Description
Prior to Stigler and Vickrey, neoclassical price theory was comfortable in the belief that, despite individuals' private information and adherence to self-interest, large markets render individuals powerless as the inexorable laws of supply and demand interact to construct an equilibrium. Economists saw competitive forces operating through Adam Smith's invisible hand as rendering price-taking individuals unable to benefit from information: the competitive paradigm left no role for information. By contrast, in his Nobel Memorial Lecture delivered at Stockholm in 1974, Hayek (1989, p. 7) marvelled at the subtlety of the market as a communication system: it 'turns out to be a more efficient mechanism for digesting dispersed information than any that man has deliberately designed. Though neoclassical theory largely ignored both informational and behavioural aspects of the economic landscape, Hayek repeatedly spoke of information. For example, in his lecture 'Competition as a Discovery Procedure', delivered in 1968, he says (1978, pp. 181-2):
Utilisation of knowledge widely dispersed in a society with extensive division of labour cannot rest on individuals knowing all the particular uses to which well-known things in their individual environment might be put. Prices direct their attention to what is worth finding out about market offers for various things and services.
More generally, neoclassical analysis proceeded without attention to the details of the economic terrain: despite some mention, information played no formal role in the theory.
ISBN:185278511X
