Kirzner on Knowledge vs. Information
In this short article, Israel Kirzner makes a distinction between information and knowledge, or between "information-knowledge" and "action-knowledge," or between pure data of which no practical use is made and entrepreneurship. He applies the distinction to several real-life instances and concludes with an interesting comment on advertising: "The economics of information, for example, in the economics of advertising, almost invariably assumes that once information has been deployed in a process of learning to create “knowledge,� utilization of that knowledge follows inexorably. So that much of the significance of advertising activity, which goes so far beyond the mere provision of information, is completely lost sight of. The truth surely is that to inspire the consumer to act in a manner which correctly mirrors his preferences and resources calls for more than the provision of information. It calls for him to be alert to that information and to its significance. In evoking this alertness, advertising plays an important economic role. But this role is invisible to theorists who treat information-knowledge as identical with action-knowledge."
Comments (7)
billwald
PT Barnum was correct: sucker born every minute. This is one fallicy of Mises slant on econ. The typical person doesn't make logical economic decisions no matter what information is available. If Libertarians all made logical decisions then we would all be upper income people but I don't see any evidence thay we consistantly do better than the general run of the population. "No one ever lost money under estimating the intelligence of the American public."
Published: July 3, 2006 12:38 PM
cynical
billwald,
Your analysis runs skin-deep at its deepest point.
Published: July 3, 2006 2:38 PM
Vince Daliessio
Billwald,
There is a BIG difference between "logical" decisions and decisions that have an effect on immediate subjective value. Here we even find a Misesian reason, surprisingly, why poor people tend to stay poor - the immediate subjective value of time-preferential decisions is higher for poor people than for rich people.
Mises' observations of decision-making are macro in nature. The fact that value is subjective ( and time-dependent) means that although many make the "correct" decisions, many also do not.
But I wouldn't make the bet that Misesians don't "do better" than average - I WOULD bet that the average person seeking out Mises has a better-than-average education.
Published: July 3, 2006 2:48 PM
Jim Fedako
billwald,
The concept of logical, or rational, in the Austrian system is purely subjective and temporal.
Consumer Reports reviews products and typically notes "best buys." Your view would be to describe anyone who purchases a product other than the designated "best buy" as making an illogical decision. But Consumer Reports awards their "best buy" designation purely on non-objective criteria. Is it illogical for me to want a cheap hairdryer that has the latest features but will last two years instead of buying the tried-and-true, more-expensive model that will last a decade? There is no one, other than myself, who can decide for me the correct choice. Consumer Reports can issue their opinion, just as you can issue your opinion, but the choice is mine as only I can decide which choice will satisfy my subjective wants. And, I am the only one who can evaluate my choice ex post.
Choices are also temporal in that my preferences can change or I may acquire new knowledge that makes my former decision seem illogical since my choice did not satisfy my wants as it appears another product would have based on the new knowledge. A decision evaluated ex post cannot be consider illogical simply because new information became available. Mises accounts for that when writing about a doctor making a rational choice, based on then-current knowledge, that years later is shown be dangerous or unhealthy. The doctor made the rational, or logical, choice based on his action-knowledge -- to use Kirzner's term.
The alternative to the Austrian view is the statist view that substitutes individual choices with choices made by a bureaucrat. The beauty of the Austrian solution is that I can by the cool, new hairdryer while someone else can buy the tried-and-true model. We are all satisfied ex ante under a free market system, and all found wanting under interventionism.
Published: July 3, 2006 6:41 PM
nr
I hope it's not unintelligent or uncivil to point out that Billwald had three spelling or usage errors and two misquotes in his short paragraph: Fallicy; consistantly; under estimating (should be one word). To be persuasive you need be logical but also literate. Also, you need to check your quotations for accuracy ("there's a sucker born every minute"; "No one in this world has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby.")
Published: July 3, 2006 8:59 PM
billwald
I make no excuses for typos. Don't have time to worry about such things because you all don't have any problem understanding me.
Second, my experience with "Consumer Reports" (note-quotation marks are proper grammer) is that I am to cheap to buy the longer lasting product. The older I get the less important the life expectancy of things is. (Please excuse ending sentence with a prep.)
Third,"But I wouldn't make the bet that Misesians don't "do better" than average - I WOULD bet that the average person seeking out Mises has a better-than-average education."
OK, but education for what purpose? A sense of superiority over the people with good "union" jobs?
Published: July 4, 2006 11:04 AM
Peter
U dont hav ne trubl undastandin this - doesn't mean I shouldn't try not to write like an illiterate. How you write reflects what's going on in your head. If you misspell every other word and use bad grammar, people will assume you're an idiot and write you off. (Of course, I could point out that when they read what you say they'll do that anyway, but...)
PS: quotation marks around the title of a book or magazine is not "proper grammer" (you could use italics, or underlining on a typewriter, but merely capitalizing it is good enough). It's "grammar" not "grammer", "too" not "to", "longer-lasting" should be hyphenated, "is" is not a preposition, and the "rule" against ending a sentence with a preposition is not a proper rule of English grammar anyway; it's just some fool applying Latin grammar to English. Best ignored.
Published: July 4, 2006 9:54 PM