Knowledge Problem


27 Pages Posted: 9 Feb 2012 Last revised: 16 Aug 2014

See all articles by L. Lynne Kiesling

L. Lynne Kiesling

University of Colorado Denver; Knowledge Problem LLC

Date Written: February 8, 2012


Hayek's (1945) elaboration of the difficulty of aggregating diffuse private knowledge is the best-known articulation of the knowledge problem, and is an example of the difficulty of coordinating individual plans and choices in the ubiquitous and unavoidable presence of dispersed, private, subjective knowledge; prices communicate some of this private knowledge and thus serve as knowledge surrogates. The knowledge problem has a deep provenance in economics and epistemology. Subsequent scholars have also developed the knowledge problem in various directions, and have applied it to areas such as robust political economy. In fact, the knowledge problem is a deep epistemological challenge, one with which several scholars in the Austrian tradition have grappled. This essay analyzes the development of the knowledge problem in its two main categories: the complexity knowledge problem (coordination in the face of diffuse private knowledge) and the contextual knowledge problem (some knowledge relevant to such coordination does not exist outside of the market context). It also provides an overview of the development of the knowledge problem as a concept that has both complexity and epistemic dimensions, the knowledge problemʼs relation to and differences from modern game theory and mechanism design, and its implications for institutional design and robust political economy.

Keywords: prices, knowledge, information, Hayek, Austrian, political economy, institutions

JEL Classification: B20, B25, B41, C79, D89

Suggested Citation

Kiesling, L. Lynne, Knowledge Problem (February 8, 2012). OXFORD HANDBOOK OF AUSTRIAN ECONOMICS, 2014, Available at SSRN:

L. Lynne Kiesling (Contact Author)

University of Colorado Denver ( email )

1475 Lawrence St
Denver, CO 80238-3363
United States

Knowledge Problem LLC ( email )

Chicago, IL 60613
United States


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