Primacy of the abstract

In The Sensory Order, Hayek (Reference Hayek and Vanberg[1952] 2017) makes a fundamental claim about perception. The empirical world is structured by our consciousness. The concept of raw experience makes little sense, although some experiences might be more highly structured than others. In this, Hayek takes a position against the naïve realism of the behaviorists as well as against the correspondence theory of the mind. Reality does not simply impress itself on our minds. Hayek sometimes calls this the “primacy of the abstract.” Nevertheless, he also says that the so-called empiricists have not been “radical or consistent enough” ([1952] Reference Hayek and Vanberg2017, p. 160). A truly radical understanding of the empirical world reveals it as structured to human consciousness.

These structures or “classifications” can be complex, multiple and proceed on many levels. These classifications are selected by pragmatic needs and evolutionary accidents.Footnote ⁴ Selection is therefore by consequences and the learning derived from this process. There is both species learning (over long periods) and individual learning (over relatively short periods).

Rules of perception are, through this selection-by-consequences process, rules of action. They guide or even constitute our capacity to move in the world. But since classifications are tied to purposes and the attainment of purposes does not require complete knowledge, our classifications and thus our knowledge are always partial.

The structure of the central nervous system evolves over time, with connections among neurons gradually forming in response to environmental stimuli. Different people encounter different environments, and therefore receive different stimuli, so that their minds evolve in different ways over the course of their lives. As a consequence, people develop different perspectives on reality, at least in part because they have different mental classificatory systems (Lewis, Reference Lewis2014).

Not all structures and classifications need to be conscious. Highly repetitive activity can become just-barely conscious habits in an individual's life. Other classifications may be so fundamental that they needn't rise to the level of consciousness. In other cases, a certain economy of thought evolves and thus processes become tacit or implicit. It is clear that Hayek does not privilege conscious knowledge. In fact, he believes that very many of the most important rules human beings follow are not conscious.Footnote ⁵ Moreover, even purposes may not be conscious or explicit as when people are instinctively repelled by harsh smells or rodents. Purposeful action does not require conscious direction.

Since the ultimate test of our rules, classifications and actions is their consequences, reasoning is experimental. We test our hypotheses first in our own minds based on our experience or the experience of others. Obviously, this saves us from making actual mistakes which might be very costly. The concept of an “intellectual experiment” captures this idea. Hayek's notion of the “model” is important here. The model describes the pattern of nerve impulses that are active at any moment within the brain. The model embodies expectations of events the person has learned to associate with certain stimuli; it will “thus constantly tend to run ahead of the actual situation” ([1952] Reference Hayek and Vanberg2017, p. 239). If the model's expectations are repeatedly disappointed, old neural pathways tend to wither and new ones are formed. The result of this experiential learning is a new “model” with a different set of expectations (Lewis, Reference Lewis2017b, pp. 13–15). On this point, Hayek follows Popper: learning is conjecture and refutation.

Rules

The mind classifies on the basis of rules. Or perhaps better, the classification system is a system of rules. If stimulus A occurs, then a certain network of neural pathways will be activated and a classification made. At (roughly) the same time that the classification is made a certain propensity to act will result. So there will be a mapping between the class of stimuli and an action or class of actions. This is what is meant by following a rule.

Viewed from the perspective of individuals in conditions of uncertainty, we cannot plan our actions beforehand to meet every eventuality. Therefore, it is reasonable to expect that individuals will follow rules. An adapted rule will produce good results on the whole, but it is likely to produce unfavorable consequences in many instances. Hayek argues that the coherence of actions lies not in being part of a single plan but in their being instantiations of a rule. This suggests that actions need not display the usual criteria posited by the standard axioms of rationality, including transitivity (Rizzo, Reference Rizzo2019).

As we have seen, for Hayek, rules of action and rules of perception are intimately related. Thus when rules of action fail, it is likely that the perceptual field of the individual will get reorganized. He will begin to see things differently and reclassify the elements of the environment. There will be either conscious or unconscious revision of the relevant rules of action. The process of rule revision takes place within a framework of relatively permanent rules (legal, social, economic) which limit the possibilities of revision, but also focus on the expectations of individuals trying to navigate within the overall system (Hayek, Reference Hayek1976: Ch. 10).Footnote ⁶

Social distribution of knowledge

As we move to the social level, the partial character of knowledge reveals itself in the social distribution of knowledge. Individuals will know differently because they are situated differently. Moreover, individuals will behave differently in the same situation because of different learning histories. This means that the social system is filled with diversity of knowledge and action. In an evolutionary framework, diversity is a key element in the selection process (the rough equivalent to nature's random mutation). This generation of diversity is necessarily sloppy. There will be errors and consequences will be felt. Nevertheless, as with any evolutionary process, the optimum will not be known beforehand and cannot be planned. Furthermore, in a diverse environment, there will not be a unique global optimum. Adjustments are unending.

The acquisition and transmission of knowledge (and thus rules of behavior) are social processes. We always rely on knowledge acquired by others including the technological advances pioneered by others. Even more fundamentally, our conception of what constitutes an adequate test of an idea and the standards for claiming that an idea or hypothesis is true, corroborated, verified or falsified are social. We often convince ourselves by what we would imagine will convince others.

Processes of adjustment and adaptation

Rules of perception as well as their associated rules of action incorporate expectations. Successful navigation in the world requires that expectations be tolerably correct. The perception of fire should correspond to actual fire; the avoidance of fire should correspond to actual avoidance. When this does not happen, the system of classifications adjusts. But since each agent is at least loosely tied to her history there is no direct impression of reality upon the mind. This is a practical aspect of Hayek's rejection of the correspondence theory. New neural pathways must be substituted for the old.Footnote ⁷ This takes time. The rational expectations approach, on the other hand, completely abstracts from the psychology of expectation, the partial and incomplete nature of knowledge, and usually agent diversity as well.

There is no clear distinction between short-run or even long-run processes of adjustment, on the one hand, and evolutionary change, on the other. The process of evolution is made up of a series of changes in time. The processes run into each other, so to speak. For Hayek in his Sensory Order framework, the emphasis is on evolutionary processes. Nevertheless, this should not be taken to mean that all processes of adaptation occur only over long stretches of time. Many rules are propensities to act in a class of ways that vary with current circumstances.Footnote ⁸ Perhaps the most important feature of evolutionary explanations is that they cannot rely on the representative agent to do all of the work. Evolution proceeds through diversity and selection. Diversity is almost inevitable in this framework because each agent has a different history of incomplete and partial knowledge. This means that expectations will differ. Some will turn out to be correct and others incorrect.

The analogy between mind and market

For Hayek, both the mind and market are complex adaptive systems (Lewis, Reference Lewis2017b, p. 13). The actions of individuals “are both constituents of complex systems (social, economic) and the result of the organization of a complex system (the nervous system)” (Weimer, Reference Weimer, Palermo and Weimer1982, pp. 241–42, emphasis added). The primary function of the mind is the classification and reclassification of its environment. In so doing, the mind induces actions that will themselves alter the circumstances of the individual and cause further reclassifications and adjustments. In markets, individuals may respond to changes by altering what they believe are marketable goods, appropriate selling strategies, the prices that buyers are willing to pay, and so forth. These are all (re)classifications of the stimuli in the market. Many factors, including what the individual has personally learned in her history of market or other experience, will determine the nature of the (re)classifications – too many, it would seem, to be predictable at the individual level.

Moreover, the market itself will create new classifications, as an emergent property of the individual actions that comprise it. As a result of changes in the environment, individuals will change the prices they offer or demand, errors will be corrected and new prices, new products and new marketing strategies will emerge. The ways that people behave change because they are reconceiving, reinterpreting, reorganizing – that is, reclassifying – the data they receive. The aggregate result is not what any particular individual desires but the result of many interactions among the individuals.Footnote ⁹ Further interactions occur as individuals adjust their behavior to the classifications produced by the market. At some point, perhaps for a short time, if there are no major changes, individuals will settle into routines – classes of responses to classes of market inputs. This is not to say, however, that either the mind or the market are equilibrium systems. They are in a continual (and continuous) state of active adaptation.

The logic of choice

The Sensory Order emphasizes the role of rules in both perception and decision-making. But what does this mean for the “pure logic of choice” or models of utility maximization under constraints? Hayek nowhere discards that logical structure in view of his psychological theory. In a series of lectures delivered in 1961, 10 years after the publication of The Sensory Order, Hayek (Reference Hayek and Caldwell[1961] 2014) embarked on a “new look” at economic theory. We have not, however, been able to detect any important psychological insights in his new look at the economic calculus.

Hayek says that we are both rule-following and purpose-seeking. The decisions of individuals are the result of both. Rules “determine or limit the range of possibilities within which we choose consciously” (Hayek, [1962] Reference Hayek and Caldwell2014, p. 246). Thus rules will exclude certain decisions.Footnote ¹⁰ The overlapping or superimposition of many rules may exclude more and more. Nevertheless, there will be a core of conscious weighing of costs and benefits characterizable by the logic of choice.

The excluding aspect of unconscious rules may take the form of a delimited range of attention. Some options will not occur to individuals. Some means of attaining the options that do occur may not be visible to the individual. Importantly, these are not simply instances of what economists normally call imperfect knowledge. They are “unknown unknowns.” Unconscious rules that exclude are not recognized as excluding in specific cases. “Thus even decisions which have been carefully considered will be in part determined by rules of which the acting person is not aware” (id., p. 246–7).

This implies that when economists model individual decisions in terms of utility maximization under constraints, they are modeling only an aspect of the decision process. Neither the calculations people make nor the unconscious rules they follow are individually sufficient to determine choices ex ante. It is the complex interplay between unconscious rules and calculation during the decision process that will lead to certain choice outcomes. In many cases, this means that economists cannot predict precisely what the outcome of this process will be.

The exclusions created by unconscious rules are not necessarily sources of error in view of a realistic individual psychology. Attention cannot be unlimited; by definition, it must be focused. To focus is to exclude. What is useful to exclude will depend on individual external circumstances, interests, and even age, sex and status (Hayek, [1967] Reference Hayek and Caldwell2014, p. 280). Memory of previous similar, successful decisions will also play an important role. In this sense, the “rationality” of individual choice is always a bounded rationality, that is purpose-seeking is bounded by unconscious rules. Bounded rationality thus understood is not primarily associated with agents' limited cognitive abilities or willpower. Instead, it emphasizes the functionality of cognitive boundedness since unconscious rules are the result of adaptive processes of selection-by-consequences (see Section “Primacy of the abstract”). Of course, such processes can lead to rules that are at times maladapted to current choice problems. But such maladaptations tend to be temporary since short-term individual-level learning counters maladaptations, particularly if the costs of errors are high.Footnote ¹¹

Meaning: interpersonal and contextual

A fundamental element in the transmission of knowledge is communication. Communication in turn requires understanding the meaning other people attach to their actions. How can we interpret the meanings of other individuals? This would appear to be especially challenging because different people have different perspectives and (partial) knowledge and are situated differently. Hayek's answer is that we can understand other people insofar as they follow the same rules of perception and behavior. Since these rules are abstract, they can accommodate different factual circumstances and contexts. We have common needs and desires and in a common culture similar means of satisfying them.Footnote ¹²

The Weberian idea of Verstehende Soziologie is given a basis by Hayek's psychology.Footnote ¹³ We – both analysts and agents as well – can understand the meaning of the actions of others in an intuitive way because or insofar as we follow the same unconscious rules, we recognize their behavior. Clearly, in everyday life, we do not have the cognitive resources to subject all actions of others to explicit analysis. “Intuition” is not to be denigrated as necessarily sloppy thought. It is part of our economy of mind.

For Hayek, the meaning individuals give a particular situation follows the logic of acquired mental categories (“the primacy of the abstract”) and is an essential prerequisite for making sense of the particular. Individuals' interpretation of a novel situation necessarily relies on existing mental categories that sort situations in types or classes which have been acquired (largely unconsciously) over the course of their lives.Footnote ¹⁴ The mind associates certain rules of behavior with a certain class of situations based on successful patterns of action of the past.Footnote ¹⁵

To know what to do in a decision situation or social interaction, the first question that arises in an individual's mind is: what does this situation mean to me? The answer to this question depends on what abstract class (or classes) of situations this particular situation “activates” in the individual's mind. If the individual recognizes the situation as an instantiation of a well-specified class, the meaning and consequently the required action will be straightforward.

An example would be the well-known kindergarten study by Gneezy and Rustichini (Reference Gneezy and Rustichini2000). In this study of daycare centers in Israel, a fine was introduced for parents who would pick up their children late (the price of lateness went from 0 to 10 Israeli shekels which was about $3 at the time). The intended goal of the intervention was to incentivize parents to come on time so that the kindergarten teachers would not have to work extra hours. From a standard economic perspective, the study revealed two surprising findings. One, the number of parents who picked up their children late increased after the fine was introduced (the frequency of late pick-ups doubled). And, two, when the fine was removed after a 12-week period, the number of late pick-ups remained higher than it was at baseline before the intervention. How to explain this puzzling finding? Standard economics suggests that the higher the price of a “good” (here, the late pick-up of your child), the less people demand it. But this logic cannot explain why the pick-ups remained high when the price dropped.

If we acknowledge that incentives (such as fines) come with a meaning, the observed behavioral pattern might be quite reasonable. Before the fine was introduced, most parents were on time because they classified the interaction as one of “ethical obligation” or “reciprocal responsibility”. Yet, when the fine was introduced, the situation was reclassified in the subjects’ minds (at least of some parents). Now the interaction was classified as a “market transaction”. Lateness was given a price and so it could be purchased, like bread or beer. This explains why some people opted to buy more of the good “take care of my kids.” Since the number of late pick-ups remained high even though the fine was removed, it is reasonable to assume that the reclassification of the situation in the subjects' minds was permanent. In this example, the rationality of individuals might be questioned as they appear to violate the fundamental law of demand. But this is an illusion because once the individuals' meaning of the context is established, we see that their behavior does respond to incentives and is quite reasonable. The determination of meaning must come before the ascertainment of rationality.

This discussion also offers some important insights for the interpretation of laboratory experiments in economics. Let's consider the ubiquitously analyzed dictator game where one player (the dictator) is given an amount of money X (the endowment) that she can fully keep for herself or give an amount Y ≤ X to another player (the recipient). In real experiments, the dictator gives on average 20–30% of the endowment to the recipient. Standard interpretations of these findings in economics treat people as purely purpose-seeking, i.e., individuals are modeled as agents that optimize a utility function subject to constraints. Since dictators are observed to give a substantial amount of their endowment to recipients, it is now common in behavioral economics to introduce other people's attainment y (one purpose) besides the agents' own payoff x (another purpose) into their utility functions, i.e., u _i(x, y).

While this standard approach adds some realism to how economists model individual behavior, it still has limitations. For instance, how can this approach explain that individuals become less generous in dictator games (and other laboratory experiments) the more experience they have with such experiments (Arechar and Rand, Reference Arechar and Rand2022)? Does this mean that people's utility functions change? For an explanation of such findings, we should ask what meaning do the experimental subjects actually give to the game. This simple question can lead to interesting insights (Kimbrough, Reference Kimbrough, D'Amico and Martin2022): for instance, one might find that the first time a subject is introduced to the highly abstract dictator game, he recognizes it as belonging to a class of situations called “windfall gains”; this activates the internalized rule that gains, which are not the result of one's own effort, are to be shared. Yet, as individuals play this game more often, they do not rely on an acquired decision rule anymore. Instead, they learn to classify the situation as its own distinct type of interaction with its own rules. The acquired “windfall rule” no longer applies; the laboratory situation is now “just a game” in which the rule is to “win”.

Note that this approach starts with an explicit acknowledgment that laboratory games are artificial and unfamiliar settings in which the mind relies on analogies to give available choices their meaning. Moreover, it does not think of subjects as purely purpose-seeking, but also as rule-following agents. We think Hargreaves Heap (Reference Hargreaves Heap, D'Amico and Martin2022, p. 56) is right in arguing that “[people] come to the lab with a repertoire of decision rules that they frequently use outside the lab, and the lab experiment is (potentially) a device for eliciting the character of these rules.” Interestingly, since this means that experiments reveal actually existing decision rules, the Hayekian approach can be seen as defending the external validity of experiments. This is the case at least when experimenters focus their attention on the detection of heuristics (understood as ecological adaptations to similar real-life situations) and they do so before individuals learn to classify the lab game as its own distinct type of interaction.

A general take-away is that Hayek's economic psychology does not reduce the interpretation of experiments to “observed behavior” but tries to understand the meaning individuals give to lab games and the decision rules that a particular decision situation activates. In other words, it requires experimental economists “to listen more carefully” to their subjects. This approach might require the inclusion of some non-traditional research methods into economic experiments, such as analyzing what people type in chat boxes during the experiment or what they say after the experiment when they ask the experimenters what the latter were “getting at.” It is often surprising to see how interested subjects are in finding out what the “intended meaning” of a certain experiment is (Kimbrough, Reference Kimbrough, D'Amico and Martin2022, p. 44).

External representation

While Hayekian psychology explains the acquisition and use of decision rules on the individual level, many rules do not strictly exist in the individual mind but are instead “stored” externally in an individuals' social environment in the form of “thought aids” or “cognitive institutions” (Dekker, Reference Dekker, D'Amico and Martin2022). This insight helps explain the puzzle of how individuals manage to achieve their tasks and coordinate their activities reasonably well given their limited cognitive abilities. Although individuals are bounded in their rationality, they can make reasonably good decisions in interaction with their social environment.

In his earlier writings, Hayek (Reference Hayek and Caldwell1937, Reference Hayek1945) stresses the cognitive function of the price mechanism. Prices act as “aids to the mind” that enable “society to engage in far more complex methods of production than could be deliberately planned by a single mind” (Lavoie, Reference Lavoie1985, p. 180). The price system works “as a kind of machinery for registering change” (Hayek, Reference Hayek1945, p. 527): prices communicate dispersed knowledge about the relative scarcity of a particular local resource. If the price increases, market participants can infer that it has become scarcer; yet, they do not need to know the cause of it, or how the resource is used on different markets. In being cognitively frugal, prices allow market participants to focus their limited mental powers on relevant features of the market process. Prices as are thus an essential part of the cognitive system that allows “rational” action and coordination to take place (Hayek, Reference Hayek and Caldwell1937, Reference Hayek1945).Footnote ¹⁶ This insight on the cognitive function of the price system leads Hayek to make a more general point: “We make constant use of formulas, symbols and rules whose meaning we do not understand and through the use of which we avail ourselves of the assistance of knowledge which individually we do not possess” (Hayek, Reference Hayek1945, p. 528, emphasis added).

Hayek's account is compatible with the idea of “distributed cognition” in psychology (Dekker and Remic, Reference Dekker and Remic2019, p. 297; Fleetwood, Reference Fleetwood1996, p. 742).Footnote ¹⁷ In this approach, cognition is not understood as a single (internal) representation of the mind. Instead, it starts from the idea that the social environment is itself part of the extended cognitive structure of individuals. The “formulas, symbols and rules” we rely on when making decisions are called external representations (Zhang, Reference Zhang1991). Individuals “off-load” cognition to those external representations by using and modifying the environment (Hollan et al., Reference Hollan, Hutchins and Kirsh2000).Footnote ¹⁸ Simple examples would be house numbers, street names or a GPS in a car. Individuals “plug into” the cognitive system of these external representations when reading off its informational signals and they contribute to their ongoing functionings, e.g., by visibly numbering their houses or agreeing to share their data with the GPS provider. Other forms of external representation aid the individual in getting cognitive input from others. When an individual writes down an idea or model, others can see inside her mind, so to speak, and give her feedback. This will tend to expand the effective cognitive capacity of the individual. In the market context, product categories and reference points such as exemplary goods can be external representations that emerge from the interaction among market participants (Dekker, Reference Dekker, D'Amico and Martin2022). They enhance the ability to recognize relevant differences and similarities between goods. Thus, they are ways for market participants to reduce complexity and deal with uncertainty.

Taken together, Hayek's approach goes beyond the recognition of prices as “thought aids” and stresses other cognitive institutions that function as an “extended mind” and facilitate the quality of the market process. In this sense, his approach is far less individualistic than the heuristics-and-biases approach in behavioral economics in that it highlights the distributed and social nature of the cognitive processes.

Institutional individualism

The distributed cognition view laid out in the previous section challenges methodological individualism in economics. Commentators have noted that Hayek's approach is indeed not well described or fully captured by the term “methodological individualism.”Footnote ¹⁹ Methodological individualism often means that social phenomena can be explained in terms of the actions and ends of isolated, atomistic individuals. Methodological holists, on the other hand, argue that society is more than merely a collection of individuals; individual ends and decisions are created and constrained by social forces and subject to conformity.

From our discussion so far, it should have become obvious that the Hayekian approach is not captured fully by either of those two positions. Following Agassi (Reference Agassi1975), Hayekian psychological economics can instead be characterized as “institutional individualism.” While Hayek attributes an important role to individual action in explaining social outcomes (e.g., his economics emphasizes that the interplay between individual actions leads to unintended social outcomes), his psychology does not assume self-contained individuals whose properties (including their preferences and beliefs) are fixed independent of their social environment (Lewis, Reference Lewis2005, p. 297). Instead, Hayek conceptualizes the individual as a thoroughly social being whose mind is profoundly shaped by social structures, such as rules, traditions and institutions (Dold and Lewis, Reference Dold and Lewis2022).

Contrary to a “pure” individualism, a Hayekian position is institutionalist in that it suggests that certain social entities exist and are of primary importance to the social sciences. Examples for social entities are “customs”, “tradition” or “culture.” These social entities are wholes which cannot be described as merely collections of the individuals who happen to partake in them. But a Hayekian position is still individualist: While it acknowledges that “wholes”, such as social groups and institutions do exist, it does not ascribe them any distinct interests. Social groups and institutions have aims and interests only when people act in accord with what they consider should be their aim or interest. Following Agassi (Reference Agassi1960, p. 267), the defining characteristic of such an institutional individualism lies in its premise that “institutions mold character and character transforms institutions.” Contrary to methodological individualism where social institutions appear only in the explanandum or as the outcome of individual actions, in institutional individualism, social institutions can also appear in the explanans, and be therefore part of the explanation of individual actions (Udehn Reference Udehn2002, p. 489). In Hayek’s account, the individual and society are taken as primary; the individual is affected by society, and vice versa. Social scientists should not reduce psychology into sociology nor reduce sociology into psychology.

Prediction

Hayek makes clear that the theory advanced in The Sensory Order does not aim at “fully explaining any particular mental act” ([1952] Reference Hayek and Vanberg2017, p. 165). Crucially, Hayek argues that our limited ability to provide a causal theory of the mind translates into a limited ability to predict human behavior. Hayek emphasizes that “it will never be possible for us to explain or predict … why the human mind under certain circumstances will lead us to certain actions rather than to others” ([1949] Reference Hayek and Vanberg2017, p. 358).

Both the organized complexity of the mind and of the market, as well as the diversity of the units comprising each, means that the explanation and prediction of such systems must remain general. There are a large number of interrelated variables that are also different from one another and thus may not behave in the same way in their interactions. Therefore, Hayek and his expositors say that in the context of complex systems, the scientist is restricted to “explanations of the principle” and “pattern predictions” ([1952] Reference Hayek and Vanberg2017, p. 173).Footnote ²⁰ Nevertheless, it is often unclear what precisely these terms mean.

Frydman and Goldberg (Reference Frydman and Goldberg2007) discuss models that fit Hayek's description of pattern prediction or explanation of the principle. We present here simplified versions of two models.

Suppose we have a causal model like this:

$$y_0 = a_0 + b_0x_0$$

We first allow for a change in the causal structure that is predetermined such that the changes a ₁ − a ₀, b ₁ − b ₀, are set equal to particular values $\bar{A}_{10}$ and $\bar{B}_{10}$. Such a model makes definite or sharp predictions of the outcome variable y. On the other hand, we could allow for those changes in the structure that preserve the initial monotonic relationship between the causal and outcome variables.Footnote ²¹ This means that $\bar{A}_{10}$ and $\bar{B}_{10}$ can take on a number of values such that an increase (decrease) in x is followed by an increase (decrease) in y. This simple model of a not-fully predetermined change in structure implies a pattern prediction. A change in x will be consistent with many changes in y but all of these will be of the same sign as x.

Less abstractly and more to the point of Hayek's psychological economics, we consider changes in expectations of forecasting. Consider a supply and demand analysis where an increase in one of the standard causal variables (say, income) creates excess demand for the good. Suppose this excess demand causes individuals to change their forecasting strategy for the next period's price. In the absence of a fully predetermined change in forecasting strategy, no one will know what the individuals' expected price will be for the next period. Thus, no one will be able to predict the new equilibrium price. However, if we can say something modest about the new strategy, that is, that the forecast will move in the same direction as the excess demand-driven temporary price, but by less than one-to-one, there will be many forecast revision paths. All of the demand paths will be negatively sloped. These will also all produce a higher price and a higher quantity supplied. However, the price or quantity will be underdetermined. Consequently, the model predicts the pattern of the new equilibrium but not its specific features.