Dispersed knowledge

Dispersed knowledge

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In economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

, dispersed knowledge is information that is dispersed throughout the marketplace, and is not in the hands of any single agent. All agents in the market have imperfect knowledge; however, they all have a good indicator of everyone else's knowledge and intentions, and that is the price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...


The price indicates information that the player does not know, and by deciding to buy, sell or abstain at that price it also gives the player a chance to bring their knowledge to bear and reflect itself in the price. Most of the knowledge, however, is tacit knowledge
Tacit knowledge
Tacit knowledge is knowledge that is difficult to transfer to another person by means of writing it down or verbalising it. For example, stating to someone that London is in the United Kingdom is a piece of explicit knowledge that can be written down, transmitted, and understood by a recipient...

 and people usually are not fully aware of the knowledge that they are sharing via price signals, nor do they fully perceive the knowledge that they use when they make a price decision.

When a buyer goes to market, the prices he or she finds therein for products and services have been set by the complex calculus that is the sum total of the tacit knowledge residing within the market. Price signal
Price signal
A price signal is a message sent to consumers and producers in the form of a price charged for a commodity; this is seen as indicating a signal for producers to increase supplies and/or consumers to reduce demand.- Free price system :...

s are one possible solution to the economic calculation problem
Economic calculation problem
The economic calculation problem is a criticism of central economic planning. It was first proposed by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek. The problem referred to is that of how to distribute resources rationally in an economy...

. This viewpoint is popular especially among Austrian School
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...

 economists such as Friedrich Hayek
Friedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...


See Also

  • Invisible hand
    Invisible hand
    In economics, invisible hand or invisible hand of the market is the term economists use to describe the self-regulating nature of the marketplace. This is a metaphor first coined by the economist Adam Smith...

  • Opportunity cost
    Opportunity cost
    Opportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen . It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the...

  • The Fatal Conceit
    The Fatal Conceit
    The Fatal Conceit: The Errors of Socialism is a non-fiction book written by the economist and political philosopher Friedrich Hayek and edited by William Warren Bartley.-Main thesis and arguments:...

  • The Use of Knowledge in Society
    The Use of Knowledge in Society
    "The Use of Knowledge in Society" is a scholarly article written by economist Friedrich Hayek, first published in the September 1945 issue of The American Economic Review Written as a rebuttal to fellow economist Oskar R...