To specialize or to innovate? An internalist account of pluralistic ignorance in economics

Abstract

Academic and corporate research departments alike face a crucial dilemma: to exploit known frameworks or to explore new ones; to specialize or to innovate? Here I show that these two conflicting epistemic desiderata are sufficient to explain pluralistic ignorance and its boom-and-bust-like dynamics, exemplified in the collapse of the efficient markets hypothesis as a modern risk management paradigm in 2007. The internalist nature of this result, together with its robustness, suggests that pluralistic ignorance is an inherent feature rather than a threat to the rationality of epistemic communities.