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Risk, Uncertainty, and Profit; Knight, Frank H.
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Economics is a human science; its foundations are laid in the principles of human behavior, and consequently we must begin with some observations on the psychology of human conduct which controls economic life. Economic analysis may be truly said to deal with "conduct," in the Spencerian sense, of acts adapted to ends, or of the adaptation of acts to ends, in contrast with the broader category of "behavior" in general. It assumes that men's acts are ruled by conscious motives; that, as it is more ordinarily expressed, they are directed toward the "satisfaction of wants." *2 At the very outset the science is thus subjected to notable restrictions, since it is only to a limited extent that our behavior, even our economic behavior, is of this character. Much of it is more or less impulsive and capricious. The conclusions of economic theory must in general be admitted subject to the qualification, in so far as men's economic activities are rational or planned.