Austrian economists often attack the mainstream for ignoring something they call "radical uncertainty," "sheer ignorance," or sometimes "Knightian uncertainty." A common Austrian slogan is that "Neoclassical economists study only cases where people know that they don't know; we study cases where people don't know that they don't know."
All of this sounds plausible until you press the Austrian to do one of two things:
1. Explain his point using standard probability language. What probability does "don't know that you don't know" correspond to? Zero? But if people really assigned p=0 to an event, than the arrival of counter-evidence should make them think that they are delusional, not than a p=0 event has occured.
2. Give a good concrete example. I've heard Israel Kirzner give examples involving library books, pay phones, and bumps on the head, but none of them make any sense to me. A better example, suggested by Richard Langlois, is the Trojan Horse. What I discovered a few years ago, and only remembered yesterday when my kids read a book about the Trojan War, is that in Virgil's canonical account, the Trojans specifically consider the possibility that the horse contains Greeks:
Laocoon, follow'd by a num'rous crowd,
Ran from the fort, and cried, from far, aloud:
'O wretched countrymen! what fury reigns?
What more than madness has possess'd your brains?
Think you the Grecians from your coasts are gone?
And are Ulysses' arts no better known?
This hollow fabric either must inclose,
Within its blind recess, our secret foes;
Or 't is an engine rais'd above the town,
T' o'erlook the walls, and then to batter down.
Somewhat is sure design'd, by fraud or force:
Trust not their presents, nor admit the horse.' (bold-face mine)
So why in the world does the Trojan horse ruse work? Because Poseidon punishes the leading skeptic by sending sea serpents to eat him and his children, and that ends the debate:
Two serpents, rank'd abreast, the seas divide,
And smoothly sweep along the swelling tide.
We fled amaz'd; their destin'd way they take,
And to Laocoon and his children make;
And first around the tender boys they wind,
Then with their sharpen'd fangs their limbs and bodies grind.
The wretched father, running to their aid
With pious haste, but vain, they next invade;
Twice round his waist their winding volumes roll'd;
And twice about his gasping throat they fold.
Amazement seizes all; the gen'ral cry
Proclaims Laocoon justly doom'd to die,
Whose hand the will of Pallas had withstood,
And dared to violate the sacred wood.
Of course, the fact that the Trojan horse is a bad example of radical ignorance doesn't prove that Austrians can't produce a decent example. But I've been pressing Austrians on this point for over a decade, and yet to get a decent response.
Anyone want to give it a try? I have it on good authority that Poseidon's sea serpents will leave you alone even if you hit the nail on the head. :-)