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Market Signals as Powerful Purveyors of Information
In Friedrich Durrenmatt´s play "The Visit of the Old Lady",
Claire Zachanassian, old and immensely rich, returns to her home
town of Güllen and shocks citizens of this sleazy place with an
unsavory offer. She publicly promises a bounty of one billion to be
divided among the town´s treasury and its citizens under the
condition that Alfred Ill dies. Alfred was her early love, but he
let her down when she became pregnant, and Claire finally left
Güllen. Now, after surviving eight rich husbands, the old lady
exacts her revenge.
What happens after the offer? Of course, officials reject the offer
in disgust, as do the citizens. They also try to calm Alfred. Yet,
to his mortification, his fellow citizens soon start to appear with
new shoes. Other purchases follow, more and more of them on credit.
Poor Alfred can tell from observed market transactions that he has
no chance. Eventually Alfred meets his deadly fate.
The story illustrates the power of the market to aggregate pieces of individual information
and making it public. This function of the market as a huge information processor is discussed
in Chapter 7 of Information Economics.