Markets/Information/Sunstein: prediction markets are extraordinarily good at bringing information together. Examples of this are predictions about who will win the next Oscar or which products will be successful. In such prediction markets, people can "invest" and bet on the probability of an event occurring. (See Google/Sunstein). At the same time, there is a lot of knowledge in the game that becomes evident in this way. (See Markets/Hayek, Prices/Sunstein).
Markets/Hayek/Sunstein: Markets contain information about products and consumers distributed over prices. Information about consumers includes taste. Tastes are very different.
It is not easy to empirically test whether people really buy the better and at the same time cheaper products. (1)
Free markets/Sunstein: should, from a neoclassical point of view, come at the same marginal cost. It is an empirical question whether this happens - and in many contexts it does not happen. The simplest explanation is that people do not have all the information and the markets are not completely free. Governments restrict competition or consumers have limited opportunities for comparison. Therefore, we cannot simply say that prices are "correct".
Nevertheless, markets are better instruments for pricing than the fixing of prices by committees. Information cascades can also be found in markets: People buy things, not because they need them, but because others buy them.
Information cascades: also available in stock markets. Prices tripled between 1994 and 2000, but not the basic indicators. (2)
Psychology/Robert Shiller: the same psychological forces that drove the stock market also have the potential to operate in other markets. (3)
HayekVsShiller/Sunstein: nonetheless, many believe that Hayek's optimism about the accuracy of prices was correct.
1. See Richard Thaler, ed., Advances in Behavioral Finance, vol. 2 (Princeton, NJ: Princeton University Press, 2005).
2. Robert Shiller, Irrational Exuberance, 2d ed. (Princeton, NJ: Princeton University Press, 2005), pp. 2, 5.
3. ibid. p. 11._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. The note [Author1]Vs[Author2] or [Author]Vs[term] is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.
Cass R. Sunstein
Infotopia: How Many Minds Produce Knowledge Oxford 2008
Cass R. Sunstein
#Republic: Divided Democracy in the Age of Social Media Princeton 2017