Despite being a pillar of modem economic thinking, expected utility theory (EUT) has many limitations for explaining in the presence of uncertainty. These limitations are well known and oft repeated (e.g., Arrow, Runge and Myers), but economists have just begun to pursue other theoretical frameworks for understanding how both market and nonmarket institutions cope with real-world uncertainty. The potential rewards of this pursuit are ample since EUT's contribution has been at the individual decision-making level, whereas the most serious theoretical deficiencies are in accounting for the linkages from individual decisions to institutional formation and (Coleman, p. 184). The merit of the pursuit notwithstanding, uncertainty is a difficult analytical concept because it has been confused with discussions of risk and subjective probability distributions. To further the confusion, many writers have resorted to pretentious adjectives such as profound and irresolvable (Goodin) or structural (Walters) to distinguish true uncertainty. In the spirit of Knight, the clearest definition of uncertainty is lack of knowledge of states or actions and, at the extreme, sheer ignorance.1 Uncertainty created by imperfect knowledge and humans' limited reasoning skills is the most dominant consideration in understanding any organization or living system (Hodgson, Kay, Walters). One key problem for any theory of institutional under uncertainty is to explain the origin and stability of institutions rather than simply to treat them as exogenous. Neoclassical decision models based on EUT have limited value for this task because the market institution is the centerpiece of analysis. Other social institutions are viewed as constraints, and information problems are defined as transactions costs that only impact the allocation from exchange (e.g., Dahlman, Schmid, Williamson). As a result, the influence of uncertainty on the origin and functions of these institutions is not fully explored.2 The recent work of Heiner (1983, 1985, 1986) on reliability theory (RT) offers an alternative theoretical framework to explain institutions as responses to problems of uncertainty. Given that institutions are a in social behavior (Schotter, p. 11), RT is promising because it directly harnesses the determinants of uncertainty to characterize regularity in behavior (Heiner 1983, p. 571). In the following section, we outline the basic principles of RT and contrast it with EUT. We then explore the implications of RT for the The authors are associate professors in the Food and Resource Economics Department, University of Florida. Florida Agricultural Experiment Station Journal Series No. 9215.