What Can Economists Do? Appreciative Theory, Market Design, and Open Systems
29 Pages Posted: 16 Nov 2018
Date Written: November 1, 2018
F.A. Hayek argues that the best that economics can hope for is “explanation of the principle” of complex economic systems, arguing against the feasibility of precise prediction and thus of successful economic planning. However, subsequent work in economics, often under the heading of Market Design, has claimed some ability to design the contours of action situations for success. This essay attempts to resolve this apparent contradiction. We argue that Hayek is essentially correct about the limits of knowledge about broad-scale economic systems, but that local conditions are often close enough to closure to allow for more specific predictions and thus control. The distinction between the open system level and the somewhat closed local level is roughly analogous to the distinction between general equilibrium and partial equilibrium. We then distinguish between economic knowledge that is useful for experts and that which is useful for citizens.
Keywords: open systems, closed systems, methodology, market design
JEL Classification: B41, B50, B53, D47
Suggested Citation: Suggested Citation