We Each Know Different Things (And No One Knows Everything)
One Takeaway
No one person has all the knowledge in the world. The best systems are those that help us use what we do know to make better decisions, even if we don’t know everything.
Who Knows What We Should Do?
Every day, people make decisions based on things only they know. How long the commute is that day, whether their kid is getting sick, how much their neighbor might pay for a used bike. These tiny pieces of knowledge may not seem like much, but they’re everywhere. And they matter.
The central challenge in economics isn’t just scarcity, it’s figuring out how to make the best use of all this spread out knowledge. The real question isn’t, “What should we do?” It’s, “Who knows enough to decide what should be done?”
What Is The Knowledge Problem?
No single person or authority can know enough to make good decisions for everyone else. This is a very simplified version of what’s known as the knowledge problem.
Knowledge is spread out. It lives in the minds of millions of individuals, each with access to their own slice of information. This knowledge is often based on time, place, habits, and situations no outsider could ever fully grasp. Because of this, we all know some things, but no one knows all of it.
Different Kinds of Knowledge
To see why this matters, it helps to distinguish between different types of knowledge:
General Knowledge: Broad principles like how engines work or that too much pesticide can kill plants.
Local Knowledge: Information specific to a particular time and place. Something like knowing that customers in your neighborhood prefer different groceries when it’s hot out.
Tacit Knowledge: Skills and insights you have but can’t easily explain. Like knowing when bread dough feels “right,” or sensing when a customer is about to buy.
All three types matter. But local and tacit knowledge tend to be the most valuable, and the hardest for others to access.
The Wal-Mart Example
During Hurricane Katrina, Wal-Mart’s disaster response for getting supplies to the region outperformed government agencies. While FEMA waited for damage reports and approval processes, local Wal-Mart managers got to work. Among other actions, these managers verified which roads were passable by going and inspecting them. This allowed them to route deliveries correctly. This information didn’t exist in any government database. It took on the ground, second-to-second data.
Wal-Mart had supplies arriving before FEMA had even finished its assessment. They achieved this because they had systems that trusted and enabled people with local knowledge to make local decisions.
Why Local Knowledge Beats Central Plans
This is why local decision-makers can repeatedly outperform distant authorities. They see changes as they happen. They understand local trade-offs. And they know details that never make it into official reports.
For example:
A store manager likely understands the buying habits of local customers better than the company’s CEO. If a retail chain mandates the same winter inventory across the U.S., stores in hot and cold climates might end up with the same amount and types of coats. The result? Unsold goods in one state and empty shelves in another.
A farmer knows the specific conditions of their land (soil quality, weather, and pest risks) better than a policymaker miles away.
A teacher knows which students learn better through visuals versus through discussion. This knowledge doesn’t show up in standardized test data.
Making decisions from too far away means making decisions without being able to see what truly matters.
When General Knowledge Isn’t Enough
While general knowledge is important, it has limits. General principles are certainly helpful, but they must be applied with care at the local level.
For example, McDonald’s has general guidelines for their service. But how they put those guidelines in place differs across the globe. In some markets they may not serve beef, or they may offer table service. No matter what, the general principle of fast, consistent food service stays the same. But knowing the right way to apply the knowledge changes.
How Markets Solve the Knowledge Problem
Markets don’t solve this problem by giving one person more knowledge. They solve it by not needing to.
Prices, profits, and losses carry information. They do all this without anyone having to centrally process, verify, and approve every data point and fact or opinion.
When a restaurant owner sees that fish prices have jumped, she doesn’t need to understand if global fishing regulations are to blame. She just knows fish is expensive today. Maybe that means tonight’s special should be chicken instead.
The beauty of markets is that they bring together all this spread-out knowledge without requiring anyone to collect it.
The Bottom Line
No one knows everything, but everyone knows something. Good systems don’t concentrate decision-making at the top. They build feedback loops that let each person act on what they know best. When people are free to use their knowledge, outcomes across the economy improve.