January 27, 2022

How Cognitive Institutions and Interpretative Rationality Enable Markets with Infinite Variety

  • Erwin Dekker

    Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
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This chapter analyzes markets with an “infinite variety” of goods, such as large parts of the service economy and creative industries such as the book, film, and music market. I argue that the infinite variety of supply that characterizes such markets does not lead to discoordination, because of the emergence of cognitive institutions in the form of market categories, reference points such as exemplary goods, and instruments of interpretation which facilitate the (quality) coordination process. These cognitive institutions function as an extended mind of market participants and enable what is termed interpretative rationality, as distinct from calculative rationality. This interpretative rationality consists of the ability to recognize relevant differences and similarities between goods. These cognitive institutions, like the price system, are an emergent order which can be analyzed through the lens of Austrian economics. This chapter further demonstrates the potential convergence between particular strands of economic sociology and Austrian economics.