinction’ (Arrow, 1951, p 417).
subjectivist approach, and not on Shackle’s attempt. The impossibility of connecting
Shackle’s approach to major developments is apparent in Arrow (1959). Contrary to
his 1951 view, Arrow (1959, pp 13–14) had moved towards depicting decision theory
as a coherent corpus of knowledge dominated by a basic structure, ‘accepted by virtu-
ally all participants in the discussion’, consisting of ‘a weighting of the different states of
nature’. ‘Most theories’, Arrow stated, ‘tend to include a range of weights for different
states. If these weights satisfy certain formal rules of combination, they are referred to
as probabilities. . . . Shackle’s concept of potential surprise is an alternative formulation
of weights, with different combination rules’.
Although contributed to a special issue celebrating Expectation in Economics after
10 years, the paper did not examine Shackle’s ‘alternative formulation of weights’,
focussing instead on Savage’s approach and its application to economics. Shackle did
not react to Arrow’s changing attitude: in his works he neither discussed Arrow’s point,
nor tried to characterise his theory as providing an alternative representation of deci-
sion weights (on which see next section).
Arrow’s last reference to Shackle’s work was made in a joint paper with Hurwicz
contributed to another volume in honour of Shackle. Arrow and Hurwicz (1972, p
1) provided ‘a possible characterization of the concept of complete ignorance’, defined
as ‘a situation in which there is no a priori information available which gives any
state of nature a distinguished position’, and ‘not presupposing a fixed list of states of
nature’.15 They clarified from the outset that under these hypotheses the criterion they
provided differed from those formulated within the ‘now more standard subjective
probability framework’, and that their arguments and conclusions ‘are much closer
to Shackle’s’ than those of Ramsey, de Finetti, and Savage. In situations of complete
ignorance, Arrow and Hurwicz (1972, p 2) argued, Shackle’s formulation makes it
possible to interpret complete ignorance as meaning that all states of nature have zero
potential surprise. They concluded that if a description of the world needs to be made
finer than previously anticipated, this could be done easily in Shackle’s (but not in the
subjectivists’) framework. As Shackle argued many times in response to his critics, this
capability of accounting for new, unanticipated events is precisely one of the reasons
for the use of the potential surprise function.16
Arrow and Hurwicz proceeded along the lines of the axiomatic approach introduced
by Hurwicz (1951). First, they postulated a set of ‘desirable’ properties of a rational
criterion of choice; second, they proved that the necessary and sufficient conditions
guaranteeing that an optimality criterion possesses these properties are related only
to the minimum and the maximum value amongst the possible outcomes. Arrow and
Hurwicz’s (1972, p 2) main result then was that if Shackle’s focus values are inter-
preted as the minimum and maximum payoffs to a given action, ‘a plausible set of
desirable properties for a rational criterion of choice under complete ignorance in fact
leads to this special case of Shackle’s theory’.
15
In the current literature, the notion of complete ignorance captures the idea that the axioms of subjec-
tive probability cannot be fulfilled (Camerer, 1995).
16
In terms of the subjectivist approach, if the event on which choices are conditioned is not in the list
of the possible states of nature, the decision maker is forced to modify the probability weights originally
attributed to the states, because the weights have to add up to 1. Shackle insisted that a correct representa-
tion of the epistemic state of an individual should make room for a ‘residual hypothesis’ without reducing
the weights attributed to the original list of states. Contrary to Shackle’s understanding, however, this can
be achieved also within a probabilistic approach, if the probability measure on the original list of states is
sub-additive (Basili and Zappia, 2009A).
1142 C. Zappia
The conclusion Arrow and Hurwicz reached is nothing short of surprising. As
documented here, Arrow had called ‘purely arbitrary’ Shackle’s selection of the focus
outcomes, and later mentioned Shackle only as a minor detour from the main develop-
ments. Arrow may have meant that Shackle was not able to provide an axiomatic justi-
fication for the theory, but the normative solution he provides in 1972 coincides with
Shackle’s procedure of ranking actions in terms of only two values. Moreover, Arrow
and Hurwicz (1972, p 1n) acknowledged that Hurwicz (1951) contained the basic
result of the essay, whilst Arrow (1953) contributed a simplified proof of Hurwicz’s
result, and that the 1972 version did not represent a development over the papers of
the 1950s. Thus Arrow and Hurwicz’s recognition that Shackle’s criterion could be
interpreted as a version of Hurwicz’s comes in 1972, whilst the main result was already
proved in 1953.17
4. Shackle and his critics

This section assesses the discussion between Shackle and his critics on the non-prob-
abilistic approach developed in Expectation in Economics. The material used includes
both comments and replies published in journals and volumes dealing with Shackle’s
theory, and Shackle’s correspondence included in the George L. S. Shackle Papers at
Cambridge University Library.18 Some of the critics concentrated on two aspects of
Shackle’s theory that were of the utmost importance from the viewpoint of the founda-
tions of decision theory: they examined the implications of the non-additive character
of the theory and the possibility of interpreting Shackle’s potential surprise as a weight-
ing function, alluding to decision weights instead of probabilities. It will be argued that
Shackle’s inability to fully appreciate the arguments of his critics is a major reason even
those decision theorists who were sympathetic to him gave up discussing his theory in
the 1960s. It will also be argued that Shackle’s refusal to engage with Savage’s inter-
pretation of probability theory reduced the appeal of Shackle’s stance that probability
was not applicable to unique decisions.19
Reviewers of Shackle’s Expectation in Economics initially showed great interest in his
aim to deal with Knightian uncertainty. Two short notes appeared in Economica, both
17
Hurwicz’s 1951 paper does not refer to Shackle. As for Arrow’s paper, one can only speculate on
whether Arrow endorsed Shackle’s criterion already in 1953, since the original Technical Paper is not among
the Kenneth J. Arrow Papers at Duke University Library. But there is evidence that he did not do so. A cor-
rect understanding of the relationships between Shackle’s and Hurwicz’s criterion can be found in Daniel
Ellsberg’s doctoral thesis, submitted to Harvard Economics Department in 1962. Ellsberg (2001, p. 190)
justified the use of decision rules based on the best/worst pairs because of its normative appropriateness
under ambiguity: he referred to both Hurwicz’s 1951 and Arrow’s 1953 working papers, and remarked that
Hurwicz’s conditions for characterising an optimal criterion under conditions of complete ignorance, ‘serve
also to “characterize” Shackle’s recommendations … [since] they provide a logical basis for his emphasis
upon “focus outcomes”.’ Ellsberg’s 1962 claim is that he had no knowledge that ‘this relation between
Shackle and Hurwicz has been remarked in print elsewhere’ (Ellsberg, 2001, p. 163 fn.).
18
Shackle’s correspondence concerning Expectation in Economics includes mostly letters written to Shackle,
and only a few have responses from him. As noted by Littlechild (2000), however, the essence of Shackle’s
counter-arguments to critics can be often found in his published writings. Whenever Shackle thought a point
made by a correspondent might be of help to the development and diffusion of his theory, he would find a
journal offering room for the publication of the exchange or mention it in his own subsequent works.
19
This section focusses on the discussion of foundational issues. As suggested by a referee, other objec-
tions raised against Shackle may have been related to applications. In particular, critics pointed at Shackle’s
inability to account for diversification in the holding of assets. A Shackleian solution for portfolio selection
is provided by Ford (1994, pp 188–216).
from young mathematical economists at the London School of Economics. In the first
note, Jan van de Graaff and William Baumol (1949, pp 338–39) expressed very well
the excitement of the economics profession confronted with Shackle’s ‘quite devas-
tating criticism of the orthodox probability approach to expectations to be found in
most theoretical discussions by professional economists’. Graaff and Baumol (1949, p
341) viewed favourably the possibility that ‘the development of an essentially subjective
theory of expectation, and especially of the confidence with which these expectations
are held’ would have a revolutionary effect, similar to that which ‘occurred in the central
body of theoretical economics when the subjective theory of value was developed’.20
Graaff and Baumol then moved on to criticise the details of Shackle’s proposal, in
particular his exclusive concern with the focus-gain and the focus-loss of each action.
They put forward an example in which the decision maker would consider relevant not
only the focus values but also the whole range of possible outcomes, and argued that
they were dissatisfied with Shackle’s suggestion that ‘in a one-and-for-all decision one
can afterwards derive cold comfort from the knowledge that there were alternative gains
and losses conceivable’. Graaff and Baumol (1949, p 342) concluded by calling for a
more elaborate argument against ‘actuarial calculation’ since ‘it is not altogether clear
whether Mr. Shackle presents the hypothesis that people concentrate on the focus-out-
comes as no more than a useful simplification of reality, of the kind we are continually
looking for in our research, or whether he means it to be taken quite literally’.
In his reply Shackle (1949B, p. 343) persisted in his position that because any ‘cru-
cial experiment’—any decision whose outcome ‘will affect the whole future course
of relevant events for the individual’—has the character of a ‘unique trial’, decision
theory has to concentrate on ‘unique or isolated experiments’. But if a decision is
crucial, Shackle argued, even the toss of a coin may be considered a unique trial and
as such is alien to probabilistic treatment: indeed, this holds true even if the toss ‘is for
choice of . . . innings in a Test Match’. Shackle’s deliberate choice to equate ‘crucial’
decisions—suggesting true uncertainty—with ‘unique’ decisions of any kind, like the
ones related to the toss of a coin (thus akin to risk) was the target of harsh criticism
from practically all commentators.21 As for the rationale underlying the selection of
focus-values, instead of considering the whole range of outcomes, Shackle (1949B, p
345) could not offer a positive reason for the procedure of selecting just two values:
What is the source of my critics’ feeling that other elements besides the two ‘most powerful’ are
taken account of in the individual’s final decision? I think it is that they are still unconsciously
thinking in terms of numerical probability and of repeated trials forming parts of a larger whole
which alone is significant.
The exchange with Graaff and Baumol is illustrative of the tone of the ensuing
debate, with mainstream economists showing interest in the originality of Shackle’s
20
The private correspondence between Shackle and Baumol testifies to Baumol’s fascination with
Shackle’s ambitious examination of decisions under uncertainty. In a short letter sending Christmas greet-
ings to Shackle, Baumol wrote: ‘I am now taking issue with Marschak who in order to “measure” utility
argues that rationality requires us to maximise the actuarial value of the utility of a prospect even on a non
repeated decision! Will the irrelevance of probability features for such decisions never be understood?’ Letter
from W. Baumol to G. L. S. Shackle, 18 December 1950 (Add. MS 7669, 9/1/18).
21
In private correspondence, Franco Modigliani argued: ‘if you make your notion of potential surprise
completely subjective, even when probabilities exist, then there is the danger that your approach will become
completely incapable of empirical test’. Letter from F. Modigliani to G. L. S. Shackle, 20 February 1950
(Add. MS 7669, 9/1/4).
1144 C. Zappia
proposal, but rejecting it on the basis of Shackle’s inability to provide either a formally
coherent rationale or empirical confirmation. In a private correspondence Hendrick
Houthakker, then research scholar at the Department of Applied Economics at
Cambridge University, argued:
Although I have sincere admiration for the originality and lucidity of your exposition . . . I am
not quite convinced by your attempt to replace the approach based on probability considera-
tions. I think that your objections to the latter are too exclusively directed against the frequency
theory of probability, which is by no means generally accepted. . . . I fail to see any logical reason
why expectations which cause greater or smaller potential surprise than the ‘focus values’ should
not be of importance in arriving at a decision.22
The second note was by Ralph Turvey, then lecturer at the London School of
Economics. Turvey (1949, p 337) addressed the question of the differences between
Shackle and ‘the orthodox analysis of uncertainty’, distinguishing between the fre-
quency theory of probability he associated with Knightian risk, subjective probability
he associated with Knightian uncertainty and the potential surprise function. He cor-
rectly argued that although the last of these seemed at first sight to be no more than
an inverted subjective probability function, this was not the case because ‘while for any
value of x maximum potential surprise correspond to zero likelihood, zero potential
surprise will only mean unit likelihood in a very special case . . . since the realization of
a particular value of x may cause no surprise even though that result was not considered
certain’. He thus fully appreciated the non-additive nature of potential surprise, where
‘there would be no meaning in performing a weighted average on the potential surprise
function—hence the concept of focus gain and focus loss’ (Turvey, 1949, p 338).
Turvey’s note opened the debate on the meaning of non-additive measures such as the
potential surprise function. In response to a similar comment by Klein (1951), Shackle
was keen to acknowledge the property of non-additivity as essential to the notion of
potential surprise, but he was reluctant to concede that his non-additive approach had
a limited field of application. Shackle (1949–50, pp 73–74) insisted that probabilistic
reasoning could not be of help outside simple, controlled aleatory experiments, denying
the key role of the distinction between frequency and subjective probability:
If, for the analysis of choice amongst indivisible real life experiment (i.e. choice among courses
of action whose outcome cannot be known in advance), we discard the notion of frequency-ratio
probability, ought we not also to discard our predisposition towards additive solutions and start
afresh with an open mind?
After the first round of comments, Shackle restated his theory in a series of articles,
aiming ‘to express more systematically my objections to the use of probability as a means
of analysing and describing a mental state of uncertainty’ (Shackle, 1955, p vii). The
attention he received continued to be significant. Two episodes of the ensuing debate are
worth examining here because they signal that the issue of non-additivity was dealt with
by other commentators, who endorsed a subjective view of probability, but who were
nonetheless interested in the representation of degrees of belief by means of a weighting
function not conforming to the standard rules of probabilities (i.e., like Shackle’s).
The first episode of interest here is the conference on “Expectations, Uncertainty and
Business Behaviour” organised by the Committee on Business Enterprise Research of
the Social Science Research Council, held in Pittsburgh in October 1955. Although
Letter from H. S. Houthakker to G. L. S. Shackle, 1 May 1950 (Add. MS 7669, 9/1/5).
22
most contributions to this event were empirically oriented, including papers by Eisner,
Katona, Modigliani and Simon, the organisers thought that an opening section on
theoretical developments was essential. This section consisted of two papers: a sur-
vey of the theories of probability and expectations by Georgescu-Roegen, followed by
Shackle’s presentation of the potential surprise approach with application to liquidity
preference. As reported by Mary Jean Bowman (1958, pp 2–3) in her introduction
to the proceedings, the fact that Shackle’s (1958B) paper was the focus of theoretical
discussion at the conference was criticised by Tjalling Koopmans, then director of the
Cowles Commission:
I would like to have seen more attention given to the axiom system for decision making under
uncertainty recently developed by Leonard Savage, continuing and extending the work by
Ramsey and de Finetti . . . concerned with decision making in general and as such as fundamen-
tal to economics as to statistics.
Shackle could not attend the conference, but his paper had been circulated in
advance and was referred to in the discussion. Georgescu-Roegen (1958) concentrated
on what he called the ‘subjectivist’ and the ‘ultrasubjectivist’ doctrine. As for subjective
probability his criticism was not dissimilar to Shackle’s. But Georgescu-Roegen—who
endorsed the Keynesian view that the comparison of probabilities may entail a partial
ordering (Fontini, 2009)—was also critical of the way Shackle proposed to extend
subjectivism further, arguing that the ultrasubjective notion of potential surprise was
‘nothing but a truncated complement of belief’. Georgescu-Roegen admitted that in
the crucial case of an unanticipated result, ‘we need “surprise” to describe the ex post
state of the mind that has no ex ante correspondent’. Even in this case, however, he
was not convinced by Shackle’s proposal and argued in favour of an analysis of the
non-comparability of judgements.
The other comments on Shackle made during the discussion were summarised
by Bowman, save for Edwards’s remarks, which were published in a note following
Shackle’s paper.23 Ward Edwards, a psychologist at the University of Michigan widely
considered the father of behavioural decision making, dealt with Shackle’s insistence
on the ineffectiveness of expected utility, which he considered the main feature of the
theory:
Shackle’s refusal to add subjective improbabilities . . . seems to me to be the most important and
desirable feature of his system. A great deal of experimental evidence that bears on the additivity
of subjective probability is now available and it argues against the additive property so strongly
that I do not see how it is possible any longer to defend that property. Fortunately, it may be
possible to develop a utility-subjective probability model that is mathematically satisfactory and
that does not require subjective probabilities to add to one. (Edwards, 1958, p 44)
Edwards’s comments are crucial to the reconstruction this article provides. First,
non-additivity was justified by Edwards on the basis of experimental evidence. Given
that Savage’s theory concentrated on internal consistency of individual choice,
Edwards’s ability to show that individuals do not care about such a kind of consistency
in certain situations was a significant counter-example to the subjectivist approach
23
Among others, Albert Hart was reported to complain that ‘the notion that human beings simply cannot
set up a meaningful “subjective probabilities” and apply them to the likelihood that events may diverge from
a central estimate strikes me as unacceptable . . . it would leave us with such very untractable models that
analysis would be paralysed’ (Bowman, 1958, p 6).
1146 C. Zappia
that should have appeal to Shackle.24 Second, Edwards hinted at the possibility that a
suitable modification of a subjective probability measure, one admitting the possibil-
ity of a non-additive form, would render Shackle’s approach more conspicuous. That
Edwards’s comments were of the utmost interest was apparent to Bowman who, in a
letter to Shackle summarising the discussion at the conference, pointed out: ‘Edwards,
in contrast to Savage, uses a subjective probability concept such that the probabilities
are not additive’. Bowman enclosed a copy of Edwards’s note, but Shackle did not
make any reference to it in the last version of his paper and never made reference to
Edwards in his later works.25
Not surprisingly, Shackle’s dismissive attitude towards the new subjective approach
became a recurring theme in the debate of the second half of the 1950s. Almost all
commentators referred to the subjectivist developments, but Shackle insisted that even
gambling situations involving games of chance, if interpreted as unique experiments,
would require the use of potential surprise instead of probabilities. Asked by Gould
(1957) to comment on this point, Shackle (1957, p 661) replied:
Some critics . . . have urged on me the view that it is the kind of uncertainty which envelopes the
business-man’s decisions, the confusion and fog, as Professor Carter has called it, of conflicting
indications, the difficulty of interpreting his raw material, that I ought to lay stress on, and not
the uniqueness of the experiment he makes. However, I think both are true.
The reference to Carter is important. Charles F. Carter, professor of applied eco-

nomics at the University of Lancaster, was one of the early advocates of Shackle’s
theory. Carter (1953) provided a generalisation of Shackle’s theory and never stopped
supporting Shackle, co-editing with Jim Ford a volume in his honour in 1972. Despite
this, Carter appeared to harbour a certain uneasiness about Shackle’s inability to face
the subjectivist developments in the debate. After noting that Shackle’s opinion about
the importance of uncertainty in the economic system was accepted by his critics,
Carter (1956, p 700) stressed that Shackle’s theory of expectations was still regarded
as an interesting possibility, ‘but not [as] one of which much use need be made’. Carter
then commented that although this decrease of interest was disappointing, it could be
justified:
This is not a field of study in which a new theory can have strong claims to immediate accept-
ance; it is not even certain how it can be tested, not what range of alternative theories can fit the
facts . . . therefore there is a need for people to get together to find the highest common factor of
agreement. . . . But Professor Shackle . . . still gives the impression of campaigning for his own
theory, the whole theory, and nothing but the theory.26
The second important episode in this second round of discussion was the spe-
cial issue of Metroeconomica intended to celebrate the 10th year of the publishing of
24
This point was made in Edwards (1954) on the basis of evidence suggested by a series of experiments. It
is worth noting that Edwards’s analysis of decision weights is referred to by Kahneman and Tversky (1979)
as inspiring their prospect theory.
25
Letter from M. J. Bowman to G. L. S. Shackle, 8 November 1955 (Add. MS 7669, 9/1/148). Shackle
did not reply to Georgescu-Roegen either. Shackle (1967B) praised Georgescu-Roegen’s introduction of
non-arithmomorphic notions in economics, which he saw as informed by the same methodological quest for
imprecision he was investigating, but he never commented on Georgescu-Roegen’s rejection of his peculiar
representation of non-distributional variables.
26
As suggested by a referee, one can argue that it simply was not Shackle’s style to do joint work. For
instance, Shackle did not supervise Ph.D. students even though it would have been of great help to have
empirical studies on his theory done by doctoral students.
Expectation in Economics. As far as we are concerned here, two papers were of major
interest. The first, by Jürg Niehans, professor of economics at the University of Zurich,
criticised Shackle’s suggestion that his ‘thesis is self-evident and not in need of any
proof … in a period of lively discussion of “subjective” probabilities’. Yet Niehans
(1959, pp 77–78) made it clear that despite his unwillingness to consider the subjectiv-
ist approach, Shackle’s approach was relevant exactly because there existed situations
in which the axioms of subjective probability did not apply. In these instances, Niehans
(1959, p 87n) argued, ‘a case could be make for a theory which, say, 1) uses probabili-
ties to eliminate “impossible” states . . . 2) does not weigh “possible outcomes” with
probabilities, 3) lets decisions be guided by minimax regret as applied to the matrix of
the “possible” outcomes’.27
The second paper, by Richard Weckstein, professor of economics at the
University of Rochester, examined the supposed inability of probability measures
to deal with unique decisions. Like Niehans, Weckstein (1959, p 116) argued in
favour of the probability approach and stressed that the probability of a single
event is correctly defined in the subjective interpretation of probability, ‘requir-
ing no statistical evidence at its basis’. Furthermore, Weckstein contended that it
could be legitimate to use a probability measure even to account for the residual
hypothesis. His argument offered a link to the incoming developments which par-
allels Edwards’s remarks:
Consider the argument that the probability number assigned to the occurrence of an outcome
must be changed whenever the number of outcomes considered change, and that this adjust-
ment of probability numbers has no analogy in the psychology of a decision-maker. This happens
to probability statements because of the formal requirement that the sum of the probabilities
of all of the possible outcomes equals one. . . . This is a formal convention which may have no
precise analogy in the psychology of decision comparable to Shackle’s potential surprise func-
tion which is expressed in psychologically suggestive terms, but it is a convention which is widely
understood.
Shackle commented on both Niehans and Weckstein, devoting to each paper an

entire chapter of his 1961 book. In his comment, Shackle’s tendency to trivialise alter-
native explanations is plain, and he continues to insist that Savage’s interpretation of
probability is not significantly different from the frequency interpretation. However
one specific comment addressed to Weckstein’s statement deserves to be reported
(Shackle, 1961, p 107–8):
When Professor Weckstein speaks of the ‘formal requirement’ that probabilities should sum to
unity, I feel that his words convey the suggestion that there might be some escape from this
requirement without abandoning the essence of the notion of probability. Surely this is not so?
Once we abandon the distributional character of probability we are in an essentially different
scheme of thought, the conception of a non-distributional uncertainty variable of which poten-
tial surprise is an example.
The issue of non-additive probabilities, representing a generalised probabilistic con-

text through which instances of non-probabilistic analysis could be investigated, is
once more apparent, but Shackle was not receptive enough to recognise the signifi-
cance of the issue.
27
Minimax regret was introduced by Niehans as a possible criterion to cover situations in which the valid-
ity of mathematical expectation could be questioned. Other criteria included Wald’s criterion and Shackle’s
theory (Niehans, 1959, p 87).
1148 C. Zappia
5. The marginalisation of Shackle
The 1961 QJE symposium ‘Decision under Uncertainty’ constitutes a watershed in
the development of modern decision theory. Here, Daniel Ellsberg and William Fellner
questioned Savage’s approach to subjective probability, whilst Howard Raiffa argued in
its favour. On the basis of observed violations Ellsberg (1961) claimed that vagueness
about probabilities could lead individuals to violate the axioms of consistent behaviour
upon which Bayesian decision theory was based. Ellsberg (1961, p 646) suggested that
it would be worth identifying ‘a class of choice-situations in which many otherwise
reasonable people neither wish nor tend to conform to the Savage postulates’, and con-
cluded: ‘We might hope that it is precisely in such circumstances that certain proposals
for alternative decision rules and non-probabilistic descriptions of uncertainty (e.g. by
Knight, Shackle, Hurwicz and Hodges and Lehmann) might prove fruitful’.28
Even against Fellner’s (1961, p 680) suggestion that ‘directly observable’ decision
weights may be different from ‘theoretical’ probabilities, Raiffa re-affirmed his faith in
Savage’s axioms as normative guides. Raiffa (1961, p 691–92) reported that experimen-
tal subjects, initially inclined to violate the axioms as indicated by Ellsberg, behaved
consistently with them if instructed to take into account randomisation over possibili-
ties. The mainstream endorsed Raiffa’s conclusion that ‘there is a need to teach people
how to cope with uncertainty in a purposive and reflective manner’, and Ellsberg’s
paradoxical results had to wait more than 20 years to be addressed (Schmeidler, 1989).
But through the theme of the violation of rationality axioms, the research on alterna-
tive representations of the subjective valuations of uncertain environments remained
alive, as shown by the debate on non-expected utility theories (Machina, 1987).
As seen earlier, many had hinted at these themes in their comments on Shackle.
But Shackle’s reaction to his critics provides evidence that he rejected any of their
suggestions, regardless of the kind of probabilistic argument underlying them. Indeed,
Shackle’s inability or unwillingness to take part in the debate over violations of Savage’s
framework left him a bystander to any subsequent analytical progress. As noted by
Perlman (2005, p 175), it is certainly not true that Shackle’s ‘ideas were displayed only
in non-mainline journals and went unappreciated by the established “greats” of his
day’. But the contemporary developments of decision theory did not really delve into
Shackle’s approach, and his attempt soon became a digression in the shaping of the
new mainstream view.29
Shackle’s tendency to react to the mainstream view without truly engaging with crit-
icism has been pointed out before (Carter, 1956; Ford, 1994). However, the argument
of this article has been that Shackle showed the same attitude towards those commen-
tators who were critical of the mainstream themselves. Shackle’s focus on the design
of a non-probabilistic set-up made him unreceptive to the argument of people who
agreed with him on the inapplicability of probability to uncertainty proper but who
did not reject a subjective approach to probabilities in itself. Shackle denied that a dif-
ferent understanding of probability could have any significance to his main argument.
28
In his doctoral thesis, Ellsberg (2001, pp 16–17) added: ‘when ambiguity is extreme, by any of his
indices: relevant information sparse, or obviously unreliable and contradictory; wide differences in the
expressed expectations of different individuals; low confidence in available estimates’, the ‘somber reflec-
tions’ expressed by Shackle ‘seem too ominously relevant to the very circumstances upon which this study
focuses to be dismissed’.
29
Shackle’s 1961 volume Decision, Order and Time in Human Affairs, intended to summarise the elements
of his theory in the face of criticism, received only a few, mostly dismissive reactions from decision theorists.
Crucially, he did not comment on Edwards’s claim that his advocacy on non-additivity
was already proven experimentally and could be examined within a generalised proba-
bilistic set-up.30 Paradoxically, Shackle showed a similarly unreceptive attitude with
respect to Keynes himself and his dealing of non-numerical probabilities in the Treatise
on Probability. As a matter of fact, Shackle, the post-Keynesian par excellence, did not
take Keynes’s Treatise into account in the shaping of his theory of decision and never
really engaged with Keynes’s treatment of probabilities at least until his late 1979 vol-
ume, Imagination and the Nature of Choice.31
Although this is a crucial interpretative aspect, it would be misleading to suggest that
Shackle’s failure to establish himself as one of the main figures in the history of deci-
sion theory is due solely to his personal attitude towards his critics. A closer look at the
relationships between Shackle and contemporary subjectivist developments suggests
at least two other explanations. The first relates to the sociology of how mainstream
decision theory developed; this has already been mentioned in the section on Arrow.
Shackle can be considered part of a school of thought only if seen as a dissenting
Keynesian, and only from a 1970s perspective. To be sure, Shackle is the representative
dissenting Keynesian when discussing decision making and the limits of probability
calculus. For instance, the argument that to apply probability theory, one must assume
the possibility of repeated experiments under constant conditions, was restated by
Davidson (1983) when arguing against the rational expectations revolution. Because
no follower of Shackle has been able to propose a formalised alternative to the main-
stream of the same breadth, he still remains the prominent Keynesian to refer to on
this matter (Chick and Dow, 2012). But when he confronted Arrow and the subjectiv-
ist systematisation of decision theory, Shackle was an isolated figure, and the absence
of an articulated group of people supporting him must be part of an account of his
failure in the 1950s.
The second explanation is more substantive and concerns the way Shackle pursued
the replacement of the orthodox paradigm for the explanation of individual behaviour
under uncertainty. Shackle’s proposal to replace the expected utility model with a new
one was motivated mainly on descriptive grounds: his claim was that probabilities can-
not account for the psychological attitude of individual agents when making decision
under uncertainty. The subject matter of Shackle’s investigation is the ‘actual experi-
ence’ of a decision maker who is aware that she may have not taken into account all
possible payoff-relevant contingencies. Indeed, Shackle’s failure to comprehend the
differences between von Neumann and Morgenstern’s theory and Savage’s subjec-
tive approach may be traced to the fact that from a descriptive viewpoint, the two
theories are alike. But Shackle intended his argument not simply as destructive of the
mainstream and insisted that his theory could be axiomatised and constitute a viable
formalised alternative. Potential surprise was Shackle’s replacement for probability,
30
An account of Shackle’s disregard for integrating his thinking with the works of other authors who had
complementary ideas must include Herbert Simon. Shackle (1961, p 100) ignored him on the grounds that
Simon’s decision maker faces a choice amongst alternatives in a complete system in which there is no room
for surprise. However Earl (1983) shows that Simon’s satisficing approach can provide a significant integra-
tion of Shackle’s theory.
31
In Shackle’s works, then, there is no reference to authors who proposed alternative probabilistic set-
up in the footsteps of Keynes’s Treatise on Probability, such as Koopman (1940) and Good (1952), who
elaborated a generalised Bayesian view. It was only in his later years, possibly under the influence of Isaac
Levi (1972), that Shackle (1986) came to acknowledge that these developments accorded with his own
viewpoint. On this point see Runde (2000).
1150 C. Zappia
designed to make room—on a formal, analytically consistent basis—for what he called
the residual hypothesis. As a consequence an unresolved conflict between empirically
and normatively motivated considerations arises.
On the one hand, Shackle’s clarification of the importance of the uniqueness of many
important decisions seems to be motivated by the need of a more accurate apprecia-
tion of the epistemic states of the individual. For Shackle, a descriptively relevant the-
ory of decision making requires explicit recognition of personal mental activities, such
as the imagination and the accommodation of potentially unknown events. It was to
pursue this goal that he marked the difference between his theory and the standard use
of probability and claimed that an alternative, non-probabilistic set-up was needed. On
the other hand, Shackle’s fascination with mathematics and the possibility of providing
an axiomatisation of his theory is a recurrent theme in his works. The mathematical
appendix of Expectation in Economics, which sets a series of axioms intended to prove
that his theory of decision making could survive a test for consistency, starts by prais-
ing the application of the ‘new’ axiomatic method to economics. Although he realised
that not even benevolent critics understood his insistence on defending his system of
axioms, he never abandoned it, as testified by its integral reprint in two of his later
volumes (Shackle, 1961, pp 79–82; 1979, pp 109–12).
There was an ambivalence here, which, when confronting his critics, was detrimen-
tal to Shackle’s argument. As a matter of fact, he neither investigated the cognitive
bases of the theory nor tried to elaborate on its axiomatic structure. His inability to
pursue an experimental analysis made the descriptive content of his theory question-
able from a decision-theoretic viewpoint: the recommendation made by both critics
and followers to provide justification for the psychological elements of his theory was
left unanswered. Shackle was eager to acknowledge the works of psychologists like
Patrick Meredith and John Cohen, who placed emphasis on surprise in decision mak-
ing. But the first experimental test of Shackle’s notion of potential surprise had to wait
more than 35 years since the publication of Expectation in Economics (Hey, 1985).32
As for the axiomatic justification of his theory, Shackle never attempted to com-
pare the formal structure of his axioms system with those of contemporary decision
theorists like Chernov, Marschak, Milnor and Radner who were working on decision
making under conditions of ignorance (Ford, 1990). This fact notwithstanding, all
the aspects of decision making on which he concentrated were of special relevance.
In particular, after rejecting probability he was forced to introduce rules of condi-
tioning for potential surprise. He made the assumption that the potential surprise
of the union of two mutually exclusive events is equal to the smaller of the potential
surprises of the two single events, and the potential surprise of the intersection of two
events is equal to the larger of the potential surprises of the single events. As seen
earlier, both Arrow and Georgescu-Roegen rejected Shackle’s rules of conditioning.
Years later, though, Shackle’s intuition was revalued. Levi (1972) summarised these
rules as being appropriate to a measure that embraces a generalised Bayesian perspec-
tive with multiple priors, and Shafer (1976) noted that Shackle’s properties pertain
to a non-additive probability function like the one he was investigating in his theory
of evidence. These properties were eventually extensively investigated in a statistical
literature relying on the notion of fuzzy measures, and indeed, they are part of the
32
Ford and Ghose (1998) provide an experimental investigation that supports Shackle’s representation
of possibility when there is vagueness about the outcomes in a given situation.
foundation of modern possibility theory (Dubois and Prade, 1988) and constitute the
link between possibility theory and a non-additive probabilistic approach (Basili and
Zappia, 2009A).33
6. Concluding remarks

This article has provided an assessment of the period of maximum influence of
Shackle’s ideas amongst decision theorists, which ranges from 1949 to 1961. Shackle’s
distinctive view was that the standard practice in the economics profession of attempt-
ing to express uncertainty by means of numerical probabilities was misleading and
inconclusive and amounted to ignoring true uncertainty. His aim was to provide a new
way of thinking, arguably more relevant but no less rigorous in mathematical terms,
and this made him ‘one of the handful economists who have managed to develop their
own theory in this major area of economics’ (Ford, 1993, p 694). Critics of Shackle’s
search for a new foundation of decision theory—a research topic most of them were
working on, although from different perspectives—pointed out a number of aspects of
major interests. Shackle, however, failed to take his critics into account, mostly on the
grounds that they were based on a re-interpretation of probability theory, instead of
its complete rejection. He continued to pursue his own distinct project of providing a
non-probabilistic account of decision under uncertainty, denying any role to Savage’s
subjective expected utility, and this stance isolated him from the discussion on the
alternatives to subjective expected utility.
This situation is most unfortunate since, as reported above and as discussed from
a theoretical viewpoint in Basili and Zappia (2009A, 2010), there is ample evidence
that Shackle’s insights were significant and of crucial relevance to the study of deci-
sion making under uncertainty. Indeed, they can be considered as lying at the heart of
current modelling of probability and uncertainty, arguably moving towards an array
of non-Bayesian decision theories (Gilboa et al., 2008; Binmore, 2009). In the main,
Shackle’s aim to pursue a non-probabilistic approach proved to be ineffective in the
face of the consolidating subjectivist developments in the late 1950s and early 1960s.
But in the history of modern decision theory, Shackle’s proposal deserves more credit
than it usually receives.
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Cambridge Journal of Economics 2014, 38, 1133–1154

Non-Bayesian decision theory ahead of its

Key words: Uncertainty, Probability, Decision Theory

Manuscript received 2 March 2013; final version received 2 March 2014.

3. Arrow on Shackle

Arrow referred to Marschak’s (1950) treatment of choice amongst uncertain prospects

4. Shackle and his critics

The reference to Carter is important. Charles F. Carter, professor of applied eco-

Shackle commented on both Niehans and Weckstein, devoting to each paper an

The issue of non-additive probabilities, representing a generalised probabilistic con-

6. Concluding remarks

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