Adam SAdam Smith and J M Keynes on Insurance: Both give the same imprecise answer
Abstract
In 1776, Adam Smith, using his imprecise theory of probability, which was presented on pp.106-113 and p.714 of his The Wealth of Nations, showed that the firms composing the insurance industry do not use precise probability and do not need to use precise probability. All they need to do is to be able to establish a lower bound on the probable risk by the use of imprecise probability.
In 1921, J M Keynes, using his imprecise theory of probability, on pp.22-34 of the A Treatise on Probability, likewise showed that the firms composing the insurance industry do not use precise probability and do not need to use precise probability. All they need to do is to be able to establish a lower bound on the probable risk.
The analysis of both Smith and Keynes is based on their theories of imprecise probability and the existence of uncertainty.
The interesting questions are why no academician in the 18th through the 21st centuries has realized what Smith had done and why no academician in the 20th through the 21st centuries has realized what Keynes had done, which was to explicitly base their analysis on imprecise probability.
Apparently, no academician, especially economists and philosophers, in the 18th through 21st century actually read and/ or understood what Smith was doing in The Wealth of Nations while no academician, especially economists and philosophers, in the 20th through the early part of the 21st century, actually read and/or understood what Keynes was doing in his A Treatise on Probability.
This then leads to the following conclusion. Academicians from the 18th through the 21 centuries have not read and/or understood the two most fundamental texts written in the last 250 years. This observation lends additional hard evidence to support Hishiyama’s 1969 conjecture, which was that the A Treatise on Probability was never read. To this we add the fact that either Smith’s Wealth of Nations has not been read or it has never been understood.
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