Saturday, 8 August 2009

Democracy, markets and perfect information

Matthias Wasser, in a response to Tyler Cowen's progressivism post, writes:
In a large state true democratic governance is impossible, because unlike the market, a perfectly functioning democracy would require every voter to have perfect global knowledge.
Is this true?

Note that Matthias is not necessarily giving his own view here, but (as per Tyler's challenge) his characterisation of libertarian opinion.

But it's an intriguing statement. Many people think the converse: that the efficient markets hypothesis requires all market participants to have perfect information, and the action of an informed and beneficent government is a way around this problem.

He's correct to point out that this is not in fact a condition of the EMH. But surely it would be possible to design a democratic system where the same thing holds: where, somehow, distributed knowledge enables society to make the right collective choices. What are your ideas on this? Comments are invited.

1 comment:

PunditusMaximus said...

I think the statement stands as an indictment of democracy, but not one of representative democracy.