This is the first book to investigate the pessimistic and optimistic perceptions of the future and their economic consequences, based on sound mathematical foundations. The book focuses on fundamental uncertainty (Knightian uncertainty), where the probability distribution governing uncertainty is unknown, and it provides the reader with methods to formulate how pessimism and optimism act in an economy in a strict and unified way. After presenting decision-theoretic foundations for prudent behaviors under Knightian uncertainty, the book applies these ideas to economic models that include...