One of Friedrich Hayek’s most important arguments pointed to the epistemic advantages of the price system, which incorporates the information held by numerous, dispersed, uncoordinated people

Sunstein, Cass R., Hayekian Behavioral Economics (October 19, 2020). SSRN: http://dx.doi.org/10.2139/ssrn.3714750

Abstract: One of Friedrich Hayek’s most important arguments pointed to the epistemic advantages of the price system, which incorporates the information held by numerous, dispersed people. Like John Stuart Mill, Friedrich Hayek also offered an epistemic argument on behalf of freedom of choice. He emphasized that outsiders know much less than choosers do, which means that interferences with personal freedom, by those outsiders, will make choosers worse off. A contemporary challenge to that epistemic argument comes from behavioral economics, which has uncovered an assortment of reasons why choosers err, and also pointed to possible distortions in the price system. But even if those findings are accepted, what should outsiders do? How should they proceed? A neo-Hayekian approach would seek to reduce the knowledge problem by asking not what outsiders want, but what individual choosers actually do under epistemically favorable conditions. In practice, that question can be disciplined by asking five subsidiary questions: (1) What do consistent choosers, unaffected by self-evidently irrelevant factors, end up choosing? (2) What do informed choosers choose? (3) What do active choosers choose? (4) In circumstances in which people are free of behavioral biases, including (say) present bias or unrealistic optimism, what do they choose? (5) What do people choose when their viewscreen is broad, and they do not suffer from limited attention? These kinds of questions can be answered empirically. An ongoing program of research, coming from a diverse assortment of people, explores these questions, and can be seen to be producing a form of Hayekian behavioral economics – Hayekian in the sense that it can claim to be respectful of Hayek’s fundamental concerns. These conclusions are illustrated with reference to the controversy over fuel economy standards, with an acknowledgement that on broadly Hayekian grounds, the best approach might be to inform consumers of potential savings, while using a corrective tax to control externalities.