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Dispersed knowledge

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Title: Dispersed knowledge  
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Subject: Friedrich Hayek, The Fatal Conceit, Dollar voting, Local knowledge problem, Austrian School
Collection: Austrian School, Economics Terminology, Friedrich Hayek, Information Economics, Knowledge
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Dispersed knowledge

In economics, dispersed knowledge is knowledge, concerning all of the factors which influence prices and production throughout the economic system, that no single agent possesses.

Contents

  • Overview 1
  • Criticism 2
  • See also 3
  • References 4

Overview

Each agent in a market for assets, goods, or services possesses incomplete knowledge as to most of the factors which affect prices in that market. For example, no agent has full information as to other agents' budgets, preferences, resources or technologies, not to mention their plans for the future and numerous other factors which affect prices in those markets.[1]

Market prices are the result of price discovery, in which each agent participating in the market makes use of its current knowledge and plans to decide on the prices and quantities at which it chooses to transact. The resulting prices and quantities of transactions may be said to reflect the current state of knowledge of the agents currently in the market, even though no single agent commands information as to the entire set of such knowledge.[2]

Some economists believe that market transactions provide the basis for a society to benefit from the knowledge that is dispersed among its constituent agents. For example, in his Principles of Political Economy, John Stuart Mill states that one of the justifications for a laissez faire government policy is his belief that self-interested individuals throughout the economy, acting independently, can make better use of dispersed knowledge than could the best possible government agency.[3]

Criticism

Karl Marx believed that market profits entail "cheating, deceit, inside knowledge, skill and a thousand favourable market opportunities" and that market prices do not reflect the true values of the underlying commodities and assets.[4]

See also

References

  1. ^ Hayek, Friedrich (1973). Law, Legislation and Liberty. University of Chicago Press. pp. 11–16, 42, 51.  
  2. ^ Menger, Carl (English Translation 1963). Problems of Economics and Sociology. University of Illinois Press (1963). 
  3. ^ Mill, John Stuart (1848). Principles of Political Economy. 
  4. ^ Marx, Karl (1894). Capital. Vol. III, Part 7, Ch. 48. 


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