Error is Obvious, Coordination is the Puzzle

HAYEK AND BEHAVIORAL ECONOMICS, Roger Frantz, Robert Leeson, eds., Palgrave-MacMillan, Forthcoming

GMU Working Paper in Economics No. 12-23

20 Pages Posted: 14 Feb 2012 Last revised: 6 Oct 2015

Peter J. Boettke

George Mason University - Department of Economics

W. Zachary Caceres

Startup Cities Institute

Adam G. Martin

Texas Tech University - Free Market Institute

Date Written: February 13, 2012

Abstract

Behavioral economics has made its mark by bringing under intense scrutiny the limitations of individuals’ cognitive abilities. The conclusions of such inquiries call into question results from standard economic modeling dependent on assumptions of strong epistemic rationality. Most conspicuously, behavioral economists have introduced a host of new potential causes for market failures. F. A. Hayek likewise famously questioned the cognitive abilities of real world actors, but drew radically different conclusions. We argue that, for Hayek, market institutions rather than individual agents bear the primary cognitive burden in coordinating economic activity. Gaps in individual rationality thus fail to provide adequate grounds for positing market failures. Vernon Smith’s body of work, with its distinction between ecological and constructivist rationality, provides powerful support for the Hayekian position on which it draws its inspiration.

Keywords: F.A. Hayek, market failure, behavioral economics, invisible hand

Suggested Citation

Boettke, Peter J. and Caceres, W. Zachary and Martin, Adam G., Error is Obvious, Coordination is the Puzzle (February 13, 2012). HAYEK AND BEHAVIORAL ECONOMICS, Roger Frantz, Robert Leeson, eds., Palgrave-MacMillan, Forthcoming; GMU Working Paper in Economics No. 12-23. Available at SSRN: https://ssrn.com/abstract=2004362

Peter J. Boettke

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-1149 (Phone)
703-993-1133 (Fax)

W. Zachary Caceres

Startup Cities Institute ( email )

Guatemala City
Guatemala

Adam G. Martin (Contact Author)

Texas Tech University - Free Market Institute ( email )

Box 45059
Lubbock, TX 79409-5059
United States

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