John Quiggin takes on Peter Boettke with this Post, which academically critiques this article by Peter. The authors involved in the discussion should be read for the Insight they offer to the Reader, but individual choice should be used to accept your position. Each think that fundamental concepts can be derived about Herd behavior in economics, which may be a fallacy in itself. All human reactions in the economic setting enjoy a commonality in that all share the same fears and other emotions. The interaction of economic participants highlight those fears, and also many unvocalized expectations. One cannot start out denying the power of the Collective, which has extensive means to ensure compliance which extends far beyond monetary loss. This Collective pressure is exerted through the Markets, which is a transmitter of information as well as Money and Product.
The human sciences is only the study of how Participants develop the matrix of their beliefs, and therefore, how the stampeding observed in Markets occur as normal course. The entire system of Preference should be underscored with the behavioral demand of all Participants to do business, as some form of economic activity is mandated in order to make a living. This entails an immediate decision (under pressure to get something done), which must respond to the collective response of others at any given moment. Preference only enters the equation only after the effects of scarcity and Utility Costs have already impinged the Market, under the pressure of making some decision for continued access to the Market.
Prices are the final arbiter of the economic decisions taken, not the purveyor of information to the Participant. Prices tell one how the Collective receives the actions of any particular Participant at any given moment, a necessary information, but extremely short of detail; it does not approve of internal developmental decisions, or marketing efforts. The non-neutrality of Money is argued by practically Everyone, yet the statistical pattern is neutral; this means as soon as the Inflation level in integral to the decision-making process, it loses its power to affect the economic performance. This means that Inflation relies upon Uncertainty for power, though it is a form of Theft of the Wealth derived from previous economic performance. Human institutions develop on an ad-hoc basis, the institutions themselves failing (like the current Banking system) when intrinsic distortions rob them of an effective role in the Market. The common component in all such development is an adaptability to current Pricing; lose it, and you will be the victim of creative destruction. lgl