Prices know more than you do

How much information do prices contain? A huge amount.

Which is better for making a decision? Knowing the price of something or having perfect knowledge what something should cost?

If you think the latter, then you need either a crystal ball or tremendous amount of time to accurately research every single fact in the entire world-wide market.

If you think the former, then you can just look at the price of an item.

Professor Michael Munger illustrates this in a video, What Do Prices “Know” That You Don’t.

Prices tell you everything you could otherwise learn through hundreds of hours of research.

From the video’s web site:

Prices “magically” convert countless pieces of dispersed, complex information into a single signal that conveys to sellers what they should do to best benefit society. By ignoring the price system, you’re really ignoring the needs of those whom you want to serve.

If you want to plan or direct or control the economy, you have to learn and understand every piece of information that feeds into the price signal. No bureaucracy ever created can do that for one segment of one industry, let alone the entire market.

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