What is Knightian Uncertainty in Economics?

About Frank Knight PhD

[By staff reporters]

In economics, Knightian uncertainty is a lack of any quantifiable knowledge about some possible occurrence, as opposed to the presence of quantifiable risk (e.g., that in statistical noise or a parameter’s confidence interval). The concept acknowledges some fundamental degree of ignorance, a limit to knowledge, and an essential unpredictability of future events.

Knightian uncertainty is named after University of Chicago economist Frank Knight (1885–1972), who distinguished risk and uncertainty in his work Risk, Uncertainty, and Profit:[1]

“Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated…. The essential fact is that ‘risk’ means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomena depending on which of the two is really present and operating…. It will appear that a measurable uncertainty, or ‘risk’ proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all.”

MORE: RD

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Assessment: Your thoughts are appreciated.

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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J.B. SAY: The “Law of Markets” Podcast

What it Is – How it Works

By Staff Reporters

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DEFINITION: In classical economics, Say’s law, or the law of markets, is the claim that the production of a product creates demand for another product by providing something of value which can be exchanged for that other product. Thus, production is the source of demand.

CITE: https://www.r2library.com/Resource/Title/0826102549

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Say's Law of Markets - Overview, How It Works, Criticism

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PODCAST: https://www.youtube.com/watch?v=eGGy06xbjd8

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PODCAST: “In-Elastic Demand” in Healthcare Economics

Economic Implications of Pain, Suffering and Imminent Death

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See the source image

By Eric Bricker MD

Examples of Inelastic Demand in Healthcare Are:
1) Emergencies
2) Patented Medications for Diseases That Have No Other Alternative Drugs
3) Doctor Specialties Where the Patient Has No Choice in the Services Such As Radiologists, Anesthesiologists and Pathologists [RAP]

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COMMENTS APPRECIATED.

Thank You

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Economic Market Update

By Staff Reporters

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YOUR COMMENTS ARE APPRECIATED.

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THANK YOU

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PODCAST: “Inelastic” Demand in Healthcare

Economic Implications of Pain Suffering and Imminent Death?

Inelastic Demand in Healthcare: Economic Implications of Pain, Suffering and Imminent Death.

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By Eric Bricker, MD

Inelastic Demand Occurs When the Quantity Demanded for a Good or Service Does NOT Change When the Price Changes.

Citation: https://www.r2library.com/Resource/Title/0826102549

Consequently, When the Supply of a Healthcare Service is Limited, then the Price Goes Up … Way Up, Since the Quantity Demanded Does Not Change.

Examples of Inelastic Demand with Limited Supply in Healthcare Are:

1) Emergencies

2) Patented Medications for Diseases That Have No Other Alternatives

3) Doctor Specialties Where the Patient Has No Choice in the Services Such As Radiologists, Anesthesiologists and Pathologists

The High-Cost Claimants with Inelastic Demand Drive the Majority of Healthcare Costs for a Group.  They Generally Fall into 3 Diagnosis Categories: 1) Orthopedics, 2) Cardiovascular and 3) Cancer.

Orthopedics Should Be the 1st Priority for Lowering Healthcare Costs for a Population … While Demand May be Inelastic, Usually There is Choice and Not a Limited Supply of Orthopedic Services.

Efforts in Orthopedics Should Focus on Increasing Choice, Such as Free Travel to Centers-of-Excellence with Bundled Pricing.

Cardiovascular Care and Cancer Care Tend to Have Inelastic Demand AND Limited Supply. Therefore, the Best Way to Lower Healthcare Costs in These Areas is Through Prevention.

ASSESSMENT: Your thoughts are appreciated.

THANK YOU

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ME-P News Stories Wrap-Up for August 2015

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[By ME-P Staff Reporters]

Latest News

Editor’s Pick: 

Daily Round-Up of Headlines for August 2015

BREAKING-EVENTS AND AGGREGATED STORIES 

[Editor’s Pick: A Daily Round-Up of Headlines for August 2015]

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

Editor’s Pick: 

Daily Round-Up of Headlines for July 2015

BREAKING-EVENTS AND AGGREGATED STORIES 

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Daily Round-Up of Headlines for May 2015

BREAKING-EVENTS AND AGGREGATED STORIES 

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Editor’s Pick: 

Daily Round-Up of Headlines for April 2015

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)  

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Editor’s Pick: 

Daily Round-Up of Headlines for March 2015

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

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Editor’s Pick: 

Daily Round-Up of Headlines for February 2015

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)* 8

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Editor’s Pick: 

Daily Round-Up of Headlines for January 2015

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)* 8

Editor’s Pick: 

Daily Round-Up of Headlines for December 2014

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

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Editor’s Pick: 

Daily Round-Up of Headlines for November 2014

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BUT … It’s still all about CONSUMERISM!

[By Dr. David Edward Marcinko MBA MBBS [Hon] CMP]

http://www.CertifiedMedicalPlanner.org

DEM 2013There is a major variable, dominant in any marketplace that pushes an economy in a forward direction. It is called consumerism.

This became apparent while I was waiting in a doctor colleague’s office one recent afternoon.

Scenario:

The front office receptionist, who appeared to be about 21 years old, was breaking for lunch and her replacement, and appeared not much older, came over to assist.

Realizing the propensity for a long wait, one was taken by the size of waiting room and the number of patients coming in and out of the office. [Americans consume healthcare and a lot of it].

There was another notable peculiarity. The sample prescription bags being carried out the door were no match for the bags under everyone’s eyes, including the doctor’s. The office staff was probably working overtime, if not two jobs, and the doctor was working harder and faster in a managed care / ACA system.

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stock-exchange-

[Consumerism driving the Stock Market]

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Why?

So they all could afford to buy and voraciously consume for their children and themselves. Americans indeed work longer hours than any other industrialized nation.

Assessment

Additionally, as women female medical professionals entered the workforce in unprecedented numbers, the stock markets reached an all time high in 2015, even as money was spent at a feverish pace as the Federal Reserve pumped out money in inflammatory fashion.

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Health Economics Defined

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How We Use and Allocate Scarce Resources

Sex Voucher

Asseessment

A sex voucher – delayed gratification?

Conclusion

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Introducing Somnath Basu; PhD MBA

Our Newest ME-P Thought-Leader in Finance and Economics

By Ann Miller; RN, MHA

[Executive Director]Dr. Basu

Dr. Somnath Basu is a Professor of Finance at California Lutheran University and the Director of its California Institute of Finance. Dr. Basu is also a Professor of the Helsinki School of Economics Executive MBA Program. He earned his BA in Economics, University of Delhi, MBA (Finance), Marquette University and a PhD (Finance), University of Arizona.

Publications and Experience

Dr. Basu is extensively published in the field of investments and financial planning and is an award winning teacher. He has significant consulting experience with US Fortune 100 companies, advising institutional money managers and in developing proprietary personal investment software. Dr. Basu is actively involved with financial planning organizations including the National Endowment for Financial Education (NEFE), the CFP Board of Standards, International CFP Board and the Financial Planning Association. He coauthored the book (with Block and Hirt), “Investment Planning for Financial Professionals” McGraw Hill, May 2006 which is widely used by financial planning programs nationwide. 

AssessmentCLU

To regular our ME-P readers, Dr. Basu’s opinions are well known and not without controversy. But, whether you agree with him or not, his commitment to the industry and his economics and financial planning students is solid. And, always adhering to the Socratic dialog tradition of candor intelligence and goodwill.

Link: https://healthcarefinancials.wordpress.com/2009/04/09/i-jealously-shake-my-fist-at-somnath-basu/

Link: https://healthcarefinancials.wordpress.com/2009/04/16/dr-somnath-basu-replies-to-the-cfp%c2%ae-mis-trust-controversy/ 

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. Pleas give Somnath a warm ME-P welcome and electronic “shout-out”. Then, be sure to subscribe to the ME-P. It is fast, free and secure.

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Defining Comparative Medical Effectiveness

An Emerging Health Economics Issue

By Staff Reportersdhimc-book8

Comparative Medical Effectiveness [CME] is not a new healthcare term or health economics concept. Federal initiatives specifically promoting CME were authorized under the Medicare Modernization Act of 2003, but the genesis took root decades before.

Finally … a Hot Topic

Comparative Medical Effectiveness has recently become a hot topic again throughout the arena of health care stakeholders, due to funding and initiatives advanced by the Obama administration, and the positive and negative reactions drawn by different sectors of stakeholders.

Related to Evidence Based Outcomes

For stakeholders including numerous health care policy organizations, the health plan industry, and various health care provider organizations: public and private promotion of Comparative Medical Effectiveness reviews and processes offer the potential for more evidence-based, outcome-benefit or even cost-benefit driven information to improve the health care decision making for all parties. And, for stakeholders concerned about limiting the role of government and third parties in their level of regulation and control over the direct delivery of specific patient care, Comparative Medical Effectiveness may become a lightening rod due to perceived potential as to how the process and information could ultimately be applied.

Definition of the CBO Report

The Congressional Budget Office Report “Comparative Effectiveness: Issues and Options for an Expanded Federal Role” offers the definition that follows:

“As applied in the health care sector, an analysis of comparative medical effectiveness is simply a rigorous evaluation of the impact of different options that are available for treating a given medical condition for a particular set of patients. Such a study may compare similar treatments, such as competing drugs, or it may analyze very different approaches, such as surgery and drug therapy. The analysis may focus only on the relative medical benefits and risks of each option, or it may also weigh both the costs and the benefits of those options. In some cases, a given treatment may prove to be more effective clinically or more cost-effective for a broad range of patients, but frequently a key issue is determining which specific types of patients would benefit most from it. Related terms include cost–benefit analysis, technology assessment, and evidence-based medicine, although the latter concepts do not ordinarily take costs into account.”

Assessment

For related financial, economics, managed-care, insurance, health information technology and security, and health administrative terms and definitions of modernity, visit: http://www.springerpub.com/Search/marcinko

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. How do you define this term, and is its’ very definition evolving?

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Hospital Financial Capital Capacity

An Economic Risk Measurement

By Calvin Weise; MBA, CPAho-journal5

Hospital capital capacity is all about risk.

A Risk Measurement

Since capital investments have risks associated with them, capital capacity is a measurement of how much risk a hospital can bear. Capital capacity is not simple to determine. Capital investments introduce varying levels of risk, depending on the relative uncertainty of the benefits to be derived.

For example, one million dollars invested in an MRI at a hospital that has a two-month backlog for scheduling MRIs has much lower risk than $1 million invested in a new service like a PET scanner.

Profit Margins

Profit margins affect capital capacity. Larger profit margins create larger capacity for uncertainty which implies more risk and that means more capital capacity. Higher liquidity means more capital capacity. Lower debt leverage means more capital capacity. Liquidity and leverage are balance sheet ratios. Both imply capacity to absorb uncertain outcomes; both affect capital capacity.

Capital Determinations

Determining capital capacity is more art than science because of the variability in risk presented by various capital investments and the subjectivity associated with trying to measure that uncertainty.

That having been said, it is important to build models that estimate capital capacity. Most capital capacity models ignore the variability in risk presented by capital investments. They are typically built from published rating agency financial ratio medians. These models are based on the view that financial ratios of similar rating categories represent equivalent risks.

Of course, this is a simplistic view as it suggests that credit analysts simply categorize risk on the basis of financial ratios. It is not the case as the recent financial meltdown has demonstrated. Even the major credit rating agencies have been implicated as suspect; of late

Assessment

Published medians are the result of credit analysis, not the basis for credit analysis. Importantly, what is not usually published is the range or distribution around these medians. Models that estimate risk need to differentiate among risks presented by capital investments. Capital investments with little risk should consume less capital capacity than capital investments with a lot of risk.

Link: www.HealthcareFinancials.com

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. How does your practice, medical clinic or hospital measure and report capital risk; does it?

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com  or Bio: www.stpub.com/pubs/authors/MARCINKO.htm

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About Healthcare Financials.com

Healthcare Organizations [Financial Management Strategies]

By Hope Rachel Hetico; RN, MHA
Managing Editor
hetico3

This 2-volume, quarterly subscription print publication will reshape the hospital management landscape by following three important principles www.HealthcareFinancials.com

1. World Class Advisory Board

First, we have assembled a world-class editorial advisory board and independent team of contributors and asked them to draw on their experience in economic thought leadership and managerial decision making in the healthcare industrial complex. Like many readers, each struggles mightily with the decreasing revenues, increasing costs, and high consumer expectations in today’s competitive healthcare marketplace.  Yet, their practical experience and applied operating vision is a source of objective information, informed opinion, and crucial information for this manual and its quarterly updates.

2. Writing Style

Second, our writing style allows us to condense a great deal of information into each quarterly issue.  We integrate prose, applications and regulatory perspectives with real-world case models, as well as charts, tables, diagrams, sample contracts, and checklists.  The result is a comprehensive oeuvre of financial management and operation strategies, vital to all healthcare facility administrators, comptrollers, physician-executives, and consulting business advisors.

3. Compelling Content

Third, as editors, we prefer engaged readers who demand compelling content. According to conventional wisdom, printed manuals like this one should be a relic of the past, from an era before instant messaging and high-speed connectivity. Our experience shows just the opposite. Applied healthcare economics and management literature has grown exponentially in the past decade and the plethora of Internet information makes updates that sort through the clutter and provide strategic analysis all the more valuable. Oh, it should provide some personality and wit, too! Don’t forget, beneath the spreadsheets, profit and loss statements, and financial models are patients, colleagues and investors who depend on you.

Assessment

ho-journal1

Rest assured, Healthcare Organizations [Financial Management Strategies] will become an important peer-reviewed vehicle for the advancement of working knowledge and the dissemination of research information and best practices in our field. In the years ahead, we trust these principles will enhance utility and add value to both your print and this e-companion subscription.

Conclusion

Most importantly, we hope to increase your return on investment. If you have any comments or would like to contribute material or suggest topics for a future update, please contact us.

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Adam Smith on Health Economics

A Fictional Interview

By Darrell Pruitt; DDSpruitt

Adam Smith, former 18th century Scottish economist, is with me in the cyber-world today.  He wrote his theories on economics around the time of the birth of our nation. His book, “An Inquiry into the Nature and Causes of the Wealth of Nations,” predates the word “capitalism” as well as “economist,” by several decades. 

Yet his common sense wisdom, like that of many post-Renaissance thinkers of his day, still stands tall and true against time. 

Welcome Mr. Smith:

Q: I have just a few questions that I was hoping you could help me with. The first question is one that is so basic, yet it causes more acute embarrassment than most doctors can tolerate.  I happen to have lifelong immunity to such silly feelings. 

Mr. Smith, why are professionals paid so much in comparison to other trades?  Please use the English you are comfortable with.

A: “We trust our health to the physician; our fortune and sometimes our life and reputation to the lawyer and attorney. Such confidence could not safely be reposed in people of a very mean or low condition. Their reward must be such, therefore, as may give them that rank in the society which so important a trust requires. The long time and the great expense which must be laid out in their education, when combined with this circumstance, necessarily enhance still further the price of their labour.”  [Smith (1776) Book I, Chapter 10]

http://www.econlib.org/library/Smith/smWN4.html#B.I,%20Ch.10,%20Of%20Wages%20and%20Profit%20in%20the%20Different%20Employments%20of%20Labour%20and%20Stock

Q: I’m glad you said that instead of me (someone in the room chuckles.)  For whatever reason, doctors in modern society have remained silent while stakeholders, who are not accountable to patients, crowded them away from the bargaining table.  To tell the truth, what you might call stakeholders’ unenlightened self-interest seems a lot like tyranny.  What can doctors do about it?  I know that in your day, organizing labour (oops, you got me doing it now) could get one quickly killed.  Since then labour movements have come and gone in American society.  What are your thoughts about unionized healthcare professionals?

A: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.”[ibid]

Comment: If I understand you correctly, Mr. Smith, you are saying that even though law should not deprive citizens of the freedom to assemble, which, by the way is now a civil right over here in the new world, the government would be wise to not render it necessary for professionals to do so because it would be impossible to prevent conspiracy against the public.  Let’s hope it doesn’t come to that. 

Now, let me show you evidence that our nation’s leaders, in an honorable effort to hold down the cost of healthcare for the common good, actually forgot that part of your lesson sometime over the last couple of centuries. It is thru a contrivance known as pay-for-performance [P4P}.

P4P

Pay for Performance (P4P), not known in your time, is one of the four cornerstone goals for healthcare reform that our President Bush described in his Executive Order.  He officially calls it “Aligning incentives so that payers, providers, and patients benefit when care delivery is focused on achieving the best value of health care at the lowest cost.”  I know you probably have never experienced the magic quality of “buzzwords” before, and the whole sentence is probably leaving with a dry mouth, wondering what “Aligning incentives” is really about.  Don’t feel bad.  This dialect of modern English is difficult for modern doctors to understand as well. 

To put it simply, Bush and his buddies put together an intricate artificial market system where the quality, price and demand will all be controlled by people other than doctors and their customers. 

Wait.  Please, don’t hang up on me.  I can completely understand why you don’t like it, Mr. Smith.  Get this:  I hear Stalin is pissed that Bush stole his idea of vertical collectivism.  I also think it smells a lot like borscht with turnips.  So, let’s move on.

Q: Finally, Mr. Smith, considering there is already unwanted and expensive interference in our nation’s healthcare system that eliminates natural competition between healthcare providers even before our nation turns to universal care, do you think it is unrealistic to imagine that a year from now consumers could demand black market dentistry rather than wait in lines for regulated dentistry?

A: “Particular acts of parliament, however, still attempt sometimes to regulate wages in particular trades and in particular places. Thus the 8th of George III prohibits under heavy penalties all master tailors in London, and five miles round it, from giving, and their workmen from accepting, more than two shillings and sevenpence halfpenny a day, except in the case of a general mourning.

Whenever the legislature attempts to regulate the differences between masters and their workmen, its counselors are always the masters. When the regulation, therefore, is in favor of the workmen, it is always just and equitable; but it is sometimes otherwise when in favor of the masters.”  [ibid]

Assessment

Damned counselors! 

Thank you; Adam Smith! 

Conclusion 

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