Facing Uncertainty: Norms and Formal Institutions as Shared Mental Models

35 Pages Posted: 27 Jun 2019

See all articles by William D. Ferguson

William D. Ferguson

Grinnell College - Department of Economics

Date Written: June 25, 2019


This paper presents a theoretical argument focused on how social norms and formal institutions operate as cognitive coping mechanisms among groupings of boundedly rational actors who face fundamental uncertainty concerning their political and economic environments. Broadly speaking, informal and formal institutions facilitate strategic decision making by coordinating agents’ understandings of their social environments and their conceptions of how myriad actions of involved participants (including themselves) may affect such environments, along with their positions and wellbeing. Yet institutions and the associated cognitive processes, are subject to periods of rapid transformation that sometimes exhibit properties of cascading imitation across individuals and groups.

After addressing background concepts, this paper makes four related assertions. First, heuristics and, by extension, mental models respond to shared narratives in a fashion that often generates conformity of belief and action. Second, mental models follow the dynamics of punctuated equilibrium processes. Third, institutions are a type of shared mental model that convey basic understandings across uncertain environments. Fourth, by enabling boundedly rational actors to manage uncertainty, institutions effectively choreograph social activity. Discussion includes reference to classical, evolutionary and epistemic game-theoretic modeling. Social choreography thus follows punctuated equilibrium dynamics that offer relative predictability during stable phases and stark uncertainty during rapid phases of punctuation. The paper closes with a fewon implications on the political economy of institutional change.

Suggested Citation

Ferguson, William D., Facing Uncertainty: Norms and Formal Institutions as Shared Mental Models (June 25, 2019). Available at SSRN: https://ssrn.com/abstract=3410109 or http://dx.doi.org/10.2139/ssrn.3410109

William D. Ferguson (Contact Author)

Grinnell College - Department of Economics ( email )

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