Abstract
In this chapter, theories of institutions can be classified into two broad approaches: institutions-as-rules and institutions-as-equilibria. According to the first approach, institutions are conceived as rules that guide the actions of individuals engaged in social interactions. On the other hand, the second approach views institutions as behavioral patterns. In order to have a complete picture of institutions, we need to take both approaches into consideration. The main purpose is to develop a general framework within which it is possible to analyze the coevolution of individuals’ mental models and institutions. In Hayek’s theory of cultural evolution, societies 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.
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