However, we find at least as often,
, that we should have done some-thing other than what we actually did. Other actions would have been prefer-able. We then think that we made the wrong choice, and say that we erred.This experience is, of course, familiar to all human beings. There is some-thing like “right choice” (correct judgment, success), as opposed to “wrongchoice” (error, failure), and it is meaningful to distinguish between them, forour subjective beliefs about the world do not always reflect the world as itreally is.This distinction is also reflected in the vocabulary of price theory. Econo-mists have traditionally distinguished “market prices,” established as a conse-quence of
deliberations, from “right” prices (or natural prices, equilib-rium prices, etc.). The former does not necessarily coincide with the latter.Market prices can be equilibrium prices, yet can also be—and are indeed mostlikely— disequilibrium prices, because of the ubiquity of error.Error has many psychological faces that are difficult to grasp in exactterms. We call them whims, fancies, follies, greed, jealousy, illusion, etc. How-ever, the economic aspect of error can be precisely circumscribed. Error isconstituted by the fact that a person chooses to pursue a project that is lessimportant for him than another project he could have pursued, but did notbecause of that very choice. In short, error is the failure of the choosing personto select the project most important for him. This point is not only commonsense, but, as we have just seen, is rooted in praxeological bedrock—namely, inthe fact that both success and failure are contained as possibilities in humanchoice. Not surprisingly, therefore, the distinction between success and failureis familiar to all equilibrium theories in economic science. And most of themeven rely on the assumption that, under any circumstances, there is a bestoption in comparison to which all others are worse. As Frank A. Fetter said, “inany given set of conditions there is a best proportion in which to combineagents.”
Now, the crucial fact that needs to be emphasized is that our distinction isdichotomous. All human actions are either successes or failures. Either we couldhave performed a more important action, or no better alternative was available.Hence, any possible choice is either right or wrong, any possible action either asuccess or a failure.
Fetter (1915, p. 130). Similarly, Hicks (1946, p. 255, n. 1) stated, about the assumptionthat the system of relative prices is uniquely determined: “If it is not justified anything mayhappen.” See also Menger (1883, app. 6), Knight (1956, p. 164), Hicks (1965, pp. 24, 41), Nash(1950, 1951), Hahn (1973, p. 7), and Harsanyi and Selten (1988). For the view that there areseveral or multiple equilibria, see, for example, Hildenbrand and Kirman (1988), Billot(1995), and Creedy and Martin (1994). We will deal with this latter view below.
A REALIST APPROACH TO EQUILIBRIUM ANALYSIS5