The Knowledge Problem

Abstract

F. A. Hayek’s elaboration of the difficulty of aggregating diffuse private knowledge is the best-known articulation of the knowledge problem and an example of the difficulty of coordinating individual plans and choices in the unavoidable presence of dispersed, private, subjective knowledge. Prices communicate some of this private knowledge and serve as knowledge surrogates. The knowledge problem has a deep provenance in economics and epistemology. It is a deep epistemological challenge, with which several scholars in the Austrian tradition have grappled. This chapter analyzes the development of the knowledge problem in two main categories: the complexity knowledge problem and the contextual knowledge problem. It also provides an overview of the development of the knowledge problem as a concept with both complexity and epistemic dimensions, its relation to and differences from modern game theory and mechanism design, and its implications for institutional design and robust political economy.

From Digital Government to Digital Governance: Are We There Yet?

“…Helsper and van Deursen [39] emphasize that reducing the inequalities regarding the digital divide can only be meaningful if this is associated with a target such as general well-being or employability. However, this target-setting implies that the institutional setup needs to rely on full knowledge of citizens' preferences and results in a stable outcome [40], both being related to the knowledge problem. According to Giebel [41], multidimensional aspects of the digital divide create knowledge asymmetries that weaken the effectivity of digital governance and possible interventions by the digital government.…”

“…According to Giebel [41], multidimensional aspects of the digital divide create knowledge asymmetries that weaken the effectivity of digital governance and possible interventions by the digital government. In this sense, Kiesling's [40] observations remain unchanged for the digital setup-no matter whether the case is an "analogue" government or a digital one, government interventions "rely on the presumption of the existence, knowability, and stability of an optimal outcome" (p. 57). However, the complexity and the contextuality of knowledge affect the assumptions of knowability and stability of outcomes underlying government action.…”

“…Hence, knowledge is subjective, dispersed, and emergent rather than being exogenously given, or chosen from a well-defined set of alternatives [17]. In modern day economics, the concept of knowledge is mainly associated with Hayek [40]. The knowledge problem, as briefly described in the introductory part, has been very visible throughout the whole research of Hayek.…”

“…In [7], he argues that the main problem of the economy is not the allocation of given resources, but the "utilization of knowledge not given to anyone in its totality" (p. 520). Nevertheless, it is not the planning but the emergent results of human interaction through which a decentralized coordination of economic activity occurs, that is through prices and market processes [40]. One important remark of Hayek in [7] is that the "data" that are the basis of the economic calculus can never be given to a single source as a whole-emphasizing that knowledge itself is more than scientific data.…”

Hayek’s Appreciative Theory and Social Justice

“…Liberal institutions achieve this by generating the social circumstances whereby people can make use of knowledge that is not their own (Hayek, 1937;Kiesling, 2015). These institutions permit a competitive market and price system to emerge that allows local knowledge of scarcities and demands for goods, services and, critically, intermediate factors of production (capital) to be conveyed throughout an entire society (Lavoie, 1986).…”