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« "From so simple a beginning endless forms most beautiful" | Main | "To trash Bush was to belong" »

January 17, 2009

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For a very interesting analogy between market coordination and biological phenomena, see Ch. 3 of Don Lavoie, 'National Economic Planning: What is Left?' (Cato 1985). The comparison is between (1) the way the disparate behavior of widely distributed individual market participants is coordinated via changing prices and (2) the way the behavior of individuals in termite colonies is coordinated via reflexive chemical secretions (pheromones). In both cases, individuals act on very fragmentary, localized knowledge, but those bits are automatically compounded and coordinated in a way that continually directs and redirects resources toward activities of highest demand. In both cases, rational allocation that might seem to require a central plan and administration occurs with neither, and with a level of adaptive efficiency that no centralized authority could ever come close to matching.

Byron00: Fascinating stuff! Thanks for dropping by and sharing your special lore with me and my readers. :-)

By assuming that agents in the economy develop rational expectations...?
By assuming that agents in the economy develop rational expectations, are you also assuming that they carry a detailed model of the economy in their heads? Which do you think is more plausible, rational or adaptive expectations and why?

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