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Quotation of the Day…

… is from page 81 of Douglass North‘s 1990 volume, Institutions, Institutional Change and Economic Performance (links added):

We need to read, again, Armen Alchian (1950) to understand this. In a world of uncertainty, no one knows the correct answer to the problems we confront and no one therefore can, in effect, maximize profits. The society that permits the maximum generation of trials will be the most likely to solve problems through time (a familiar argument of Hayek, 1960). Adaptive efficiency, therefore, provides the incentives to encourage the development of decentralized decision-making processes that will allow societies to maximize the efforts required to explore alternative ways of solving problems.

See also Vernon Smith’s 2002 Nobel lecture, “Constructivist and Ecological Rationality in Economics.”