This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (November 2008)

The knowledge economy is a term that refers either to an economy of knowledge focused on the production and management of knowledge in the frame of economic constraints, or to a knowledge-based economy. In the second meaning, more frequently used, it refers to the use of knowledge technologies (such as knowledge engineering and knowledge management) to produce economic benefits as well as job creation. The phrase was popularized by Peter Drucker as the title of Chapter 12 in his book The Age of Discontinuity, And, with a footnote in the text, Drucker attributes the phrase to economist Fritz Machlup and its origins to the idea of "scientific management" developed by Frederick Winslow Taylor.^[1]

The essential difference is that in a knowledge economy, knowledge is a product, while in a knowledge-based economy, knowledge is a tool. This difference is not yet well distinguished in the subject matter literature. They both are strongly interdisciplinary, involving economists, computer scientists, engineers, mathematicians, librarians, geographers, chemists and physicists, as well as cognitivists, psychologists and sociologists.

Various observers describe today's global economy as one in transition to a "knowledge economy," as an extension of an "information society." The transition requires that the rules and practices that determined success in the industrial economy need rewriting in an interconnected, globalized economy where knowledge resources such as know-how and expertise are as critical as other economic resources. According to analysts of the "knowledge economy," these rules need to be rewritten at the levels of firms and industries in terms of knowledge management and at the level of public policy as knowledge policy or knowledge-related policy.^{[citation needed]}

Concepts[link]

A key concept of the knowledge economy is that knowledge and education (often referred to as "human capital") can be treated as one of the following two:

• A business product, as educational and innovative intellectual products and services can be exported for a high value return.
• A productive asset

It can be defined as

" The concept that supports creation of knowledge by organizational employees and helps and encourages them to transfer and better utilize their knowledge that is in line with company/organization goals "

The initial foundation for the Knowledge Economy was first introduced in 1966 in the book The Effective Executive by Peter Drucker. In this book, Drucker described the difference between the manual worker (page 2) and the knowledge worker. The manual worker, according to him, works with his hands and produces goods or services. In contrast, a knowledge worker (page 3) works with his or her head not hands, and produces ideas, knowledge, and information.

The key problem in the formalization and modeling of knowledge economy, is a vague definition of knowledge, which is a rather relative concept. For example, it is not proper to consider information society as interchangeable with knowledge society. Information is usually not equivalent to knowledge. Their use, as well, depends on individual and group preferences (see the cognitive IPK model) – which are "economy-dependent".^[2]

Definition[link]

To participate in the knowledge economy trade^[3] the World Bank provides four core requirements^[4] in their Knowledge Assessment Methodology that a country must have. The World Bank defines the requirements as having sound institutional and economic regime, education system, and telecommunications infrastructure, and an Innovative System.^[5][6]

Evolution[link]

The knowledge economy is also seen as the latest stage of development in global economic restructuring. Thus far, the developed world has transitioned from an agricultural economy (pre-Industrial Age, largely the agrarian sector) to industrial economy (with the Industrial Age, largely the manufacturing sector) to post-industrial/mass production economy (mid-1900s, largely the service sector) to knowledge economy (late 1900s – 2000s, largely the technology/human capital sector). This latest stage has been marked by the upheavals in technological innovations and the globally competitive need for innovation with new products and processes that develop from the research community (i.e., R&D factors, universities, labs, educational institutes).

In the knowledge economy, the specialized labor force is characterized as computer literate and well-trained in handling data, developing algorithms and simulated models, and innovating on processes and systems. Harvard Business School Professor, Michael Porter asserts that today’s economy is far more dynamic and that comparative advantage is less relevant than competitive advantage which rests on “making more productive use of inputs, which requires continual innovation.”^[7] Consequently, the technical, STEM careers including computer scientists, engineers, chemists, biologists, mathematicians, and scientific inventors will see continuous demand in years to come. Additionally, well-situated clusters, which Michael Porter argues is vital in global economies, connect locally with linked industries, manufacturers, and other entities that are related by skills, technologies, and other common inputs. Hence, knowledge is the catalyst and connective tissue in modern economies.

With earth’s depleting natural resources, the need for green infrastructure, a logistics industry forced into just-in-time deliveries, growing global demand, regulatory policy governed by performance results, and a host of other items high priority is put on knowledge; and research becomes paramount. Knowledge provides the technical expertise, problem-solving, performance measurement and evaluation, and data management needed for the transboundary, interdisciplinary global scale of today’s competition.^[8]

Worldwide examples of the knowledge economy taking place among many others include: Silicon Valley in California; aerospace and automotive engineering in Munich, Germany; biotechnology in Hyderabad, India; electronics and digital media in Seoul, South Korea; petrochemical and energy industry in Brazil.

Driving forces[link]

Commentators suggest there are various interlocking driving forces, which are changing the rules of business and national competitiveness:

• Globalization — markets and products are more global.
• Information technology, which is related to next three:
  • Information/Knowledge Intensity — efficient production relies on information and know-how; over 70 per cent of workers in developed economies are information workers;^{[citation needed]} many factory workers use their heads more than their hands.
  • New Media – New media increases the production and distribution of knowledge which in turn, results in collective intelligence. Existing knowledge becomes much easier to access as a result of networked data-bases which promote online interaction between users and producers.
  • Computer networking and Connectivity – developments such as the Internet bring the "global village" ever nearer.

As a result, goods and services can be developed, bought, sold, and in many cases even delivered over electronic networks.

As regards the applications of any new technology, this depends on how it meets economic demand. It can remain dormant or make a commercial breakthrough (see diffusion of innovation).

Characteristics[link]

It can be argued that the knowledge economy differs from the traditional economy in several key respects:

• The economics are not of scarcity, but rather of abundance. Unlike most resources that become depleted when used, information and knowledge can be shared, and actually grow through application.
• The effect of location is either
  • diminished, in some economic activities: using appropriate technology and methods, virtual marketplaces and virtual organizations that offer benefits of speed, agility, round the clock operation and global reach can be created.
  • or, on the contrary, reinforced in some other economic fields, by the creation of business clusters around centres of knowledge, such as universities and research centres. However, clusters already existed in pre-knowledge economy times.
• Laws, barriers, taxes and ways to measure are difficult to apply solely on a national basis. Knowledge and information "leak" to where demand is highest and the barriers are lowest.
• Knowledge enhanced products or services can command price premiums over comparable products with low embedded knowledge or knowledge intensity.
• Pricing and value depends heavily on context. Thus the same information or knowledge can have vastly different value to different people, or even to the same person at different times.
• Knowledge when locked into systems or processes has higher inherent value than when it can "walk out of the door" in people's heads.
• Human capital — competencies — are a key component of value in a knowledge-based company, yet few companies report competency levels in annual reports. In contrast, downsizing is often seen as a positive "cost cutting" measure.
• Communication is increasingly being seen as fundamental to knowledge flows. Social structures, cultural context and other factors influencing social relations are therefore of fundamental importance to knowledge economies.

These characteristics require new ideas and approaches from policy makers, managers and knowledge workers.

The knowledge economy has manifold forms in which it may appear but there are predictions that the new economy will extend radically, creating a pattern in which even ideas will be recognised and identified as a commodity. This certainly is not the best time to make any hasty judgment on this contention, but considering the very nature of 'knowledge' itself, added to the fact that it is the thrust of this new form of economy, there certainly is a clear way forward for this notion, though the particulars (i.e. the quantum of the revolutionary approach and its applicability and commercial value),remain in the speculative realm, as of now.

Technology[link]

The technology requirements for an Innovative System as described by the World Bank Institute must be able to disseminate a unified process by which a working method may converge scientific and technology solutions, and organizational solutions.^[9] According to the World Bank Institute‘s definition, such innovation would further enable the World Bank Institute‘s vision outlined in their Millennium Development Goals.

Challenges for Developing Countries[link]

The United Nations Commission on Science and Technology for Development report (UNCSTD, 1997)^[10] concluded that for developing countries to successfully integrate ICTs and sustainable development in order to participate in the knowledge economy they need to intervene collectively and strategically. Such collective intervention suggested would be in the development of effective national ICT policies that support the new regulatory framework, promote the selected knowledge production, and use of ICTs and harness their organizational changes to be in line with the Millennium Development Goals. The report further suggests that developing countries to develop the required ICT strategies and policies for institutions and regulations taking into account the need to be responsive to the issues of convergence.

See also[link]

References[link]

Bibliography[link]

• Arthur, W. B. (1996). Increasing Returns and the New World of Business. Harvard Business Review(July/August), 100–109.
• Bell, D. (1974). The Coming of Post-Industrial Society: A Venture in Social Forecasting. London: Heinemann.
• Drucker, P. (1969). The Age of Discontinuity; Guidelines to Our changing Society. New York: Harper and Row.
• Drucker, P. (1993). Post-Capitalist Society. Oxford: Butterworth Heinemann.
• Machlup, F. (1962). The Production and Distribution of Knowledge in the United States. Princeton: Princeton University Press.
• Porter, M. E. Clusters and the New Economics of Competition. Harvard Business Review. (Nov-Dec 1998). 77-90.
• Romer, P. M. (1986). Increasing Returns and Long-Run Growth. Journal of Political Economy, 94(5), 1002–1037.
• Rooney, D., Hearn, G., Mandeville, T., & Joseph, R. (2003). Public Policy in Knowledge-Based Economies: Foundations and Frameworks. Cheltenham: Edward Elgar.
• Rooney, D., Hearn, G., & Ninan, A. (2005). Handbook on the Knowledge Economy. Cheltenham: Edward Elgar.
• The Brookings Institution. MetroPolicy: Shaping A New Federal Partnership for a Metropolitan Nation. Metropolitan Policy Program Report. (2008). 4-103.

External links[link]

• Knowledge for Development Program, World Bank
• Colloquium
• IS-Driven Organizational Responsiveness in a Knowledge Economy
• Public Service Modernization Act – Canada
• MTI
• EnterWeb
• Legal and Regulatory Issues in the Information Economy (Wikibook)
• BOOK: The Knowledge-Based Economy in Central and East European Countries
• Recent book: Knowledge and innovation processes in Central and East European economies
• The Work Foundation Knowledge Economy Programme
• Knowledge Economy in Farsi/Persian
• Pacioli Institute for a true and fair view of the knowledge-based economy

Dan Ariely

Dan Ariely speaking at TED, 2009
Born	(1968-04-29) April 29, 1968 (age 44)
Nationality	Israeli American
Institution	Duke University Massachusetts Institute of Technology
Field	Behavioral economics
Alma mater	Duke University University of North Carolina Tel Aviv University

Dan Ariely (born April 29, 1968) is an Israeli American professor of psychology and behavioral economics.^[1] He teaches at Duke University and is the founder of The Center for Advanced Hindsight.^[2]Ariely's talks on TED have been watched 2.8 million times. He is the author of Predictably Irrational and The Upside of Irrationality, both of which became New York Times best sellers.^[3]

Biography[link]

Dan Ariely was born in New York while his father was studying for an MBA degree at Columbia University. The family returned to Israel when he was three. He grew up in Ramat Hasharon. ^[4] In his senior year of high school, he was active in Hanoar Haoved Vehalomed, an Israeli youth movement. While preparing a ktovet esh (fire inscription) for a traditional nighttime ceremony, the flammable materials he was mixing exploded, causing third-degree burns over 70 percent of his body. ^[5]

Ariely was a physics and mathematics major at Tel Aviv University, but transferred to philosophy and psychology when he found the writing too physically taxing. However, in his last year he dropped philosophy and concentrated solely on psychology, in which he received his B.A. He also holds an M.A. and Ph.D. in cognitive psychology from the University of North Carolina at Chapel Hill. He did a second doctorate in business administration at Duke University at the urging of Nobel economic sciences laureate Daniel Kahneman.^[6]

Ariely is married to Sumi, with whom he has two children, a son and a daughter.^[7]

Academic career[link]

After obtaining his PhD degree, he taught at MIT between 1998 and 2008, before returning to Duke University as James B. Duke Professor of Psychology and Behavioral Economics. He was formerly the Alfred P. Sloan Professor of Behavioral Economics at MIT Sloan School of Management. Although he is a professor of marketing with no formal training in economics, he is considered one of the leading behavioral economists. Ariely is the author of the books Predictably Irrational: The Hidden Forces That Shape Our Decisions and The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home. When asked whether reading Predictably Irrational and understanding one's irrational behaviors could make a person's life worse (such as by defeating the benefits of a placebo), Ariely responded that there could be a short term cost, but that there would also likely be long-term benefits, and that reading his book would not make a person worse off.^[8]

Center of Advanced Hindsight[link]

Ariely's laboratory, the Center of Advanced Hindsight at Duke University, pursues research in such subjects as the psychology of money, decision-making by physicians and patients, cheating and social justice.^[9]

Publications[link]

Books[link]

• Ariely, Dan (2008), Predictably Irrational: The Hidden Forces That Shape Our Decisions, HarperCollins, pp. 304, ISBN 978-0-06-135323-9 
• Ariely, Dan (2010), The Upside of Irrationality, HarperCollins, pp. 352, ISBN 978-0-06-199503-3 

Articles[link]

• Ariely, Dan; Zauberman, Gal (2000), "On the making of an experience: The effects of breaking and combining experiences on their overall evaluation", Journal of Behavioral Decision Making 13 (2): 219–232, DOI:10.1002/(SICI)1099-0771(200004/06)13:2<219::AID-BDM331>3.0.CO;2-P, http://web.mit.edu/ariely/www/MIT/Papers/expseg.pdf 
• Combining experiences over time: the effects of duration, intensity changes and on-line measurements on retrospective pain evaluations
• Coherent Arbitrariness: Stable demand curves without stable preferences
• Ariely, Dan (2000), "Controlling information flow: Effects on consumers' decision making and preference", Journal of Consumer Research 27 (2): 233–248, DOI:10.1086/314322, http://www.journals.uchicago.edu/cgi-bin/resolve?id=doi:10.1086/314322 
• Ariely, Dan; Wertenbroch, Klaus (2002), "Procrastination, Deadlines, and Performance: Self-Control by Precommitment", Psychological Science 13 (3): 219–224, DOI:10.1111/1467-9280.00441, PMID 12009041, http://web.mit.edu/ariely/www/MIT/Papers/deadlines.pdf 
• Heyman, James; Ariely, Dan (2004), "Effort for Payment: A Tale of Two markets", Psychological Science 15 (11): 787–793(7), DOI:10.1111/j.0956-7976.2004.00757.x, PMID 15482452, http://web.mit.edu/ariely/www/MIT/Papers/2markets.pdf 
• Tom Sawyer and the Construction of Value
• Placebo Effects of Marketing Actions: Consumers May Get What They Pay For
• Dishonesty in Everyday Life and Its Policy Implications
• Try it, you'll like it: The influence of expectation, consumption, and revelation on preferences for beer

See also[link]

• Cognitive bias
• Procrastination

References[link]

External links[link]

• Official website
• Center for Advanced Hindsight
• Ariely's MIT home page
• Ariely's Duke University faculty listing
• Learning First Alliance interview with Ariely
• Interview with Dan Ariely
• 33voices Interview with Dan Ariely