The Efficient Use of Local Knowledge (Which You Don’t Have)

Abstract

When engaging in an unknown situation without full information, proxies are used to increase the information set. Although the psychology literature claims that people following others doing unique tasks is perceived to be irrational, this study argues a different view. I provide a rational explanation for the efficient use of local knowledge. When entering an unknown circumstance, utilizing the information we gain from the other people in that situation optimizes our behavior – it is rational to follow the observable optimization from the locals. The efficient use of local knowledge explains why so many people have failed psychology studies.