“Hayek’s claim is that in a system in which knowledge of relevant facts is dispersed among many people, prices act as an astonishingly concise and accurate coordinating and signaling device. They incorporate that dispersed knowledge and in a sense also publicize it, because the price itself operates as a signal to all.

Hence Hayek argues that it “is more than a metaphor to describe the price system as a kind of machinery for registering changes, or a system of telecommunications which enables individual produces to watch merely the movement of a few pointers.” Hayek describes this process as a “marvel,” and adds that he has chosen that word on purpose so as “to shock the reader out of the complacency with which we often take the working of the mechanism for granted.”

On the Internet, prediction markets are an obvious illustration of Hayek’s point. They can be found on many sites, and they tend to do exceedingly well, because they incorporate dispersed information so as to generate a price. That price often works as a probability, that is, the price of the “bets” accurately captures the probability that the event will occur. For elections, Oscar winners, and economic events, prediction markets have been uncannily accurate…”

Cass Sunstein on Hayek in TPM Cafe.

Comment: 

Wiki, the blogosphere, pricing….they all reflect the value of the decentralization of knowledge and decision making. They all support political devolution to the states and local governments and the elimination of much of the (unconstitutional) mandate of federal government.