The Architecture of Choice - Part 3: The Knowledge Illusion: Why Central Planners Cannot Win the Trial-and-Error Game
The Architecture of Choice ← Series Home The Hubris of Constructive Rationality In the wake of behavioral economics demonstrating that people make systematic errors, policymakers often adopt a philosophy known as “constructive rationality”. This philosophy assumes that central planners—often equipped with academic insights—can understand market realities in their totality and consciously design institutions or “nudges” superior to those that evolve spontaneously. However, this perspective risks what Friedrich Hayek termed the “knowledge problem”: the vast, dispersed, subjective, and tacit nature of individual knowledge, which central authorities can never fully absorb or process. ...