Knightian Uncertainty and Bayesian Entrepreneurship

This paper examines the relationship between Knightian uncertainty and Bayesian approaches to entrepreneurship. Using Bewley's formal model of uncertainty and incomplete preferences, it demonstrates that key predictions from Bayesian entrepreneurship remain robust when accounting for Knightian uncertainty, particularly regarding experimentation, venture financing, and strategic choice. The analysis shows that while Knightian uncertainty creates a more challenging decision environment, it maintains consistency with the three pillars of Bayesian entrepreneurship: heterogeneous beliefs, stronger entrepreneurial priors, and Bayesian updating. The paper also explores connections to effectuation theory, finding that formal uncertainty models can bridge different entrepreneurial methodologies.