Preprints of the Max Planck Institute for Research on Collective Goods 2003/13
In this article, we provide a broad overview of the interplay among cognition, belief systems, and institutions, and how they affect economic performance. We argue that a deeper understanding of institutions emergence, their working properties, and their effect on economic and political outcomes should begin from an analysis of cognitive processes. We explore the nature of individual and collective learning, stressing that the issue is not whether agents are perfectly or boundedly rational, but rather how human beings actually reason and choose, individually and in collective settings. We then tie the processes of learning to institutional analysis, providing arguments in favor of what can be characterized as cognitive institutionalism. Besides, we show that a full treatment of the phenomenon of path dependence should start at the cognitive level, proceed at the institutional level, and culminate at the economic level.