The Problem of Dispersed Knowledge in Markets

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In this era of globalization and ever changing markets, knowledge is always found to be dispersed. Each one of the agents in the market has some amount of knowledge and it is surely imperfect knowledge. It is imperfect knowledge as it is not complete and clear. Prices are usually the factor that is known and they act as an indicator of what is known in the market. Still this acts as tacit knowledge. With tacit knowledge, people are not often aware of the knowledge they possess or how valuable it can be to others. Effective transfer of tacit knowledge generally requires extensive personal contact and trust. People usually are not fully aware of the knowledge that they are sharing via price signals, nor do they fully perceive the knowledge that they use when they make a price decision. But this dispersed and tacit knowledge is not sufficient in any organization. It is very important for the manager to be able to utilize this dispersed knowledge in a proper way.

"When a buyer goes to market, the prices he or she finds therein for products and services have been set by the complex calculus that is the sum total of the tacit knowledge residing within the market. Price signals are one possible solution to the economic calculation problem." This viewpoint is popular especially among Austrian School economists such as Friedrich Hayek. Knowledge is not central in nature; it has the tendency of dissipating. Hayek preached that the market is made of dispersed decisions and dispersed competitions" (Hayek 1937).

Prices can never be an indicator of complete information, and in this paper we will be discussing the various components of dispersed knowledge, the various reasons for dispersion and the methods of dealing with these reasons.


A lot of research has been done on dispersed knowledge and its reasons. This research helps us to understand the basic problem of dispersed knowledge.

As Tsoukas (1996) has reminded us, Hayek identified the problem of dispersedness of knowledge as a central economic problem:

The problem of what is the best way of utilizing knowledge initially dispersed among all the people is at least one of the main problems of economic policy. (Hayek,1945, p. 520)

Hayek pointed out that the division of labour is accompanied by a division of knowledge as well (Hayek, 1937, p. 49; 1945, p. 528). The key characteristic of dispersed knowledge is that 'dispersed knowledge is essentially dispersed, and cannot possibly be gathered together and conveyed to an authority charged with the task of deliberately creating order' (Hayek, 1988, p. 77). Dispersed knowledge can never be given to a single mind (cf. Hayek, 1945, p. 519) and thus 'never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess' (Hayek, 1945, p. 519). In other words, it is 'knowledge not given to anyone in its totality' (Hayek, 1945, p. 520) - and it can never be so given. There are limits to the centralization of knowledge, and this therefore cannot be the only strategy applied by knowledge managers in dealing with dispersed knowledge.


All the research done by Hayek and his analysis show that globalization and virtualization are some of the major causes for dispersedness of knowledge in markets and companies. As companies grow and diversify, their markets change and so do the teams working together. Every team in each geographical area has some amount of knowledge but it is not complete and this is the problem that is called dispersed knowledge and it leads to organizational problems.

These organizational problems due to dispersed knowledge need to be controlled and for this central planning is very important. Central planning will involve, collecting information from different regions and parts of the organization and compiling it into one central database.

But this is not easy and requires immense planning and resources. There are large numbers of knowledge that need to be collected in the organization and this requires more resources. So the larger the organization, the more the dispersed knowledge and more resources required for accumulation of dispersed knowledge. Asymmetries in knowledge can also cause problems in accumulation.

Minkler (1993) and Tsoukas (1996) identified uncertainty as another driver by which dispersedness causes management problems. Dispersed knowledge causes structural uncertainty, a strong form of uncertainty that exists if a decision-maker cannot ex ante specify all relevant alternatives or outcomes (Minkler, 1993).

There, three different types of uncertainty-related decision situations are distinguished: deterministic, stochastic, and ambiguous situations (cf. Hu, 1994; Mosakowski, 1997). While the first two types are familiar, ambiguity is less familiar. In the decision literature it generally denotes a kind of 'second-order uncertainty' (Kahn and Sarin, 1988, p. 266). Whereas in a stochastic situation the probabilities of uncertain events are known, under ambiguity only a probability distribution for the perceived frequencies is known (Kahn and Sarin, 1988). Ambiguity thus results from the uncertainty associated with specifying which of a set of distributions is appropriate in a given situation (Einhorn and Hogarth, 1986). In other words, decisions under ambiguity are decisions where there is uncertainty about the probabilities with which outcomes can occur (Curley et al., 1986), or 'uncertainty about uncertainties' (Einhorn and Hogarth, 1986, p. S227).

The phenomenon of ambiguity is a pervasive element of much real world decision making (Einhorn and Hogarth, 1986). Although there is no consensus yet amongst economists about the appropriate modeling of ambiguity (Hey, 1991), applying the concept of ambiguity to the analysis has already yielded new and useful insights into many economic phenomena (Hu, 1994). So if the problem of dispersedness of knowledge is solved, it can automatically solve the problem of uncertainty and ambiguity.


Previous research has helped us to understand the importance of dispersed knowledge and the reasons and effects of this problem. So now it is very important for us to develop methods of dealing with dispersed knowledge as it has become an integral part of globalized organizations and markets.

Strategies to deal with dispersed knowledge can be developed to deal with the problem:

1. Making knowledge more accessible:

Cohen and Levinthal (1990) have shown that, dispersedness of knowledge is inextricably linked to the problem of designing communication structures and has to be taken into consideration when doing so. This means to create 'information channels' (Nahapiet and Ghoshal, 1998, p. 252) like social relationships through which knowledge can be acquired. These channels can also be considered part of the 'social capital' of the firm, that is, the 'actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit' (Nahapiet and Ghoshal, 1998, p. 243). The key to achieving coordinated action in the face of dispersed knowledge is to develop ways of interrelating and connecting the knowledge each individual has (Tsoukas, 1996). This strategy can take different forms. 'Company yellow pages' or job rotation are ways to implement it. These means ensure that if group members do not hold certain requisite information, they at least know where to get it (Nonaka, 1990). However, note that the channel itself only provides the necessary, not sufficient requirements. In order for knowledge to be accessed, people also have to have the capacities for using it, including 'absorptive capacity' (Cohen and Levinthal, 1990; see also Nahapiet and Ghoshal, 1998). Thus, 'working' channels have to be much 'richer', not just consisting in the mere channel or link, but also in complementary skills and capacities. They have to turn into 'regular venues for the informal transmission of information, such that the process itself becomes tied to knowledge seeking and creation' (Powell, 1998, p. 239). This strategy amounts to a shift from direct knowledge - 'know how' or 'know what' - to indirect knowledge: 'know whom' (cf. Loasby, 1998). The idea is to use knowledge without actually possessing it, to provide a 'knowledge surrogate' (Scheuble, 1998). So the idea here is to collect information from different sources and to make it easily accessible to all the employees of the organization. This will help in eliminating ambiguity about different things in the organization.

2. Dealing with knowledge gaps by the capability to complete incomplete knowledge:

'In reality, individuals do not usually possess precise and detailed knowledge of organizational procedures; they have "incomplete" knowledge, and they are able to complete it by recreating its missing components' (Egidi 1996, p. 307). For Argyris, '[t]here will always be gaps and there will always be gap-filling. Organizational learning is critical to detecting and filling the gaps' (Argyris, 1996, p. 1). The organization needs to understand that incomplete knowledge is never good and must try to fill the gaps to make this incomplete knowledge complete. Filling the gaps can be executed by proper planning and analysis of available knowledge.

3. Developing appropriate coordination mechanisms in the organizations and markets:

This strategy will help solve the problem of coordination in the organization and markets. 'Managers meet the global challenge of coordination and transferring knowledge and innovation across highly differentiated units in a variety of ways. Some of the most common are the use of global teams, stronger headquarters planning and control, and specific coordination roles.'(Organization Theory and Design, Richard L. Daft, p.230). These methods will help the organization and markets to have an integrated mechanism to accumulate knowledge and information. Coordination is very essential and the management needs to see to it that all the parts of the organization are linked and the knowledge dissipated has to be collected in and dispersed effectively.

4. Developing units and sub-units in the organization:

The organization can consider using units and sub-units like teams, groups, individuals or departments to help accumulate dispersed knowledge in an economical manner. Assuming that at least some of the knowledge required is difficult and costly to transfer, this strategy also 'economizes' on the transmission of information and knowledge by the specialization of function (Arrow, 1999). As Rycroft and Kash have found, managers often have to act without understanding what they are faced with (Rycroft and Kash, 1999). That, in fact, makes it very difficult to deliberately design a strategy. However, to decompose and spin-off parts to ease the burden of problem solving (Egidi and Ricottilli, 1997) is almost always possible and is easy to implement.

5. Increasing the amount of information available:

Finally, the standard strategy for dealing with the problem of decision-making under uncertainty (to which dispersed knowledge contributes) is to increase the information available to the decision-maker (Luce and Raiffa, 1957). Thereby, as more information becomes available, the decision-maker can fine-tune her estimate of the probabilities of the different choice options, thus decreasing the uncertainty surrounding the decision. There are different ways to increase the information available, for example search processes, accessing more or larger databases or interacting more with external parties (cf. Powell, 1998). It can be said that the more the information available, the better the opportunity for the managers for clearing uncertainty and ambiguity in knowledge.


After analyzing all the information about dispersed knowledge and its problems in the markets and companies, I have observed that dispersed knowledge cannot help organizations much. It needs to be collected and compiled so that it can provide complete information and help the management and employees in proper decision making and planning. It should be remembered by managers that collecting dispersed knowledge can help in knowing the various strategies followed by different managers and executives in other parts of the world. This does not mean that the same strategies need to be followed but they can be utilized in understanding the diversity and complexity of globalization.

It has been argued, 'getting the right knowledge' in order to take decisions is not just a question of increasing the information and knowledge available. It is very important to have effective communication, assimilation of cognitive frameworks, and developing understanding.

Thus, it can be concluded that not only access to dispersed knowledge and assimilation of information is important but it needs to be understood and utilized in an efficient manner. The various methods of dealing with dispersed knowledge that I have discussed could be used to collect information and effective managers can develop techniques to utilize them properly. If the problem of dispersed knowledge is dealt with effectively, it can help in eliminating uncertainty and ambiguity in the markets.