Reframing Economics

Reframing Economics

Economic Action as Imperfect Cooperation

Roger A. McCain

The objectives of this book are twofold. Firstly, it proposes that economics should be defined as a study of imperfect cooperation. Secondly, it elucidates the continuities that extend from classical political economy through the neoclassical, Keynesian, and modern economics of the twenty-first century.

Chapter 6: Information is not free

Roger A. McCain

Subjects: economics and finance, game theory, history of economic thought, methodology of economics

Extract

As we have seen in earlier chapters, people can often achieve mutual benefits by forming what game theory calls coalitions to adopt a common course of action. If the objective of the coalition is to realize a complex division of labor (Chapter 2) or for risk-sharing (Chapter 5), then a large number of individuals may be involved. In any coalition, transaction, or mutual agreement, the objective is to increase the value created so far as possible; but some information will be required in order to do so. Information is not free. Information is a higher order good, and like other higher order goods, information must be produced by means of costly resources. There may also be special obstacles for the production of information as well. In the words of Defense Secretary Donald Rumsfeld, "there are known 'knowns.' There are things we know that we know. There are known unknowns. That is to say there are things that we now know we don't know. But there are also unknown unknowns. There are things we do not know we don't know." We may set out to produce information about the known unknowns, but the unknown unknowns are likely to cause us unexpected trouble - how are we to investigate when we do not know what we do not know? And on the other side, there are the words attributed to humorist Josh Billings: "The problem with people ain't ignorance - its things folks know that ain't so."

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