Competition as socially extended cognition: A Hayekian perspective on market knowledge and institutional evolution

Abstract This paper proposes an interpretation of F. A. Hayek’s theory of competition as a process of socially extended cognition, where knowledge creation and institutional evolution occur through shared cognitive infrastructures rather than merely through individual error-correction or static optimization. Drawing on insights from cognitive institutionalism, and the extended mind thesis, it argues that markets function not merely as allocative mechanisms but as cognitive ecosystems facilitating social learning, opinion formation, and the evolution of institutional and interpretive frameworks. Contrasting this socially extended view with neoclassical, behavioral-paternalist, and Hayekian psychological interpretations clarifies the contributions of the proposed reading of the meaning of competition, particularly emphasizing the social, distributed, and institutional dimensions of rationality and knowledge. This approach contributes to Austrian economic theory by connecting Hayek’s view of the market process with contemporary insights from cognitive science and institutional economics, suggesting policy frameworks focused on enhancing collective cognitive infrastructures and enabling adaptive institutional experimentation.