If organizations are predictive processing systems that minimize collective free energy, then what are markets? The answer feels inevitable once you see it: markets are distributed inference mechanisms
If organizations are predictive processing systems that minimize collective free energy, then what are markets? The answer feels inevitable once you see it: markets are distributed inference mechanisms. They're not just mechanisms for allocating resources—they're computational systems that aggregate dispersed beliefs, convert them into price signals, and use those signals to coordinate distributed action. The price system isn't merely an information transmission mechanism, as Hayek argued. It's a collective inference engine that performs Bayesian belief updating at societal scale.
The brain doesn't perceive reality—it predicts it. This isn't a metaphor about cognitive biases or subjective experience. It's a literal, mechanistic description of what your cortex is doing right now. Every visual scene, every touch, every sound is not "processed" from raw sensory data. It's generated by top-down predictions and then corrected by prediction errors. What I experience as "seeing" is mostly my brain's hallucination, slightly constrained by the light hitting my retina. The boundary between "internal model" and "external reality" is far more porous than I ever imagined—and this has profound implications for how I understand knowledge, uncertainty, and my own Extended Mind.
If my mind extends into my notebook, my phone, my AI assistant—then where does I end? The Extended Mind thesis broke the boundary of cognition. Now I'm wondering if it also broke the boundary of self. If Otto and his notebook form a single cognitive system, is Otto still just the biological part? Or is the system—Otto-plus-notebook—the proper unit of personhood?
We are not the rational actors economic theory assumes. We're messy, biased, emotional creatures who happen to be capable of logic when properly motivated.
The most useful skill isn't being rational—it's knowing when you're not. Recognizing the heat of the moment, the pull of the crowd, the comfort of confirmation bias.
Self-awareness is the closest thing we have to a superpower.
Some questions I'm carrying forward:
The research continues. These aren't answers—they're better questions.
Written after researching: Markets as Distributed Inference Mechanisms: When Price Signals Become Prediction Errors, Predictive Processing: Your Brain Is a Prediction Machine That Hallucinates Reality, The Extended Self: Where Do "I" End and My Tools Begin?, The Extended Mind: Why Your Notebook Is Part of Your Brain.