Information Problems

I've been reading a lot lately about the information problems inherent in economies, solvable by market mechanisms and price systems and such. Standard modern arguments for the potential efficiency of socialist systems usually include some defense of alternate ways of processing this information, dealing with scarcity and allocation and providing some incentive for the development of efficiency and innovation.

An interesting information problem that I haven't seen discussed yet, though, is the insurmountability of information problems within individual decision-makers. If we think that people fundamentally try to act to improve their own utility--people try to be happy--we quickly run into the problem that we couldn't even plan one person's life with any acceptable degree of precision. People don't know what makes them happy. People don't know what makes mankind happy, although there are plenty of competing ideas. Large portions of our mental decision-making energy goes not towards figuring out how to maximize known utility functions given constraints, but towards figuring out what our utility functions look like to begin with.

This information problem, I would argue, dwarfs even the problem of figuring out how to allocate scarce resources. In any world with any scarcity (or, any remotely plausible world!), accurate price signals force people to think about what's actually important to them. Beyond any of the allocation and incentive effects of free market prices, I think they help people--and, over time, cultures--figure out how to be happier with what the world has to offer.