Prices and knowledge: A market-process perspective

Conclusions 121way in which disequilibrium prices may serve as signals or sources ofinformation remains to be analysed. Also, the fact that disequilibriumprices will sometimes perform these functions somewhat unreliablysuggests reasons for the existence of many other institutions in amarket economy that also perform informational roles and thatcomplement or replace prices. Although many informationalinstitutions and devices (such as rules, contracts, brand names,warranties, reputation, and so on) are already being studied, mostlyfrom an economics-of-information approach, their possibleusefulness in the face of sheer ignorance and uncertainty should alsobe considered.2. Given the contrast drawn here between the theories of cognitionimplied in bounded-rationality and in market-process theory, itwould be of interest to learn more about the ability of individuals todiscover new opportunities and to act reasonably well in complexsituations. Experimental economics of the type mentioned in chapter3 may yield some interesting results, although it is likely that part ofthis research will exceed the competence of economists. Perhapspsychologists, 1 and researchers in Artificial Intelligence, will at somepoint be able to provide economists with useful knowledge about theentrepreneurial capacities of individuals.3. The role of money in the discovery process. For historicalreasons, market-process theory has traditionally been concerned withanalysing the informational advantages of markets over differenttypes of centrally planned systems. However, the incentive roleattributed to pecuniary profit opportunities suggests that a monetarymarket economy also has advantages as a discovery procedure overbarter economies. The market-process approach presented hereappears to attribute more effectiveness as entrepreneurial incentivesto pecuniary profits than to the ‘psychic’ profits obtainable in amoneyless economy. But this argument should not be interpreted as aresuscitation of homo economicus: the point instead may be that, in adisequilibrium world, money may not only facilitate exchange, asgenerally explained, but may also offer more scope forentrepreneurship by making more alternatives profitable to largernumbers of entrepreneurial individuals.The absence of money may increase the complexity of theknowledge problem, thus making it much more likely that beneficialalternatives will go unnoticed. 2 Relatedly, because of the liquidity ofmoney, pecuniary profits may perhaps attract more entrepreneursthan do profits in kind.