"Knightian" catalysts of "behavioral" "biases."

"Loss aversion", "overconfidence", "availability" all there in Knight's 1921 classic. And the key issue, glossed over nowadays, is these problems typically kick in when Knigtian uncertainty makes "rational" mathematical or statistical inference impossible.

" The problem of the human attitude toward uncertainty is .. beset with difficulties as that of uncertainty itself. The human reaction to situations of this character apt to be erratic and.. subject to well-recognized deviations from the conduct which sound logic would dictate. Thus it is a familiar fact, well discussed by Adam Smith, that men will readily risk a small amount in the hope of winning a large when the adverse probability (known or estimated) against winning is much in excess of the ratio of the two amounts, while they commonly will refuse to incur a small chance of losing a larger amount for a virtual certainty of winning a smaller, even though the actuarial value of the chance is in their favor. To this bias must be added an inveterate belief on the part of the typical individual in his own "luck," especially strong when the basis of the uncertainty is the quality of his own judgment. The man in the street has little more sense of the real value of his opinions than he has knowledge of the "logic" (if such it may be called) on which they rest. In addition, we must consider the almost universal prevalence of superstitions. Any coincidence that strikes attention is likely to be elevated into a law of nature, giving rise to a belief in an unerring "sign." Even a mere "hunch" or "something tells me," with no real or imaginary basis in the mind of the person himself, may readily be accepted as valid ground for action and treated as an unquestionable verity.

He does then, sensibly I think go on to say"

"Doubtless in the long run of history there is a tendency toward rationality even in men's whims and impulses. And if for no other reason than the impossibility of intelligently dealing with conduct on any other hypothesis, we seem justified in limiting our discussion to rational grounds of action."

Crucially "rational" for Knight merely means reasonable, not omniscient.