Humans act because the future is uncertain.  Every decision we make is a response to the unknown.  Yet, not all risks are equal, nor are all outcomes predictable.  At the heart of this uncertainty lies probability—a tool to navigate risk but never fully master it.  However, the concept of probability often leads to confusion, particularly in economics, where misunderstanding its forms has caused widespread errors—sometimes deliberate.  To grasp human action, it’s essential to distinguish between the two types of probability: class and case.

Class probability governs groups.  It relies on patterns and frequencies, allowing predictions about how many within a group will experience certain outcomes.  Insurance companies know the likelihood that a portion of computer programmers in a large pool will face health issues.  By pooling resources and applying the law of large numbers, they manage risk without knowing which specific individuals will face these events.  Class probability estimates group trends but stops short of identifying individual outcomes.

Case probability deals with unique, singular events.  These are instances where no patterns or group behaviors can reliably predict the outcome.  A coin toss offers a simple example: the odds of heads or tails are always 50:50, regardless of how many times the coin has landed heads before.  Unlike class probability, the law of large numbers offers no comfort here.  Case probability remains irreducibly uncertain.  This unpredictability makes singular events, like a stock market crash or the success of an invention, fundamentally uninsurable.

These distinctions are critical yet often blurred.  In economics, the failure to separate class and case probability has led to flawed models that treat human decisions as if they were deterministic, akin to the physical reactions of objects.  This approach ignores the dynamic, unpredictable nature of individual choice.  It also fosters the illusion that the future can be calculated and controlled, a dangerous misconception for both policymakers and economists.

Humans are not passive recipients of external forces: we act, adapt, and innovate.  Probability offers a lens through which we can assess risk, but it doesn’t eliminate uncertainty.  While class probability allows for shared risk and resource pooling, it can’t explain individual outcomes.  Case probability, uninsurable and unique, reminds us that some risks are beyond prediction or control.

Ultimately, the economy—and human action itself—is shaped by the interplay of these two forms of probability.  Understanding their differences helps clarify what we can know and what we can’t, revealing the boundaries of predictability in an uncertain world.  Acting wisely means embracing this uncertainty, balancing trends with individual freedom and choice.

References

Ludwig von Mises; Human Action

Richard von Mises; Probability, Statistics, and Truth