Institutions, Institutional Change and Economic Performance: The behavioral assumptions in a theory of institutions

All theorizing in the social sciences builds, implicitly or explicitly, upon conceptions of human behavior. Some of the approaches rest on the expected-utility assumption in economic theory or the extension of that behavioral assumption into other social science disciplines, loosely termed rational choice theory. Other approaches raise some quite fundamental questions about the traditional economic approach. Although I know of very few economists who really believe that the behavioral assumptions of economics accurately reflect human behavior, they do (mostly) believe that such assumptions are useful for building models of market behavior in economics and, though less useful, are still the best game in town for studying politics and the other social sciences. I believe that these traditional behavioral assumptions have prevented economists from coming to grips with some very fundamental issues and that a modification of these assumptions is essential to further progress in the social sciences. The motivation of the actors is more complicated (and their preferences less stable) than assumed in received theory. More controversial (and less understood) among the behavioral assumptions, usually, is the implicit one that the actors possess cognitive systems that provide true models of the worlds about which they make choices or, at the very least, that the actors receive information that leads to convergence of divergent initial models. This is patently wrong for most of the interesting problems with which we are concerned.