Dispersed knowledge

Dispersed knowledge in economics is the notion that no single agent has information as to all of the factors which influence prices and production throughout the system.

Each agent in a market for assets, goods, or services possesses incomplete knowledge as to most of the factors which affect prices in that market. For example, no agent has full information as to other agents' budgets, preferences, resources or technologies, not to mention their plans for the future and numerous other factors which affect prices in those markets.

Market prices are the result of price discovery, in which each agent participating in the market makes use of its current knowledge and plans to decide on the prices and quantities at which it chooses to transact. The resulting prices and quantities of transactions may be said to reflect the current state of knowledge of the agents currently in the market, even though no single agent commands information as to the entire set of such knowledge.

Some economists believe that market transactions provide the basis for a society to benefit from the knowledge that is dispersed among its constituent agents. For example, in his Principles of Political Economy, John Stuart Mill states that one of the justifications for a laissez faire government policy is his belief that self-interested individuals throughout the economy, acting independently, can make better use of dispersed knowledge than could the best possible government agency.

Karl Marx believed that market profits entail "cheating, deceit, inside knowledge, skill and a thousand favourable market opportunities" and that market prices do not reflect the true values of the underlying commodities and assets.

Friedrich Hayek claimed that "dispersed knowledge is essentially dispersed, and cannot possibly be gathered together and conveyed to an authority charged with the task of deliberately creating order".

Dispersed knowledge will give rise to uncertainty which will lead to different kinds of results.

Richard LeFauve highlights the advantages of organizational structure in companies:

"Before if we had a tough decision to make, we would have two or three different perspectives with strong support of all three. In a traditional organization the bossman decides after he’s heard all three alternatives. At Saturn we take time to work it out, and what generally happens is that you end up with a fourth answer which none of the portions had in the first place. but one that all three portions of the organization fully support (AutoWeeR, Oct. 8, 1990. p. 20)."

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