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Über dieses Buch

This book presents institutional evolution and individual choice as codependent results of behavioral patterns. Drawing on F.A. Hayek's concepts of cognition and cultural evolution, Teraji demonstrates how the relationship between the sensory and social orders can allow economists to track social norms and their effects on the global economy. He redirects attention from the conventional focus on what an individual chooses to the changing social order that determines how an individual chooses. Cultural shifts provide the environmental feedback that challenges the mental models governing individual choice, creating a cycle of coevolution. Teraji develops a general framework from which to examine this symbiotic relationship in order to identify predictive patterns. Not just for behavioral economists, this book will also appeal to those who specialize in institutional economics, the philosophy of economics, and economic sociology.



Chapter 1. Foundations

In this chapter explains some fundamental concepts used in this book. The concepts are as follows: social norms; economic behavior; rationality; cognition; institutions; path dependence; and institutional change. An understanding of social norms is critical to predict and explain human behavior. People incorporate in themselves a set of social norms from their surroundings. Norms govern behavior, and are self-sustaining in an interdependent system. Norms specify a limited range of behavior that is acceptable in a situation, and facilitate confidence in the course of action. Norms enable individuals to deal with the complexity and incompleteness of information, and make them stick to prescribed behavior. Norms, thus, describe the uniformities of behavior that characterize groups.
Shinji Teraji

Chapter 2. Why Do People Obey Norms?

In this chapter presents some reasons why people comply with social norms. First, in large measure, people do what they do because they have learned from those who surround them. The society is sustained by processes favorable to individuals endowed with some docility in following rules. Second, social norms can be sustained if the pecuniary advantage from breaking norms is not sufficient to offset the forgone reputation effect. Third, people comply with norms because the threat of punishment makes it in their interest to do so. Fourth, norms are represented as Nash equilibria of games played by rational agents, and as such they are self-enforcing. Finally, correlated equilibrium allows players’ actions to be statistically dependent on some random signals external to the model.
Shinji Teraji

Chapter 3. The Sensory Order Revisited

In The Sensory Order (1952), Hayek provided a theory of the process by which the mind perceives the world around it. The sensory order is a classification that takes place via a network of impulse connections. The essence of Hayek’s attempt in theoretical psychology is to show how a structure can be formed which discriminates between different physical stimuli and generates the sensory order that we actually experience. The sensory order is even an incomplete and imperfect representation of the physical world. The subjectivity of individual knowledge finds its foundation in the construction of the mind. The brain is an adaptive system interacting with and adapting to its environment by performing a multi-level classification on the stimuli it receives from the environment.
Shinji Teraji

Chapter 4. Norms, Coordination, and Order

The dissemination of knowledge is crucial in society. People live in a world of expectations about interactions with others’ actions. It is meaningful to discuss the social order only when all agents share the same perception of existing reality which includes others’ actions. People follow rules of behavior in society. Relying on rules is a device we have learned to use because our reason is insufficient to master the detail of complex reality. If rules are recognized as recurrent patterns of behavior, individuals act according to rules of conduct. The diffusion of shared behavioral patterns is necessary to obtain the social order. Shared rules facilitate the decision-making in complex situations by limiting the range of circumstances to which individuals have to pay attention.
Shinji Teraji

Chapter 5. Culture and Cultural Evolution

Culture, as a system of shared beliefs, provides collective understandings in forming peoples’ choices. The existence of culture presupposes a population capable of mental representations. Culture coordinates the expectations of many agents about the actions, and it shapes and structures our daily patterns of behavior, guiding much of what we should do by prescribing what behavior is acceptable. Agents who belong to the same cultural group are exposed to the same external representation of knowledge. In Hayek’s theory of cultural evolution, societies are not only subject to group selection but have developed through a process in which individuals choose the rules that form the social order. New rules undergo some kind of decentralized selection process, as a consequence of which some spread through the population.
Shinji Teraji

Chapter 6. Coevolution of Mind and Society

Theories of institutions can be classified into two broad approaches: institutions-as-rules and institutions-as-equilibria. Institutional structures and individual actions coevolve. In order to have a complete picture of institutions in interactions between structure and agency, we need to take both approaches into consideration. In the mental dimension, institutions guide individual behavior and thought. In the emergence dimension, the equilibrium state is generated as the result of actions chosen by individual agents. The mind is endogenous to the individual’s environment, which implies that expectations are also endogenous to the individual’s environment. Shifts in mental models change individuals’ plans and actions, which, in turn, leads to institutional evolution. A key to understanding institutional evolution is an understanding of how individuals modify their mental models.
Shinji Teraji


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