KNOWLEDGE CREATION AS A SQUARE DANCE ON THE HILBERT CUBE*

Surprisingly, in the general case for a large set of initial conditions, the equilibrium process of knowledge creation may converge to the most productive state, where the population splits into smaller groups of optimal size; close interaction takes place within each group only.

Abstract

This article presents a micromodel of knowledge creation through the interactions among a group of people. The model features myopic agents in a pure externality model of interaction. Surprisingly, for a large set of initial conditions we find that the equilibrium process of knowledge creation converges to the most productive state, where the population splits into smaller groups of optimal size; close interaction takes place within each group only. This optimal size is larger as heterogeneity of knowledge is more important in the knowledge production process. Equilibrium paths are found analytically; they are a discontinuous function of initial heterogeneity.