Hayek in The Stanford Encyclopedia of Philosophy

It’s about time that Hayek had a dedicated entry in the SEP. I’ve been “lobbying” for FAH’s inclusion for some time now. Here is the stated brief of the article:

This essay concentrates on this enduring theme [spontaneous order] of Hayek’s work, and a question: why would the scholar who did more than anyone in the twentieth century to advance our understanding of price signals and the emergence of spontaneous orders also be driven to claim that social justice is a mirage?

This is fine but it really should only be a subsection to an entry that has FAH as the title. It’s a shame that a broader conspectus isn’t on offer much like the entries on Popper and Berlin. How can one  appreciate the depth of Hayek’s social theory without taking cognizance of The Sensory Order (1952)? – there is a link between Hayek’s philosophical psychology and spontaneous order. Also missing, again from 1952, is The counter-revolution of science: Studies on the abuse of reason – surely an important work for Hayek’s philosophy of social science.

There is nothing wrong with the entry – it’s just disappointing for the novice to Hayek (or the preconceived caricatures that abound) that Hayek’s full breadth and depth is not made apparent (maybe there are supplementary articles in the works). And why is there a reference under “Other Internet Resources” to Matt Zwolinski’s “Libertarianism” in the Internet Encyclopedia of Philosophy? Arguably one of the best internet resources (if not the best) is Greg Ransom’s aptly titled site Taking Hayek Seriously.

Spontaneous order, as a species of emergent phenomena, is not at all dealt with in an analytical way as befits the SEP. The concept is perhaps Hayek’s most problematic and contentious concept notwithstanding being one of the slipperiest of terms within philosophy at large. The concept is a critical element of the five-faceted cornerstone of Hayek’s philosophy of social science: the others being complexity, the dispersion of knowledge, rationality and methodological individualism.

Speaking of long overdue SEP entries how about Herbert Simon and Michael Oakeshott?



Hayek in Beijing

This from the WSJ 

“The Road to Serfdom.” Hayek’s book, he explains, was originally translated into Chinese in 1962 as “an ‘internal reference’ for top leaders,” meaning it was forbidden fruit to everyone else. Only in 1997 was a redacted translation made publicly available, complete with an editor’s preface denouncing Hayek as “not in line with the facts,” and “conceptually mixed up.”



Born on this day in 1899. It’s to analytical (social) epistemology’s (and philosophy of mind’s) impoverishment and shame that Hayek is not that well-known beyond the tiresome caricatures. For all my Hayekana see here. The featured image was very generously given to me by the highly exceptional Walt Weimer.


Sage Encyclopedia of Philosophy and the Social Sciences

My chum Byron Kaldis’ big project has been brought to fruition. Bravo! My contribution: Hayek and the “Use of Knowledge in Society”. As you will see there is a terrific lineup – this is an exciting area to be in these days what with CogSci meeting social science – another project of Byron’s in the works.


Getting to the Hayekian Network

Extracts from Troy’s paper:

In many ways this paper is necessarily an introduction. I want to introduce away to understand F. A. Hayek’s ideas on both spontaneous orders and the brain by understanding network structures. More, I want to distinguish between networks that emerge top-down in organizations and cellular regulatory networks and those that emerge bottom-up in self-organizing systems and spontaneous orders, whose relations to each other follow similar patterns.

Socialists argue, contrary to Adam Smith’s thesis that the economy self-organizes from the bottom-up (1776), that the economy should be consciously designed and given goals. Hayek modernized Smith with spontaneous order theory. At the same time, self-organization theory emerged in physics and chemistry, complex adaptive systems (CAS) theory emerged in biology, and network theory emerged in several disciplines; these are all in the same conceptual family as spontaneous order theory. Hayek was part of the 20th century revolution of bottom-up self-organization theorizing that sees the universe emerging on its own through natural processes.

If everything in the universe is self-organized, where do we get this idea, resurrected by socialists, that conscious design is the norm? Humans, like most animals, evolved to immediately, instinctively recognize the signs of others of their species. With wolves, lions, and other strongly territorial species, scent signs mark territory to warn off others. But humans are more visual, so we leave visual evidence of order. As a consequence, we associate the presence of order with an orderer or designer, and the development of  creationist theories to explain nature, soul theories to explain the mind, and governments to order society. Darwinism and self-organization theories replaced creationist theories (for most people); top-down soul theories, including Descartes’ homunculus theory, evolved into CAS theories of the brain’s network structures, out of which the mind emerges; top-down social theories (where the hierarchical structure of the Catholic church was reproduced in other Western social structures, for example) gave way to Adam Smith’s bottom-up self-organizing ‘‘invisible-hand’’ theory. While life and mind have continued to evolve toward theories of self-organization, our social theories took a u-turn when socialism emerged as a respectable theory of economic ordering. The designer fallacy, increasingly abandoned in theories of life and mind, was readopted in our social theories.

When humans evolved in the African savannahs, there was little question about whether or not we designed the environment in which we built our social hierarchies. We did, however, tend to attribute the order of nature to nature spirits, gods, and goddesses, and, later, a creator God. We attributed top-down ordering of the world to external forces. Since it was the natural world, there was no question as to our having had a hand in designing it: if there was a designer, it wasn’t us. But then our numbers and density grew to give rise to new kinds of social ecosystems: spontaneous orders. As a tribal species, we assumed social structures were man-made; yet here was a social order not of anyone’s making, but emergent from our interactions. While language was a spontaneous order, its ancientness prevented us from considering it ‘‘man-made.’’ The same cannot be said of the catallaxy. While each order has roots in our evolved human behaviors, it seems the more recently a particular order emerged, the more likely we are to try to control it. Few try to control language (notable exceptions being constructivist efforts by the French and political correctness); the arts face fewer attempts at control (notable exceptions being constructivist Communist countries and conservative theocracies); religion and government both decentralized and became more heterogeneous in many places – though these typically required revolutions to precipitate the changes. The internet is the most recent spontaneous order to emerge, and we are only now facing people trying to control it.

Hayek developed his theory of spontaneous order to counter the designer fallacy. He argues, with Kauffman (1993), that the evolution of complex systems is essentially ‘‘lawless’’ (Hayek, 1991, p. 261), meaning one cannot predict future states. These lawless systems arise naturally, from the bottom-up, the interacting elements creating a network. They do not need a designer. Yet, this goes against our instincts. As humans evolved more social behaviors, our ability to detect intentions in others improved, becoming almost instantaneous. One result is ‘‘Our ancestral sociality endowed us with a hair-trigger when it comes to detecting intentions, even where there are none. When confronted with impersonal processes, we prefer to see design, purpose and agency’’ (Tonaka, 2010, p. 8). For Hayek ‘‘the sensory order is an imperfect representation of the physical order, and there are limits to what the human mind can know, as knowledge is acquired from experience’’ (Wenzel, 2010, p. 63). The presence of such built-in modes of thought/world maps such as the belief that order requires an orderer (the source of all top-down theories of cosmic and social order) also contribute to ‘‘an imperfect representation of the physical order’’ that can be overcome with sufficient experience. Since each person is born with this cognitive bias, each person must learn the natural world is not ordered top-down. This bias results in errors in understanding the economy, society, culture, and even the brain. It is perhaps ironic that the tendency to see intentionality everywhere, an evolved behavioral trait that can be traced to the brain’s structures, has been one of the primary barriers to understanding the brain’s structures, or similar networks. It is overcome only through understanding complex networks. This is what Hayek’s spontaneous order theory gives us. It may seem odd we are biased against understanding how the real world actually works, but if we understand the environment in which we evolved, it makes sense. Someone who thought a village could emerge naturally would end up killed by the villagers; those who believed if there is order, there is an orderer, would expect dangerous humans about. Unfortunately, that same bias is no longer adaptive.

Our hypersensitivity to intention may make it difficult to persuade belief in spontaneous orders. We want to believe in creationism or intelligent design, whether in cosmology, biology, government, or economy. Yet, science helps us understand the world beyond how we are programmed to see it (Hayek, 1952, p. 5.42). It is important we have the right science for the right system to create the right model. Without the right model, we make mistakes understanding the world. Widespread use of the wrong model will result in the same mistakes because ‘‘similar Hayekian maps (mental models) will lead to similar descriptions of the world among individuals with similar backgrounds and will thus never have exactly identical minds (Hayek, 1952, p. 5.28)’’ (Wenzel, 2010, p. 64). This is built on the speciesspecific structures that also unify us. It is thus possible to pile error upon error. And the more complex the data – such as economic data – the more open it is to interpretation and to confirmation bias.

Nevertheless, it seems that if spontaneous orders are human social environments, with parallels in the natural environment, then in a real sense human beings are preadapted to living in spontaneous orders. This hardly means there won’t be people trying to control those social environments any more than people have tried to control their natural environments – as ancient dams, irrigation, and rain dances prove. These controls are not without consequence, though. When you irrigate, you accidentally salt the earth, eventually decreasing soil fertility. Some, like rain dances, are simply ineffectual. Economic equivalents would be the Federal Reserve’s quantitative easing in response to the Great Recession (where they ‘‘irrigated’’ the economy with money, with the likelihood that it will soon ‘‘salt the earth’’) and the stimulus packages (the economic equivalent to ‘‘rain dances,’’ since they are based on a belief that the economy is controlled by ‘‘spirits’’). Interfering with the natural evolution of spontaneous orders has negative consequences when one does not understand the processes involved. And even if you do, you won’t be able to predict when a transformation will take place in a TCAS. Such processes are inherently unpredictable and uncontrollable.

Our evolved general intelligence allows us to adapt to any physical environment, but it is our other mental orders that restrict the kinds of social environments we can thrive in. This is why understanding the human brain is vital to the work of social scientists. To understand the neurological basis of the various elements of our various cultures and societies, ‘‘a series of bridging laws must ultimately anchor cultural constructions to their relevant brain networks. These bridging laws must integrate, rather than eliminate, the laws of human psychology. They must also include the historical, political, and economic forces that shaped human society’’ (Dehaene, 2010, p. 304). Indeed, in writing The Sensory Order, is this not Hayek’s challenge to all of the social sciences?


Hayek and Behavioral Economics

Still on Hayek. Having just received my copy, I thought I’d give it another plug. My chapter Mindscapes and Landscapes: Hayek and Simon on Cognitive Extension is in this collection. The full line-up as follows:

Foreword; V. Smith

Introduction; R. Frantz & R. Leeson

Friedrich Hayek’s Behavioural Economics in Historical Context; R. Frantz

A Hayekian/Kirznerian Economic History of the Modern World; D. McCloskey

Was Hayek an Austrian Economist? Yes and No. Was Hayek a Praxeologist? No.; W. Block

Error is Obvious, Coordination is the Puzzle; P. Boettke, W. Caceres & A. Martin

Hayek’s Contribution to a Reconstruction of Economic Theory; H. Gintis

On the Relationships Between Friedrich Hayek and Jean Piaget; C. Chelini & S. Riva

Cognitive Autonomy and Epistemology of Action in Hayek’s and Merleau-Ponty’s Thought; F. Di Iorio

Hayek’s Sensory Order, Gestalt Neuroeconomics, and Quantum Psychophysics; T. Takahashi & S. Egashira

Mindscapes and Landscapes: Hayek and Simon on Cognitive Extension; L. Marsh

Hayek’s Complexity Assumption, Ecological and Bounded Rationality, and Behavioural Economics; M. Altman

Subjectivism and Explanations of the Principle; S. Fiori

Satisficing and Cognition; Complementarities between Simon and Hayek; P. Earl

The Oversight of Behavioural Economics on Hayek’s Insight; S. Rizzello & A. Spada

Complexity and Degeneracy in Socio-Economic Systems; G. Steel & H. Hosseini


Cognitive Opening and Closing: Toward an Exploration of the Mental World of Entrepreneurship

Some extracts from Thierry’s paper:

Contemporary analysis usually divides games of chance into three dimensions. In Machina and Schmeidler’s (1992) terms, this division can be viewed based on the example of an urn containing 90 balls of different colors, out of which an agent pulls a ball, of which he must ex ante guess its color to achieve a predetermined gain. If the agent knows that the number of red, white, and black balls is the same (30), he finds himself in a situation of risk: He knows the possible consequences and the probability distributions, that is, he has one in three chances of getting a ball of any particular color. However, if he knows that these balls are red, white, and black, but in indefinite proportions, he is confronted with situations qualified as uncertainty: The consequences are known, but the probability distributions are not. Yet again, if the agent knows there are 90 balls of different colors in the urn but does not know how many of these colors there are, he is in a state of incomplete information: The agent is unable to define the list of possible outcomes (situation of ambiguity) and can expect some surprises identifiable ex ante, as states of nature are identifiable.

An extra dimension may be added to this distinction: If the agent has himself placed 30 red balls in the box, but he does not know what other elements of indefinite character and number there are in the box, nor the structure of gains or losses associated with various results, then we can consider that the agent is in a position of ignorance. Not only is he unable to define the list of consequences of the game, but he also does not know the distribution of events. The agent is able to define what he knows, but unlike the three previous cases, he cannot determine the scope and nature of what he ignores. The surprise is necessarily unexpected in the sense that the agent is unable to identify ex ante the possible states of nature.

It is in this latter perspective that Kirzner (1973, 1979, 1982) argues that market actors face a phenomenon of ‘‘genuine ignorance,’’ reflecting their inability to know all the opportunities for exchange or profit available in an economy. At any point in time, each individual perceives only fragmentary aspects of social reality in which he participates, and not its other facets. Each exchange is made in ignorance of other exchanges performed at the same time; thus, there is no common knowledge of prices and no actor can perceive the whole. In a monetary economy, the consequences of these independent exchanges are mutually dependent. The implications of this genuine ignorance on the coordination of activities are thus considerable. Using the example of Schmeidler and Machina’s urn (1992) from the time when the consequences of a draw for each individual depend on the (unknown) number of elements (of unknown character) deposited in the ballot box by an (unknown) number of (unknown) people, the ability of such a game to produce a balance is at least questionable.

The stakes of this phenomenon of ignorance compel us to identify its sources. These are not found in any complexity of information, neither in the cost of its acquisition nor in its treatment (deliberation) from a perspective of bounded rationality. They come from a more fundamental phenomenon of dynamic subjectivism. According to authors such as Kinder (1973, 1979, 1997) and Lachmann (1977, 1986), agents’ preferences, endowments, knowledge, and strategies should be defined as personal, unique. Therefore, each individual is a priori ignorant of how others evaluate goods and services. Economic analysis is not therefore based on a perfect, or even sufficient knowledge of actors to coordinate their activities. The diversity of actors’ preferences, interpretations, and expectations would certainly not be a problem if they were constants. A process of trial and error would lead to new learning, opening onto a price structure that would allow coordination. But this is in fact not the case because the individual performances would change continuously, according to an endogenous process, ultimately explained by ignorance or internal self-ignorance (Aimar, 2008a). As Hayek (1951a, 1951b) explained, the actor can only partially perceive the existing opportunities for satisfaction, for reasons related to the organization of the human brain and the tacit characteristic of knowledge. His conscious choices being ignorant of a portion of his subjectivity, he makes mistakes, expressed by disappointment with satisfaction. He undergoes a de facto internal discoordination, forcing him to change his representations to make his beliefs conform to the reality of his interior environment. But changing choices results in transforming his internal environment and de facto creates new unknown areas. The mind, constantly evading the consciousness’s desire to fully absorb it, makes the process of self-discovery never-ending. Thus, market discoordination, the result of genuine ignorance, is finally but an internal discoordination, consequence of a phenomenon of self-ignorance.

It was around this phenomenon of genuine ignorance and its perverse effects on coordination between individuals that Kirzner introduced the theme of entrepreneurship. The entrepreneurial function, driven by the incentive of profit, is to discover unperceived opportunities. Mobilizing qualities of alertness, reflected in cognitive openness, it reveals previously hidden information. Through his discoveries being translated into new money transactions, the entrepreneur socializes his knowledge and contributes to pulling market activities toward coordination. He goes beyond reducing ignorance; he transforms ignorance into uncertainty. But according to Kirzner, a parallel mission of the entrepreneur is to organize already discovered opportunities in the form of firms’ production plans, in order to protect them from risk of obsolescence resulting from the volatility of data.

In a dynamic world, discovery and exploitation of opportunity are then the two faces of entrepreneurship. The author argues that these two dimensions may be contradictory in the entrepreneurial mind. As much as discovery implies a cognitive opening to the outside, all exploitation of discovered opportunities is accompanied by elements of mental rigidity. These take the form of cognitive closure, thus opposing the entrepreneur’s perception of new opportunities. The aim of this contribution is to illuminate by the structure of this contradiction by economic analysis, to provide the means to verify it through experimental economics and to consider its extensions in terms of neuroeconomics.

Our plan is this: After explaining the basics of the theory of entrepreneurship and the elements that determine its duality, we will define the bases for an experimental protocol likely to support our thesis of an opposition in the cognitive field between the relative strengths of discovery and the exploitation of opportunities in the entrepreneurial mind. The last section forms the conclusion.

In the context of organizational economics, the relationships between cognition and complexity have been studied for many years through the lens of bounded rationality. However, this is outside Austrian theories, which do not define the act of knowing as the result of a deliberated choice between gain and cost but as the result of a spontaneous process. Unfortunately, the internal forces of this process remain ill-defined. Yet, much Austrian work has shown the relationships between the institutional environment and entrepreneurship. However, in spite of Kirzner’s (1985, p. 25) appeal for a psychological study of entrepreneurial qualities, the mental determinants of entrepreneurship have still not been studied. Therefore, our goal here is to use Austrian tools to define the relationship between organizational complexity and entrepreneurial discovery from a mental angle. Using the example of a protocol, we intend to establish the bases on which to experiment with the various theoretical propositions in this matter. This should allow a finer judgment of the determinants of entrepreneurial discovery and a better understanding of the effects of competition.