6 replies to this topic

[Murphy]

Why did Hayek describe competition as a “discovery procedure”?

[Rune]

Two aspects are particularly relevant:

- A lot of relevant information is found by the players in the process of production/consumption/transaction although it was not the intention of the players to look for it (for instance the price and quantities of goods that clears a market with competing bidders)

- A lot of the relevant information is not directly communicated from any individual player but reveals itself as the result of interaction. The same example as I used above is relevant - none of the player intends to and cannot communicate the price/quantity that clears a given market but is information that reveals itself due to interaction/bidding where several players are involved at both sides

[Murphy]

Yes this is just right.

[Joanne]

Murphy, on Sep 4 2005, 02:56 PM, said:

Why did Hayek describe competition as a “discovery procedure”?

To vHayek, as individuals pursue their interests, their own unique tacit knowledge becomes part of the marketplace, although it's not consciously transmitted. From there, this knowledge becomes part of a "discovery procedure". often through price signals, in the open marketplace.

[Murphy]

Joanne, on Nov 21 2006, 11:42 AM, said:

To vHayek, as individuals pursue their interests, their own unique tacit knowledge becomes part of the marketplace, although it's not consciously transmitted. From there, this knowledge becomes part of a "discovery procedure". often through price signals, in the open marketplace.

Yes. Also, you have to realize that other economists were treating costs and technological production processes as "given facts" that all firms knew. But Hayek realized that part of the role of competition was for firms to discover the cheapest way to produce goods and so forth.

[Murphy]

Mart Grams, on Jul 7 2008, 11:06 PM, said:

This and the idea of spontaneous order, seems awfully close to Adam Smith's invisible hand. Things evolve (always to the better??), unplanned and unpurposely, yet as though bread crumbs leading those observant enough to notice them and pick them up to a better outcome then if planned. Sound a little Hinduist: noone is living the life they intended, but the unintended life is what should have been led.

Your remarks are reasonable enough concerning spontaneous order, but I don't think they have much to do with viewing competition as a discovery procedure. For this latter concept, I guess you could paraphrase Socrates: The unexamined business plan is not worth implementing.