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Tuesday, September 2, 2014

Jason Smith — Which way does the information flow?


Hayek's The Uses of Knowledge in Society (1945) established information as the basis of modern economics. This accords, for example, with the view that the primary function of money is as a unit of account, and that accounting records are primary information sources for the study of both economies and economic principles.

Then the questions become questions about information and its use. This is much clearer in business and finance than economics, however. What emerges is recognition that information is not only a matter of records but also a factor that enters into choices that affect outcomes especially through feedback.

When information becomes the basis for theory in addition to record-keeping, then direction of information flow becomes relevant to causality. Jason Smith present arguments for why the direction of flow of economic information is chiefly from demand to supply rather than vice versa.

Information Transfer Economics 
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1 comment:

  1. Jason SmithSeptember 3, 2014 at 2:28 PM

    Thanks for the link.

    Hayek's description of the price mechanism was one of the inspirations for applying information theory. The interesting thing is that it involves changing the role of the price from aggregating information (like a central nervous system) to detecting information (like a pressure gauge).

    Cheers,

    Jason

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