Pessimistic Errors

As mentioned in a previous post, Israel Kirzner distinguishes between Type A and Type B knowledge problems. To quote that post:
Type A problems involve undue optimism, and are self-correcting: if I think I can sell my programming services for $1 million per hour, I surely will be disappointed, and, if wise, I will lower my price. My very attempt to act on my over-optimistic beliefs reveals their falsity.

Type B problems, on the other hand, involve undue pessimism, and are not self-correcting. I may believe that my current boss, who is paying me $50 per hour, is the best employer I can find. But, unbeknownst to me, just down the block is someone who would happily pay me $100 per hour, if he knew of my existence. And I would happily go work for him, if I knew of his. For type B problems to be "corrected" requires entrepreneurial action, perhaps, say, a job placement firm that will alert both the potential new employer and me to each other's presence in the market, for a fee.
However, in discussing this distinction further with a friend, I wonder if Type B problems are really as little susceptible to self-correction as Kirzner contends. For, in that conversation, I began to provide an example of putting one's house on the market for too low a price. But as I did so, I realized that such an error is pretty much self-correcting: if I put my house on the market for (significantly) too low a price, on the date of the first open house showing, I will be flooded with potential buyers, and it will be obvious to me that I have been overly pessimistic about the price the house can fetch. Similarly, if I own a grocery, and I ask too low a price for my milk, I will run out of milk very fast.

In the converse case, if I pessimistically believe that I must bid too much for a resource -- for instance, if I have started up a new tech company, and believe I must bid at least $300,000 to attract decent software engineers -- I may be quickly informed of my mistake because I am absolutely flooded with software engineers applying for my open positions.

So it seems to me that Kirzner's analysis of undue pessimism is not universal, but applies only to the cases where there are relatively few buyers or sellers of a commodity, so that an unduly low bid or ask price is not immediately revealed by a flood of sellers or buyers.

But does this analysis perhaps not also undermine Kirzner's analysis of undue optimism? For if there are very few buyers or sellers in a market, could it not be the case that my asking price for, say, my house, is perfectly fine, and that the fact I have not sold it is simply the result of my not having waited long enough for the buyer, for whom mine is the perfect property, to come along?


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