Prices and knowledge: A market-process perspective

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Change, responsiveness and co-ordination 115reasons that make the adoption of such forms of organizationdesirable for market participants.To summarize: from an entrepreneurial perspective, organizationscan never be fully decentralized, in the sense that they will always,by definition, require a designing mind (or a few minds incollaboration). Markets, on the other hand, are a fully decentralizedalternative, in the sense that they consist of a set of rules with nospecific tasks or functions assigned to anyone. The importantimplication of this is that markets leave much larger scope forentrepreneurship to be exercised. Decentralized organizations maymake almost no use of the entrepreneurial abilities of people otherthan their designer, or, if they attempt to do so, will stimulatealertness only in forms, and towards goals, already broadly perceivedas desirable by the entrepreneurial mind of the designer. Thus, whilefrom the bounded-rationality perspective there may be no significantdifferences between these alternative forms, from an entrepreneurialview there are differences and they are important.CONCLUDING REMARKS ON BOUNDEDRATIONALITYThe last two chapters have analysed critically the views of marketsand planning that emphasize the specific cognitive limitation ofhuman beings described as bounded rationality. Although the authorsin this tradition express criticisms of the optimizing, equilibriumapproach similar to those presented by market-process economists,there are significant differences between these perspectives.The entrepreneurial perspective is concerned with a knowledgeproblem that has more to do with ‘sheer’ ignorance of the facts,whether many or few, than with an ignorance due only to the quantityof things that need to be known by minds with finite storage andcomputing capacities. This leads it to be concerned with ways ofstimulating discovery and ‘alertness’, and to judge economic systemsin terms of how well they do this.The emphasis on computational and storage limitations bybounded-rationality theorists leads them to see the performance ofalternative economic systems in terms of how well they enableindividuals to cope with the facts produced by an ‘information-rich’world. This apparently makes comprehensive central planning seeman impracticable alternative. But it also makes these theorists see the
116 Prices and knowledgemain virtue of markets in the fact that they keep situationsinformationally simple for individuals by generating prices that serveas information summaries (as emphasized by Simon) and byoperating with decentralized units that face smaller informationalproblems (as emphasized by Nelson). As prices are not ‘perfect’summaries, as decentralized private firms may face co-ordinationproblems, and as planning systems can also be decentralized, thisapproach does not seem to show the market system as an alternativewith net informational advantages. This is in contrast to anentrepreneurial approach. The understanding it provides of theknowledge problem, and of the consequent need for a discoveryprocedure, shows the market system as having an advantage in thisregard and highlights difficulties with any type of planning thatremain to be solved satisfactorily by its proponents.
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Prices and knowledge
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ContentsAcknowledgmentsvii1 Introdu
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Chapter 1IntroductionIn recent deca
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Introduction 3to changes, and not a
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6 Prices and knowledgeOUTLINE OF TH
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Chapter 2A theory of the market pro
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10 Prices and knowledgeexistence of
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12 Prices and knowledgebehavior of
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14 Prices and knowledgedisequilibri
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16 Prices and knowledgeresources kn
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18 Prices and knowledgeproduce, bet
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20 Prices and knowledgeimportant in
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22 Prices and knowledgeauxiliary’
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24 Prices and knowledgeSome writers
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26 Prices and knowledgeall practica
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28 Prices and knowledgemarket parti
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30 Prices and knowledgeprices fully
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32 Prices and knowledgeoptimal allo
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34 Prices and knowledgeAn example.
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36 Prices and knowledgeIn this case
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38 Prices and knowledgeequilibrium.
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40 Prices and knowledgethose return
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42 Prices and knowledgeprices in th
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44 Prices and knowledgeThe informat
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46 Prices and knowledgeinformationa
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48 Prices and knowledgeas devices f
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50 Prices and knowledgeIt is probab
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52 Prices and knowledgetrue that in
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54 Prices and knowledgeknowledge st
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56 Prices and knowledgereached in r
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58 Prices and knowledgecorrespond t
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60 Prices and knowledgetake it away
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62 Prices and knowledgecritics of t
Page 73 and 74: 64 Prices and knowledgeto work out
Page 75 and 76: 66 Prices and knowledgebehavior in
Page 77 and 78: 68 Prices and knowledgerich’ worl
Page 79 and 80: 70 Prices and knowledgeThus the sim
Page 81 and 82: 72 Prices and knowledgeSimon calls
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Page 85 and 86: 76 Prices and knowledgeIf what is u
Page 87 and 88: 78 Prices and knowledgeoccurring wi
Page 89 and 90: 80 Prices and knowledgecomputationa
Page 91 and 92: 82 Prices and knowledgemaximizing a
Page 93 and 94: 84 Prices and knowledgeframework de
Page 95 and 96: 86 Prices and knowledgeAgain Mises
Page 97 and 98: 88 Prices and knowledgepoint that
Page 99 and 100: 90 Prices and knowledgeand B’s ta
Page 101 and 102: 92 Prices and knowledgecoordination
Page 103 and 104: 94 Prices and knowledgeFinally, the
Page 105 and 106: 96 Prices and knowledgeBefore prese
Page 107 and 108: 98 Prices and knowledgeas will be s
Page 109 and 110: 100 Prices and knowledgeapples in l
Page 111 and 112: 102 Prices and knowledgeThe identif
Page 113 and 114: 104 Prices and knowledgeAs with Sim
Page 115 and 116: 106 Prices and knowledgerealized th
Page 117 and 118: 108 Prices and knowledgedeliberate
Page 119 and 120: 110 Prices and knowledgeframework s
Page 121 and 122: 112 Prices and knowledgeMarkets and
Page 123: 114 Prices and knowledgeassigned an
Page 127 and 128: 118 Prices and knowledgechapter 3 t
Page 129 and 130: 120 Prices and knowledgenoticed, wo
Page 131 and 132: 122 Prices and knowledgeAs a by-pro
Page 133 and 134: 124 Notesmoney, the behavior of arb
Page 135 and 136: 126 Notes14 It is not clear why the
Page 137 and 138: 128 Notes39 See also Hahn (1984a:11
Page 139 and 140: 130 Notestheories of cognition held
Page 141 and 142: 132 Notes3 Economists, Nelson and W
Page 143 and 144: ReferencesAkerlof, G.A. (1970) ‘T
Page 145 and 146: 136 ReferencesGilad, B. (1981) ‘A
Page 147 and 148: 138 ReferencesKihlstrom, R.E. and M
Page 149 and 150: 140 ReferencesOsana, H. (1978) ‘O
Page 151 and 152: 142 Referencesfrontiers of analytic
Page 153 and 154: 144 IndexCercone, N. 79change: and
Page 155 and 156: 146 Index61, 118; on costless infor
Page 157 and 158: 148 Indexmisinformation 55, 57mista
Page 159: 150 IndexVeljanowski, C.G. 43voting
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