Dispersed knowledge

In economics, 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.

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 his knowledge to bear and reflect itself in the price. Most of the knowledge, however, is tacit knowledge 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 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 signals are one possible solution to the economic calculation problem. This viewpoint is popular especially among Austrian School economists such as Friedrich Hayek.

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