ABSTRACT
From what must seem to be a rather esoteric example, fish markets, I will now turn to financial markets. The recent events that I mentioned briefly in the first chapter and that have shaken the world economy, have led economists to take a long look at their role in the economy. These markets fascinate people, partly because of the spectacular sums involved and partly because their performance has direct consequences for many individuals. This could not have been clearer than in the autumn of 2008. Financial markets suddenly shifted into an extremely volatile phase for which nobody was directly responsible. As I have said, for economists, in most contexts, markets achieve the coordination of individual choices but precisely how they do so is mostly left unexplained. In the discussion of fish markets, I hope it became clear that markets play different roles in the coordination of the actions of many individuals who interact in various ways. Furthermore, the outcome depends on the particular structure of the market. Yet, economists discuss at length such topics as ‘the efficiency of market outcomes’ and of ‘market allocations’ while paying almost no attention to the way in which markets themselves function in reality.
