- 22 Feb
Unknowledge? Run that by me again?
The rather enigmatic economist George L S Shackle tackled some interesting subjects in his career. One he called: unknowledge (in: the Bounds of Unknowledge (1983)). It is the problem of how do you know when you don’t know? Like: how to justify grassroots exploration expenditure or R&D expenditure.
If you know the probability of finding something you can rationalize the expenditure. But lots of expenditure occurs on things that can never be expressed even in probability terms. Even if it can be expressed in probability terms you have to do a certain amount of sampling just to determine the characteristics of the distribution, and this sampling cannot be justified in probability terms.
In the last 40 years I’ve seen lots of examples of money lost due to the unknowledge problem … companies entering into major capital investments unaware of some detrimental characteristic even though the knowledge was readily available elsewhere in industry (or, sometimes, within their own organization).
Everyone can see the problem with the benefit of hindsight. But how do you come to understand it before you make the decision? Some clues to the answer are given in a presentation I made entitled: “How to turn Unprofitable Mines into Profitable Mines.”
(Article originally mentioned in the Capital Strategy Newsletter #1999/02. Click here for a PDF Version of the Newsletter (4 pages))
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