On the Wisdom of Algorithmic Markets: Governance by Algorithmic Price

Leading digital platform providers such as Google and Uber construct marketplaces in which algorithms set prices. The efficiency-maximising free market credentials of this approach are touted by the companies involved and by legislators, policy makers and marketers. They have also taken root in the public imagination. In this article we challenge this understanding of algorithmically constructed marketplaces. We do so by returning to Hayek’s (1945) classic defence of the price mechanism, and by arguing that algorithmically-mediated price mechanisms do not, and probably cannot, accumulate and signal that same kinds of knowledge that Hayek felt were essential to effective market governance. Indeed, we argue that algorithmically-constructed marketplaces are closer to, though distinct from, the central planning model that Hayek critiqued. Regardless of how you feel about Hayek’s argument, this has important consequences for how we respond to the rise of algorithmic governance tools in both markets and elsewhere.