An examination of Hayek's hypothesis on entrepreneurial discovery
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AbstractI examine Hayek's 1968 hypothesis on competition as a discovery mechanism. This study attempts to create an experiment to support the work of Hayek in respect to how subjects discover their relative ability level, using a skill-based market entry games. I applied a variation of the market entry game which Camerer and Lovallo (1999) used to show overconfidence in subjects. By adding feedback relating to their performance allowed subjects to 'discover' information concerning their relative ability level. As the experiment progresses, there is clear evidence that skill level does influence the entry decision of subjects. This leads to the conclusion that Hayek's hypothesis is supported through this experiment.
Bibliography: p. 57-60