Testing the Hayek hypothesis: Recent theoretical and experimental evidence

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 trad...

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Bibliographic Details
Published in:PloS one 2022-07, Vol.17 (7), p.e0270489-e0270489
Main Authors: Al-Ubaydli, Omar, Boettke, Peter, Albrecht, Brian C
Format: Article
Language:English
Subjects:
Biology and Life Sciences
Experimental methods
Experiments
Field tests
Hayek, Friedrich A
Hypotheses
Laboratories
Physical Sciences
Predictions
Research methodology
Social Sciences
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Summary: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.
ISSN:1932-6203
1932-6203
DOI:10.1371/journal.pone.0270489