A Misesian Critique of Kahneman

Kahneman cites Vernon Smith's experiment where Smith distributes a bunch of tokens to his subjects which have different values for different subjects. Smith found they were traded to the people who could get the most return for them. In that case, Kahneman writes, "markets work."

But when Kahneman did the same experiment giving participants coffee cups with their university logo, they would often demand a price to surrender a mug they owned that was more than double what they would pay to acquire the same mug. In such a case, he claims, "markets don't work." (I quote from memory.)

I don't think Mises would be at all moved by this example. When people want the cup they have more than the one they don't, "markets don't work"? Isn't the market giving them just the result they want?

5 comments:

  1. Depend on what you mean by "markets". In my time looking more at politics, I've found that speaking of "free markets" is unsatisfactory. It feels almost like reification.

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  2. Well if the efficient distribution would be to the people who, were they in posession, would value them the most, then the market under these circumstances would only produce the efficient outcome fortuitously what people bid to get the cup is less than what they would have to be given to give it up when in possession.

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    Replies
    1. Yes, I understand why a neoclassical might be worried by this. But I don't think Mises would be.

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    2. Or, to put it differently, Mises does not defend the market because it achieves the kind of efficiency you're talking about.

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  3. Ah! Yes, i see now..

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