Steve Reads

Cass Sunstein — author of Republic.com — has taken over Larry Lessig’s blog for a short time, and for his first post he’s asked if there are any analogies between the price system and distributed Internet projects, like blogs and free software:

Background: A few years ago, a book of mine, Republic.com, emphasized the risks associated with echo chambers and self-insulation. I’m doing a new book, still inchoate, that continues to explore those risks, but that also stresses the excitingly general possibility that the Internet can allow widely dispersed “bits” of human information to be properly aggregated — as, for example, through open source software, wikis, prediction markets, and even blogging.

All this is pretty abstract, so let me try to focus it. One of the greatest arguments of the twentieth century is Hayek’s about the price system. In particular, Hayek claimed that any “price” is capturing the information and tastes of many people, in a way that will outperform the judgments of even the best experts. Hence prices do a lot better than any central planners. Here’s a puzzle: How close is the analogy between the price system on the one hand and wikis, open source software, and even the blogosphere on the other? Where does the analogy break down? When, in particular, will wikis and the blogosphere fail as mechanisms for aggregating dispersed information? I’ll venture some thoughts before long, but for the moment I’d just like to pose the question. I know that there’s a lot of information out there about all this; any help would be appreciated.

It’s a good question, and one for which it would be nice to see concrete economic models. I’ll try to think of anything good to tell Sunstein. A related question — or perhaps it’s tied into the question Sunstein asked — is how bloggers and open-source developers learn which projects to focus on, given that they have no price signals to guide their work.

P.S.: Sunstein has added an excellent and concisely framed followup.