Arbitrage and knowledge
Published online: 14 May 2009
Springer Science + Business Media, LLC 2009
Abstract I investigate in depth the contemporary, nation-wide arbitrage phenome-
non of copper penny hoarding. While penny hoarding represents a “pure arbitrage”
opportunity, it also clearly demonstrates the knowledge problems that face those
entrepreneurs who are fully informed about intra-market price differences. This
paper contrasts the Neoclassical and Austrian views on the role of information and
knowledge in arbitrage, emphasizing the greater depth in understanding to be gained
from the knowledge-based Austrian approach, as opposed to the information-based
Wesley: Now, there may be problems once we’re inside.
Inigo: I’ll say. How do I find the count? Once I do, how do I find you again?
Once I find you again, how do I escape?
Fezzig: Don’t pester him, he’s had a hard day.
-from the motion picture The Princess Bride; exchange
among the three heroes of the story as they prepare to
infiltrate the villain’s castle.
1 The how of the market process
Both Neoclassical and Austrian economic theory predict that arbitrage opportunities
won’t long prevail on the market. If a particular commodity trades at different prices
Rev Austrian Econ (2010) 23:79–96
T. Watts (*)
Department of Economics, George Mason University, MSN 3G4, Fairfax, VA 22030, USA