1. Schofield, Norman, Democratic Stability, inGoogle ScholarExplaining Social Institutions 192Google Scholar (Knight, Jack & Sened, Itai eds., 1995).Google Scholar

2. See Satz, Debra & Ferejohn, John, Rational Choice and Social Theory, 9102 J. Phil. 71–87 (1994)CrossRefGoogle Scholar, for an argument to the effect that as this complexity increases, traditional rational-choice theory becomes increasingly inadequate for the task of social explanation. While we share their concerns about the inadequacy of traditional theory, our primary task in this essay is to identify the social factors in non-market environments that facilitate choice and that should, therefore, be incorporated in theories of economic change.

3. See Johnson, James, Is Talk Really Cheap? Prompting Conversation Between Critical Theory and Rational Choice, 87 Am. Pol. Sci. Rev. 74–86 (1993)CrossRefGoogle Scholar, for an analysis of how game theoretic models in the social sciences have addressed the issue of beliefs and common knowledge.

4. Bicchieri, Christina, Rationality and Coordination 127 (1993).Google Scholar

5. Risk, , Uncertainty and Profit (1921).Google Scholar

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8. Heiner, Ronald, The Origins of Predictable Behavior, 73 Am. Econ. Rev. 560–95.Google Scholar

9. Douglass North, Institutions, Institutional Change and Economic Performance (1990)Google Scholar; Five Propositions about Institutional Change, in Explaining Social Institutions (Knight, Jack & Sened, Itai eds., 1995).Google Scholar

10. For critical analyses of the prevalent theories of institutional emergence and change, see Eggertsson, Thrainn, Economic Institutions and Behavior (1990)Google Scholar and Knight, Jack, Models, Interpretations and Theories: Constructing Explanations of Institutional Emergence and Change, inGoogle Scholar Explaining Social Institutions (Knight, Jack & Sened, Itai eds., 1995).Google Scholar

11. We ignore for present purposes other factors that can significantly alter the institutional effects on economic efficiency. Two of the most significant are the transaction costs of institutional change and the effects of distributional conflict over the nature of social institutions. See generally Knight, Jack, Institutions and Social Conflict (1992).Google Scholar

12. North, Institutions, Institutional Change and Economic Performance, supra note 9, at 8.Google Scholar

13. For a more general discussion of the relationship between mental models and economic institutions, see Denzau, Arthur & North, Douglass, Shared Mental Models Ideologies and Institutions, 47 Kyklos 3–31 (1994).CrossRefGoogle Scholar

14. North, supra note 12, at 16.Google Scholar

15. Id. at 17.

16. North, Five Propositions, supra note 9, at 17Google Scholar

17. Id. at 24.

18. Id. at 17.

19. North, supra note 12, at 20.Google Scholar

20. North, supra note 16, at 17.Google Scholar

21. Judgment Under Uncertainty: Heuristics and Biases (Kahneman, Daniel, Slovic, Paul & Tversky, Amos, eds., 1982).Google Scholar

22. Some might argue that a plausible interpretation of some versions of this conception is that it treats context as the source of content of our beliefs, somewhat similar to some variants of the alternative conception to be proposed. For reasons that we offer below, we believe that even on this interpretation this individualistic approach fails to capture adequately the interplay between cognition and social context

23. Here our focus is on existing work in the social sciences. There is an important body of work at the intersection of cognitive science and philosophy that develops an integrative approach to cognition and learning. See Clark, Andy, Economic Reason: The Interplay of Individual Learning and External Structure, inGoogle Scholar The Frontiers of the New Institutional Economics (Drobek, John N. & Nye, John V.C., eds.) (1997).Google Scholar

24. Hutchins, Edwin, Cognition In The Wild (1995).Google Scholar

25. Id. at 354.

26. Id. at xiii.

27. Id. at xiv.

28. Limitations of space prevent us from giving greater attention to the related research of Roy D' Andrade, who offers an account that gives special emphasis to the role of culture in providing the substantive content of individual beliefs: “my own solution is to use the term culture to characterize the entire content of a group's heritage…and to try to be specific when talking about things cultural, specifying cultural schemas or understanding as against material culture, cultural practices, cultural talk, etc.” The Development of Cognitive Anthropology 146 (1995)Google Scholar.

D' Andrade bases his anthropology on a conception of individual cognition that is grounded in the logic of parallel-processing. Relying on the idea that the brain works according to the logic of connectionist networks, he envisions cognition as a building-block process, with schema (“the organization of cognitive elements into an abstract mental object capable of being held in memory with default values or open slots which can be variously filled in with appropriate specifics”) as the basic elements of that process (at 179). On this account the substantive content of culture (e.g., symbols) works on the schema in the process of cognition to build knowledge. The schema serve as simple models in the reasoning process: “[a] model consists of an interrelated set of elements which fit together to represent something. Typically one uses a model to reason with or calculate from by mentally manipulating the parts of the model in order to solve some problem” (at 151).

29. Id. at 49.

30. Id. at 280.

31. Hutchins, , supra note 24, at 128–29.Google Scholar

32. Id.

33. Id. at 289.

34. Id. at 316.

35. Id. at 185.

36. Id. at 228.

37. Id. at 240.

38. Id. at 354.

39. Id. at 374.

40. Id. at 178.

41. Id. at 177–78.

42. Unfortunately, Hutchins' account and that of other cultural anthropologists who research these questions do not yet provide an adequate theory for explaining cultural variation. His emphasis on the problem-solving character of culture reflects a basic functionalist logic: The content and structure of a society's cultural heritage is explained by how it solves the basic problems that the society faces. But Hutchins' reliance on functionalism to explain the content of culture raises questions about his ability to shed light adequately on economic performance. To see this, consider a question of the relative efficiency of two different societies. How will Hutchins' functionalism account for the necessary variation in the content of the institutional rules across these societies? He might account for it in terms of differences in the prior functional requirements of the two societies. But to attempt such an argument requires evidence of societal diversity that is usually lacking in such functional accounts.

Or he might follow the lead of D'Andrade, who similarly invokes functionalism to explain cultural content. D'Andrade attempts to explain intrasociety diversity in cultural knowledge through differences in cultural transmission: “The difficulties in cultural transmission and formation of various kinds of subgroups also create variation within a culture…. The result is that the cultural heritage tends to divide into two parts—one part a high consensus code which everyone is expected to share; the other a proliferating number of distributed knowledge systems. The issue is not ‘how shared is culture’, but rather how to understand both distributed and high consensus aspects of cultural knowledge.” D'Andrade, , supra note 28, at 216.Google Scholar Differences in the mechanisms of cultural transmission are a plausible source of variation, but transmission alone may not be enough to explain the variation in the content of cultural beliefs across societies.

43. For a general investigation of the relationship between cultural symbols and strategic behavior, see Johnson, James, Symbol and Strategy (1991) (unpublished Ph.D. dissertation, University of Chicago) (on file with the University of Chicago Library).Google Scholar

44. Grief, Avner, Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualistic Societies, 102 J. Pol. Econ. 912–50 (1994).CrossRefGoogle Scholar

45. On the application of theories of institutional change to informal conventions and social norms, See Ensminger, Jean and Knight, Jack, Changing Social Norms, Curr. Anthropol. (02 1997).Google Scholar