George Lennox Sharman Shackle (14 July 1903 – 3 March 1992) was an English economist. He made a practical attempt to challenge classical rational choice theory and has been characterised as a "post-Keynesian", though he is influenced as well by Austrian economics. Much of his work is associated with the Dempster–Shafer theory of evidence.
Life He was born in Cambridge, son of Robert Walker Shackle (1851-1934), a mathematics-teacher father who had coached John Maynard Keynes to an Eton scholarship, and Fanny Sharman (1865-1936). Shackle attended The Perse School; but his parents could not afford to support him through university, so he started work as a bank clerk. Later becoming a teacher, he studied in his own time for a University of London BA degree which he took in 1931. He started work on a PhD under the supervision of Friedrich Hayek at the LSE but switched to an interpretation of Keynes's General Theory of Employment, Interest and Money. He obtained his doctorate in 1937. At LSE he became good friends with German born economist Ludwig Lachmann, who was inspired by Shackle's own work on uncertainty; and developed his own theory of divergent expectations based on Shackle's writing.
Following a number of academic posts, at the outbreak of World War II in 1939, Shackle was appointed to S-Branch, Sir Winston Churchill's inner office of economists. There he served along with Donald MacDougall and Helen Makower under the leadership of Frederick Lindemann.
Following the war, a short stint at the Cabinet Office under James Meade and at the University of Leeds led to appointment as Brunner Professor of Economics at the University of Liverpool, a post he held until his retirement in 1969.
Overview Shackle was influenced by Keynes and Gunnar Myrdal and challenged the conventional role of probability in economics, contending that it failed adequately to deal with "surprising" events. The grounds of his thinking can be seen in Keynes's remark:
Though technical in nature, Shackle's work took economics into novel territory such as the importance of imagination in economic decisions to assess the plausibility of alternative outcomes. Though Shackle's work has had a limited impact on mainstream thought within economics, it continues (perhaps increasingly) to attract interest. Among Shackle's contributions to decision making theory, his potential surprise theory of economic decisions was the most formidable. Abandoning the probability theory foundations of most of modern economics, Shackle proceeded to focus on plausibility or a possibility analysis of economic decisions. To Shackle, economic agents did not make decisions based on probability distributions and consequently derive rational expectations from the "hard data" as New Classical economists such as Leonard Savage support, to Shackle, the crucial element in economic decision making was imagination, which consequently factors into decision making. Shackle's considerations of imperfect knowledge's role in economics foresaw many of the advances in psychological economics, particularly from Herbert Simon's bounded rationality theory. When realizing that economic decision makers lack the knowledge necessary for probabilistic analysis, the ability to consequently make rational expectations off of said data is almost impossible. To make matters even more complicated for the New-Classical economists, Shackle proceeded with his analysis, already attacking one of the core foundations of modern Mainstream economics, perfect knowledge.
To Shackle, economic decision making was not derived from probability and frequency, it was based on the imagination's role in comprehending the possibility of economic decisions. If probability analysis held true for most economic decisions, most of modern economies would not exist. In this idealized state in which rational expectations could be generated, entrepreneurs simply would not exist. Entrepreneurship is probabilistically irrational, it makes little sense to embark upon an economic decision in which its fate is determined by millions of other contingent human beings and their subjective needs and preferences. The probabilistic analysis of such a situation would be strongly biased in favor of refraining from engaging in entrepreneurship; it simply makes little sense to engage in such a process for the economic statistician when the odds of such a situation being a success are immensely minute. It would then follow that in a world in which individuals interpreted probability before making economic decisions, individuals would refrain from entrepreneurship, for such a risky endeavor to be successful is such a situation in which the outcome depends on subjective preferences of unknown individuals. Entrepreneurs, then, are truly irrational in a probabilistic evaluation of economic decisions.
Understanding such a peculiar situation to the statistician, Shackle proceeded to develop his potential surprise theory of economic decision making. Rather than weighing entire frequencies of outcomes for a certain situation, economic decision makers would weigh only a few outcomes and possibilities before making a real economic action; Shackle proposed only two possible outcomes for economic decision makers to weigh, rather than the frequency of an entire probability distribution. Shackle's potential surprise theory was fundamentally based on the role of imagination in economics, bridging the great asymmetry of knowledge of entrepreneurs to make actions which consequently determine the future:
"At the heart of Shackle’s theory of choice is the idea that, when people consider the possible consequences of taking a decision, they give their attention only to those outcomes that they (a) imagine and (b) deem, to some degree, to be possible. This set of outcomes is not guaranteed to include what actually happens, which may be an event they had not even imagined and which comes as a complete surprise to them"
Shackle's theory of choice is a theory that is incredibly odd to most mainstream economists dealing with choice theory, primarily due to the fact potential surprise theory is not a theory of probability and knowledge, it's a theory of imagination and possibility. Potential surprise theory is based on the entrepreneur, or economic decision maker, who weighs two different possible choices based on tolerable levels of potential surprise. The economic decision maker first distinguishes between the possible and the impossible outcomes and proceeds to eliminate this from their considerations. An outcome that happens to be subjectively terrible and implausible by the economic decision maker can be represented by a variable R , and an outcome that is subjectively amazing but also implausible by the economic actor will be assigned the variable U. Anything better than U and worse than R are eliminated from the view of the economic decision maker and the focus of the two values to be chosen by the economic decision maker is to be in-between these two maximum points. The focus two points for the economic actor that are in between these two values are then weighed by their level of potential surprise, whether or not they are subjectively tolerable to the economic actor. A recurring theme throughout Shackle's work is the subjective use of the imagination to guide economic decisions. Rather than weighing every possible function, or at least a majority of the functions in a probability distribution, a Shackleian economic actor proceeds to make their economic decisions based on subjective dual decisions and simply weighs the two against one another before proceeding with a course of action. The economic actor is in a way keeping his options open, a possibility that does not occur for the Savage expected utility hypothesis economic actor who takes the "Look before you jump expression" to its logical extremities; a notion untenable for the real economic world. At the centre of Shackle's kaleidic vision was the ability for economic actors to keep their options open and due to imperfect knowledge and the nature of imagination, proceed with the dual analysis of possibilities rather than entire probability distributions. Shackle had, for a period of time had captured the attention of economists, however this slowly waned as economics moved away from Shackle's theory and towards the foundations of the rational expectations hypothesis, consequently leading to the rational expectations revolution, even capturing the attention of Kenneth Arrow, a renowned Mainstream economist:
"The reason for the current lack of interest is probably not any denial that Shackle’s position is fundamentally correct; it is the absence of the analytic tools needed to make the exceptional approach capable of generating operationally meaningful conclusions."
Despite the latter iterations of Shackle's economic theory of decision making, there still has been little change to the economic consensus on probability theory, although Shackle's potential surprise theory bears a remarkable similarity with scenario planning of the Royal Dutch Shell, a peculiarity even Shackle noticed.
On further contributions outside of decision making theory, he also claimed the importance of Gunnar Myrdal's analysis by which saving and investment are allowed to adjust ex ante to each other. However, the reference to ex ante and ex post analysis has become so usual in modern macroeconomics that the position of Keynes to not include it in his work, is currently considered as an oddity, if not a mistake. As Shackle put it:Shackle, G.L.S. (1989) "What did the General Theory do?", in J. Pheby (ed), New Directions in Post-keynesian Economics, Aldershot: Edward Elgar.
Shackle has also made important contributions to the history of economic thought, especially with regard to twentieth century economic schools of thought.
Expansion on Keynes' economics
While Shackle thought that Keynes' work provided the best basis on which to construct a new type of economics he thought that Keynes had not fully understood the importance of the revolution that he had undertaken when he had written his key works. Shackle said that Keynes' work must be understood as having taken three steps until it finally arrived at a new revolutionary method of economic analysis. The first of these three steps was to be found in Keynes' Treatise on Money. "Before the Treatise", Shackle wrote, "the interest rate was determined by tastes and objective circumstances, by the persuadibility of income-earners to transfer consumption from the present into the future, and the desire of business men to transfer the means of free enterprise from the future to the present, thus altering the productive possibilities and enlarging the prospective income of the society including themselves". Shackle wrote that already in his Treatise on Money Keynes was attacking this conception of the interest rate.