Testing the Hayek hypothesis: Recent theoretical and experimental evidence

Brian Albrecht, Omar Al-Ubaydli and Peter Boettke

Artefactual Field Experiments from The Field Experiments Website

Abstract: Economists well understand that the work of Friedrich Hayek contains important theoretical insights. It is less often acknowledged that his work contains testable predictions about the nature of market processes. Vernon Smith termed the most important one the 'Hayek hypothesis': that gains from trade can be realized in the presence of diffuse, decentralized information, and in the absence of price-taking behavior and centralized market direction. Vernon Smith tested this prediction by surveying data on laboratory experimental markets and found strong support. We extend Smith's work first by showing how subsequent theoretical advances provide a theoretical foundation for the Hayek Hypothesis. We then test the hypothesis using recent field experimental market data. Using field experiments allows us to test several other predictions from Hayek, such as that market experience increases the realized gains from trade. Generally speaking, we find support for Hayek's theories.

Date: 2022
New Economics Papers: this item is included in nep-exp, nep-his, nep-hpe and nep-ltv
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:feb:artefa:00759

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