ABSTRACT
This chapter presents an alternative theory of investment evaluation under uncertainty which makes contact between theoretical economics and the techniques used by practical businessmen. As Keynes has emphasized, investment is a crucial variable in macroeconomics. This variable is tied to the “state of long-term expectations” by the influence of the latter on the “marginal efficiency of capital.” On the one hand, investment is clearly important, so that a theory of investment evaluation under uncertainty is needed badly. On the other hand, such a theory appears to be almost impossibly difficult to develop. The conventional neoclassical academic wisdom on investment evaluation has, however, been given a cool reception by practical businessmen. Neoclassical theory which places so much emphasis on subjective factors in, say, the theory of consumer demand has nothing whatever to say about the much more important subjective factor in the theory of investment evaluation.
