Markets as a structural solution to knowledge-sharing dilemmas

The authors propose a new structural solution to the knowledge-sharing dilemma. They show that simple auction mechanisms, which impose a rigid set of rules designed to standardize interactions and communication among participants, can prevent some of the detrimental effects associated with conflict of interest in freely interacting groups. The authors report results of two experiments that show that transparent conflicts of interest lead to a breakdown of information sharing, learning, and knowledge transfer in freely interacting groups, but not in simple markets and auctions. In these settings, participants were able to identify the best candidate in a voting game and to learn the solution to an intellective reasoning task, allowing participants to successfully transfer their insights to a series of new intellective tasks (tackled up to four weeks later), despite the conflicts of interests among traders. The authors explain their findings within the theoretical framework of collective induction.