George Stigler: Knowledge, Preferences, and (Self-Interested) Choices

Abstract

In a 1961 paper titled The Economics of Information, George Stigler introduced the costs of search, thereby allowing the problem of information to enter the arguments of the utility function. In so doing Stigler employed what he thought were the three assets of any successful new economic theory, namely: generality, manageability, and congruence with reality. The search for greater generality and greater congruence with reality of the many facets of economic behavior also lies at the base of the challenging De Gustibus non est disputandum paper (1977) written by Stigler with his colleague Gary Becker. The latter paper represents a major effort to expand the reach of the maximization of utility principle into domains that were before excluded from economic analysis and regarded as either beyond the scope of economic theory or an instance of its failure. I shall argue here that, though the rhetorical strength of the new approach should not be undervalued, it says more for the flexibility and generality of the theoretical apparatus of the rational economic choice it purports to defend than it does for the richer understanding of human choice and action that it claims to have achieved. Stigler’s view of knowledge will be compared with the alternative view of Frank Knight, earlier doyen of Chicago Economics for whom the problem of knowledge was preeminently a problem of understanding and discovery, and a process of creating new values.