PALGRAVE ADVANCES IN BEHAVIORAL ECONOMICS EVOLVING NORMS Cognitive Perspectives in Economics Shinji Teraji Palgrave Advances in Behavioral Economics Series Editor John F. Tomer Co-Editor, Jl of Socio-Economics Manhattan College Riverdale, USA This ground breaking series is designed to make available in book form unique behavioral economic contributions It provides a publishing opportunity for behavioral economist authors who have a novel perspective and have developed a special ability to integrate economics with other disciplines It will allow these authors to fully develop their ideas In general, it is not a place for narrow technical contributions Theoretical/conceptual, empirical, and policy contributions are all welcome More information about this series at http://www.springer.com/series/14720 Shinji Teraji Evolving Norms Cognitive Perspectives in Economics Shinji Teraji Yamaguchi University, Yamaguchi Japan Palgrave Advances in Behavioral Economics ISBN 978-1-137-50246-9 ISBN 978-1-137-50247-6 DOI 10.1057/978-1-137-50247-6 (eBook) Library of Congress Control Number: 2016942806 © The Editor(s) (if applicable) and The Author(s) 2016 This work is subject to copyright All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made Cover illustration: © m-images / Alamy Stock Photo Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Nature America Inc New York To the memory of my late mother PREFACE AND ACKNOWLEDGEMENTS This book is about social norms in a variety of cognitive and institutional processes Social norms are shared guidelines to socially accepted and expected behavior Social norms provide order to what may otherwise be seen as ambiguous, uncertain, or threatening situations Norms may be seen as regular behavioral patterns that develop as individuals interact with one another socially The main purpose of this book is to develop a general framework within which it is possible to analyze a relationship between the sensory order and the social order A choice is a selection among numerous possible behavioral alternatives A decision is a process through which this selection is performed Conventional economic models include only variables that condition ‘what an agent chooses’ and none that condition ‘how an agent chooses.’ This entails a ‘black box’ view on the individual, meaning that it does not matter analytically how that behavior is actually generated F.A. Hayek’s theory of mind sheds light upon the process of choice The sensory order is fundamental in the sense that the explanation of social order begins with the human mind The central element in the cognitive process is the feedback between individual and environment The book explains institutional evolution as an endogenous phenomenon from a cognitive viewpoint In The Sensory Order (1952), Hayek provided a theory of the process by which the mind perceives the world around it According to Hayek, knowing the world is a classification of sensory qualities by the mind What we know at any moment about the external world is determined by the order of the apparatus of classification which has been built up by previous vii viii PREFACE AND ACKNOWLEDGEMENTS sensory linkages The qualitative differences in perceptions that people experience depend upon the specific pattern of neuron firings that a given stimulus produces within various neural networks The experience of each individual will differ according to the pattern of neuron firings that each one develops The subjectivity of individual knowledge finds its foundation in the construction of the mind Through learning and updating, the sensory order evolves into a gradual approximation of the physical order The mind operates by assembling new sensory data into associations with our accumulated inventory of knowledge An understanding of social norms is critical to predict and explain human behavior Hayek’s concept of perception as classification has a counterpart in his concepts of rules and rule-following behavior People follow rules of conduct in society These rules indicate what people should or should not under some circumstances Relying upon rules is a device we have learned to use because our reason is insufficient to master the detail of complex reality For Hayek, rules make it possible for individuals to classify stimuli The order of a group can be generated by the rules of conduct adhered to by its members How the mind classifies stimuli determines how individuals act in the external world Much of our knowledge is embedded in institutions The mind is shaped not only by experience but also by custom Rules of conduct are shared by individuals having a common cultural tradition If people have widely divergent expectations, some of their actions will invariably fail and need to be revised Culture limits the range of actions that people are likely to take in a particular situation, making their conduct more predictable and thereby facilitating the formation of reliable expectations Shared mental models can give rise to behavioral regularities to the extent that they can be observed in the population As a consequence, following rules of conduct mutually reinforce sets of expectations to maintain a degree of social order Patterns emerge endogenously, reflecting a socially constructed reality Given the human need for rules, there is a tendency to repeat those patterns as a guideline for action in future instances of similar behavior The structure of this book follows the development of these arguments Chapter explains some fundamental concepts that are used in the book The concepts are as follows: social norms, economic behavior, rationality, cognition, institutions, path dependence, and institutional change An understanding of social norms is critical to predict and explain human behavior People incorporate in themselves a set of social norms from their surroundings Norms govern behavior, and are self-sustaining in an PREFACE AND ACKNOWLEDGEMENTS ix interdependent system Norms specify a limited range of behavior that is acceptable in a situation, and facilitate confidence in the choice of action Norms enable individuals to deal with the complexity and incompleteness of information, and make them stick to prescribed behavior Norms thus describe the uniform behaviors that characterize groups Chapter presents some reasons why people comply with social norms First, in large measure, people what they because they have learned from those who surround them Society is sustained by processes favorable to individuals endowed with an element of docility in following rules Second, social norms can be sustained if the pecuniary advantage from breaking norms is not sufficient to offset the forgone reputation effect Third, people comply with norms because the threat of punishment makes being compliant within their interest Fourth, norms are represented as Nash equilibria of games played by rational agents, and as such they are self-enforcing Finally, correlated equilibrium allows players’ actions to be statistically dependent upon some random signals external to the model Chapter focuses on The Sensory Order (1952) Hayek provides a theory of the process by which the mind perceives the world around it The sensory order is a classification that takes place via a network of impulse connections The essence of Hayek’s attempt in theoretical psychology is to show how a structure can be formed which discriminates between different physical stimuli and generates the sensory order that we actually experience The sensory order is an incomplete and imperfect representation of the physical world The subjectivity of individual knowledge finds its foundation in the construction of the mind The brain is an adaptive system interacting with and adapting to its environment by performing a multi-level classification on the stimuli it receives from the environment Chapter deals with the social order The dissemination of knowledge is crucial in society People live in a world of expectations about interactions with others’ actions It is meaningful to discuss the social order only when all agents share the same perception of existing reality which includes others’ actions People follow rules of behavior in society Relying on rules is a device we have learned to use because our reason is insufficient to master the detail of complex reality If rules are recognized as recurrent patterns of behavior, individuals act according to rules of conduct The diffusion of shared behavioral patterns is necessary to obtain social order Shared rules facilitate decision-making in complex situations by limiting the range of circumstances to which individuals have to pay attention COEVOLUTION OF MIND AND SOCIETY 339 reality In this sense, the mind is endogenous to the individual’s environment, which implies that expectations are also endogenous to the individual’s environment Shifts in mental models change individuals’ plans and actions, which, in turn, leads to institutional evolution Thus, a key to understanding institutional evolution is an understanding of how individuals modify their mental models Institutions are both the rules that underlie individual behavior and patterns of behavior The concept of institutions also has both the mental dimension and the emergence dimension In the mental dimension, institutions guide individual behavior and thought Individual agents have not only expectations but also shared mental models In the emergence dimension, on the other hand, the equilibrium state is generated as the result of actions chosen by individual agents The process of norm formation occurs through repetition of behavior NOTES Recently, coevolution denotes very different types of interactions: biological–cultural, ecological–economic, production–consumption, technology– preferences, behavior–institution, and human genetic–cultural (Durham ; Gowdy 1994) 1991 The famous ‘impartial spectator,’ a hypothetical ‘man within the breast,’ helps us to look at the various needs and to determine what, in each situation, is the proper balance between our needs and those of others Children as young as 3 years can appreciate the difference between mental and physical entities (Wellman and Estes 1986) Akerlof and Dickens (1982) constitute the model of cognitive dissonance in economics In their model, agents select their beliefs to minimize the dissonance experienced Martin and Sunley (2012) consider three orders of emergence in economic geography Specifically, second-order emergence is said to be characteristic of self-organizing systems Second-order emergence is characterized by the emergence of self-organized macro-level morphology arising from the recursive amplifying interactions among the micro components Searle (2005) claims that an institution is any system of constitutive rules of the form ‘X counts as Y in C,’ where X is a pre-institutional entity, Y is a status function, and C refers to the domain of application of the rule Within Austrian economics, emergence is typically conflated with the notion of spontaneous order (Harper and Lewis 2012; Rosser 2012) Austrian economists use the concept of emergence to explain how the interplay between the actions of numerous, independent individuals can generate an order which is not part of anyone’s intentions 340 S TERAJI In Crawford and Ostrom (1995), Lewis (1969), Ullmann-Margalit (1977), and Coleman (1987) are characterized as an institutions-as-norms approach This approach assumes that many observed patterns of interaction are based upon the shared perceptions among a group of individuals of proper and improper behavior in particular situations In Vanderschraaf (1995), Lewis’ (1969) conventions are shown to be correlated equilibria 10 For Hodgson, the phenomena that link agency and institutional structure are habits and processes of habituation Habits themselves are formed through repetition of action and thought 11 In Aoki (2007), the following conceptualization of an institution is proposed: “An institution is self-sustaining, salient patterns of social interactions, as represented by meaningful rules that every agent knows and are incorporated an agent’s shared belief about how the game is played and to be played” (Aoki 2007, p. 6) BIBLIOGRAPHY Akerlof, G. A & Dickens, W. T (1982) The economic consequences of cognitive dissonance American Economic Review, 72, 307–319 Aoki, M (2001) Towards a comparative institutional analysis Cambridge, MA: MIT Press Aoki, M (2007) Endogenizing institutions and institutional changes Journal of Institutional Economics, 3, 1–31 Aoki, M (2011) Institutions as cognitive media between strategic interactions and individual beliefs Journal of Economic Behavior & Organization, 79, 20–34 Aumann, R.  J (1974) Subjectivity and correlation in randomized strategies Journal of Mathematical Economics, 1, 67–96 Aumann, R. J (1987) Correlated equilibrium as an expression of Bayesian rationality Econometrica, 55, 1–18 Aumann, R. J & Brandenburger, A (1995) Epistemic conditions for Nash equilibrium Econometrica, 63, 1161–1180 Axelrod, R (1997) The dissemination of culture: A model with local convergence and global polarization Journal of Conflict Resolution, 41, 203–226 Baron-Cohen, S (1995) Mindblindness: An essay on autism and theory of mind Cambridge, MA: MIT Press Berry, J. W (2005) Acculturation: Living successfully in two cultures International Journal of Intercultural Relations, 29, 697–712 Boyd, R & Richerson, P. J (1985) Culture and the evolutionary process Chicago: University of Chicago Press COEVOLUTION OF MIND AND SOCIETY 341 Caldwell, B (2000) The emergence of Hayek’s ideas on cultural evolution Review of Austrian Economics, 13, 5–22 Coleman, J (1987) Norms as social capital In G.  Radnitzky & P.  Bernholz (Eds.), Economic imperialism New York: Paragon Crawford, S & Ostrom, E (1995) A grammar of institutions American Political Science Review, 89, 582–600 Dunbar, R. I M (1992) Neocortex size as a constraint on group size in primates Journal of Human Evolution, 22, 469–493 Dunbar, R. I M (1998) The social brain hypothesis Evolutionary Anthropology, 6, 178–190 Durham, W. H (1991) Coevolution: Genes, culture, and human diversity Stanford: Stanford University Press Festinger, L (1957) A theory of cognitive dissonance Evanston: Row, Peterson Frith, U & Frith, C (2001) The biological basis of social interaction Current Directions in Psychological Science, 10, 151–155 Gallese, V., Fadiga, L., Fogassi, L., & Rizzolatti, G (1996) Action recognition in the premotor cortex Brain, 119, 593–609 Gallese, V & Goldman, A (1998) Mirror neurons and the simulation theory of mind-reading Trends in Cognitive Sciences, 2, 493–501 Gowdy, J M (1994) Coevolutionary economics: The economy, society and the environment Boston: Kluwer Academic Publishers Greif, A & Kingston, C (2011) Institutions: Rules or equilibria? In N. Schofield & G. Caballero (Eds.), Political economy of institutions, democracy and voting (pp. 13–43) Berlin: Springer Harper, D. A & Lewis, P (2012) New perspectives on emergence in economics Journal of Economic Behavior & Organization, 82, 329–337 Hayek, F.  A (1948) Individualism and economic order Chicago: University of Chicago Press Hayek, F. A (1952) The sensory order Chicago: University of Chicago Press Hayek, F. A ([1952] 1979) The counter-revolution of science, 2nd ed Indianapolis, IN: Liberty Press Original Work Published 1952 Hayek, F. A (1973) Law, legislation and liberty, Vol 1, Rules and order Chicago: University of Chicago Press Hayek, F. A (1979) Law, legislation and liberty, Vol 3, The political order of a free people Chicago: University of Chicago Press Hayek, F. A (1988) The fatal conceit: The errors of socialism Chicago: University of Chicago Press Hayek, F. A (2014) The collected works of F. A Hayek, Vol 15, The markets and other orders In B. Caldwell (Ed.) Chicago: University of Chicago Press Herrmann, E., Call, J., Hernández-Lloreda, M.  V., Hare, B., & Tomasello, M (2007) Humans have evolved specialized skills of social cognition: The cultural intelligence hypothesis Science, 317, 1360–1366 342 S TERAJI Hodgson, G.  M (2004) The evolution of institutional economics: Agency, structure, and darwinism in American Institutionalism London: Routledge Keysar, B., Lin, S., & Barr, D.  J (2003) Limits on theory of mind in adults Cognition, 89, 25–41 Lachmann, L. M (1970) The legacy of Max Weber London: Heinnemann Lachmann, L. M (1976) From Mises to Shackle: An essay on Austrian economics and the Kaleidic society Journal of Economic Literature, 14, 54–62 Lazear, E. P (1999a) Culture and language Journal of Political Economy, 107, S95–S126 Lewis, D (1969) Convention: A philosophical study Cambridge, MA: Harvard University Press Martin, R & Sunley, P (2012) Forms of emergence and the evolution of economic landscapes Journal of Economic Behavior & Organization, 82, 338–351 Nelson, R.  R (1995) Recent evolutionary theorizing about economic change Journal of Economic Literature, 33, 48–90 Nelson, R.  R & Winter, S (1982) An evolutionary theory of economic change Cambridge, MA: Harvard University Press Norgaard, R. B (1994) Development betrayed: The end of progress and a coevolutionary revisioning of the future London: Routledge North, D. C (1990) Institutions, institutional change and economic performance Cambridge, MA: Cambridge University Press North, D. C (2005) Understanding the process of economic change Princeton, NJ: Princeton University Press Povinelli, D. J & Giambrone, S (2001) Reasoning about beliefs: A human specialization? Child Development, 72, 691–695 Rizzello, S., & Turvani, M (2000) Institutions meet mind: The way out of an impasse Constitutional Political Economy, 11, 165–180 Rizzello, S & Turvani, M (2002) Subjective diversity and social learning: A cognitive perspective for understanding institutional behavior Constitutional Political Economy, 13, 197–210 Rizzolatti, G & Craighero, L (2004) The mirror-neuron system Annual Review of Neuroscience, 27, 169–192 Rizzolatti, G & Craighero, L (2005) Mirror neurons: A neurological approach to empathy In J.-P. Changeux, A. R Damasio, W. Singer, & Y. Christen (Eds.), Neurobiology of human values (pp. 107–123) Berlin: Springer Rizzolatti, G., Fadiga, L., Gallese, V., & Fogassi, L (1996) Premotor cortex and the recognition of motor actions Cognitive Brain Research, 3, 131–141 Rizzolatti, G., Fogassi, L., & Galllese, V (2001) Neurophysiological mexhanisms underlying the understanding and imitation of action Nature Reviews Neuroscience, 2, 661–670 COEVOLUTION OF MIND AND SOCIETY 343 Rosser Jr., J. B (2012) Emergence and complexity in Austrian economics Journal of Economic Behavior & Organization, 81, 122–128 Schotter, A (1981) The Economic theory of social institutions Cambridge, MA: Cambridge University Press Searle, J. R (2005) What is an institution? Journal of Institutional Economics, 1, 1–22 Ullmann-Margalit, E (1977) The Emergence of norms Oxford: Clarendon Vanderschraaf, P (1995) Convention as correlated equilibrium Erkenntnis, 42(1), 65–87 Wellman, H. M & Estes, D (1986) Early understanding of mental entities: A reexamination of childhood realism Child Development, 57, 910–923 EPILOGUE There is a relationship between the sensory order and the social order The sensory order is fundamental in the sense that the explanation of social order begins with the human mind This is illustrated through ideas relating to understanding institutions from a cognitive viewpoint For Hayek, the mind is a weave of old and new sensory data in a network of connections The mind is itself a complex adaptive system A classification takes place via a network of impulse connections Hayek’s cognitive theory is relational in the sense that it is the structure of the connections between neurons that underpins the operation of the mind Knowledge, created within the mind, is disseminated among individuals An individual’s acquisition of knowledge is part of a more general acquisition of knowledge There are limits to what individuals can know, and the sensory order within the mind is an imperfect representation of the physical order The central element in the cognitive process is the feedback between individual and environment The mind updates its understanding of the environment A society is also a complex adaptive system; it is composed of a set of agents that are related to one another in a particular way In Hayek’s social theory, the single individual, without rules and ties, would lose common understanding Social rules shape the dispositions that govern how people perceive, think, and act Humans depend on socially transmitted information, or culture Cultural transmission based on social learning involves achieving shared mental models Coordination of plans requires cultural evolution of learned rules of conduct © The Editor(s) (if applicable) and The Author(s) 2016 S Teraji, Evolving Norms, DOI 10.1057/978-1-137-50247-6 345 346 EPILOGUE The main purpose of this book is to develop a general framework within which it is possible to analyze a relationship between the sensory order and the social order The book draws on ideas of coevolution of individuals’ mental models and institutions Institutions and institutional evolution are an important subject to the analysis of social interaction Institutions are shared sets of rules that allow individuals to coordinate their behavior Institutions then guide individual behavior and thought Institutions also depend on the individuals who reproduce, transform, or create them Koppl (2006) presents the five leading characteristics of what he calls the ‘heterodox mainstream’ or the ‘emerging new orthodoxy’: bounded rationality, rule following, institutions, cognition, and evolution These five concepts are also important in this book The five concepts used in the book are summarized as follows: Bounded rationality Simon’s original statement on the notion of bounded rationality emphasizes the limits in the information and computational capacities of an economic agent Individuals are presumed to attempt to act rationally but to be bounded in their ability to achieve rationality An agent uses only the information that is explicitly displayed in making a decision without considering other things As a consequence, individuals exhibit a very large measure of docility The society is sustained by processes favorable to individuals endowed with some docility in following rules Rule following Spontaneous orders are formed when individuals follow abstract rules of conduct However, the individuals themselves may not be able to articulate the rules they follow For Hayek, one of the main characteristics of human behavior consists of following rules of conduct The rules one individual is expected to follow influence the choices made by other individuals If people have widely divergent expectations, some of their actions will invariably fail and need to be revised Culture limits the range of actions that people are likely to take in a particular situation, making their conduct more predictable and thereby facilitating the formation of reliable expectations Shared mental models can give rise to behavioral regularities to the extent that they can be observed in the population As a consequence, following rules of conduct mutually reinforce sets of expectations to maintain a degree of social order EPILOGUE 347 Institutions Individuals are institutionally embedded or constrained Institutions are means by which agents are able to gather sufficient information in order to coordinate On the other hand, institutions are roughly regularities of behavior Individuals, interacting with others, are assumed to continue to change their planned responses to the actions of others until no improvement can be obtained in their expected outcomes from independent actions Repeated patterns of behavior create expectations of future behavior and ensure a degree of predictability in social interaction Institutions affect individual choices, individuals choose their actions, and institutions emerge through individual actions Institutions are both the rules that underlie individual behavior and patterns of behavior Cognition Individual behavior is largely governed by mental or cognitive rules Hayek’s theory of mind sheds light on the process of choice; it describes the human mind as an adaptive classification system by which individual behavior is shaped The essence of Hayek’s cognitive theory is the proposition that all of an organism’s experience is stored in network-like systems of connections between the neurons of its cerebral cortex The subjectivity of individual knowledge finds its foundation in Hayek’s explanation of the construction of the mind The perception of the world around us is conjectural in the sense that it is informed by a set of classificatory dispositions which is itself the product of a kind of accumulated experience The mind emerges from the complexity of the connections between the physical world and the sensory world Evolution At the level of the individual, the cognitive processes enable the individual to adjust his or her actions to external reality Individuals adjust their actions to achieve a better fit with reality In this sense, the mind is endogenous to the individual’s environment Shifts in mental models change individuals’ plans and actions, which in turn leads to institutional evolution Thus, a key to understanding institutional evolution is an understanding of how individuals modify their mental models Institutional evolution is an endogenous phenomenon with a mental or cognitive dimension All theories are based on assumptions The realism of assumptions is critical to revising the conventional theories and developing new ones A conventional economic hypothesis stipulates that individuals behave as 348 EPILOGUE if they were seeking to maximize their material well-being, having full knowledge of the data needed in a virtually institution-free environment In standard economic theory, the utility- or profit-maximization objective is dominant enough so that this single objective leads to good predictions Then competitive market mechanisms can coordinate individual activities in an optimal manner In standard economic analysis, assumptions may not be realistic since they are abstractions from reality However, the lens of neoclassical economic theory is distorting practical realities In complex situations, there is likely to be a considerable gap between the real environment of a decision and the environment as the actors perceive it (Simon 1978) There is substantial heterogeneity among individuals within both cognitive and collective systems People live their lives in socio-cultural contexts that differ in their shared values, customs, social practices, and institutional constraints What is important in economics is the appreciation of the realism of behavioral assumptions in terms of psychological, sociological, and institutional dimensions There is an increasing recognition that these dimensions affect economic outcomes Rule-following behavior (routines, heuristics, conventions, habits) enriches economic theory by throwing different light on phenomena that economists study It is important to understand how people behave with regard to both their cognitive abilities and their environmental conditions One of the key messages of behavioral economics is that context matters in ways that are not recognized in standard economic modeling Standard economic theory presumes that the way in which a situation is described does not (and should not) affect the preferences that people have However, individuals’ preferences are modified as they gather more information, acquire new knowledge, and discover new ways of doing things People are often driven by social norms Though neoclassical economic theory assumes that people maximize utility, it postulates nothing about what utility is Human beings not know all of the alternatives that are available for action, and they are unable to make the calculations that would support optimization The particular deviations from conventional economic assumptions are derived from what is known about the limits of human cognitive capacity for discovering alternatives, computing their consequences under certainty and uncertainty, and making comparisons among them (Simon 1987) One can discover the ‘intelligence’ underlying choice behavior even if this behavior is not maximizing from the perspective of economic efficiency in the traditional sense An individual’s cognition largely depends on his or her past experi- EPILOGUE 349 ence The cognitive path-dependence approach moves beyond the level of the individual to that of a group of interacting individuals and, in particular, to the social norms and institutions that emerge in such contexts Rationality can be defined in terms of the process employed to make a decision, whether or not it happens to lead to the optimal outcomes It is important to specify institutional constraints in which economic agents behave ‘rationally.’ FURTHER READING Akerlof, G.  A (1997) Social distance and social decisions Econometrica, 65, 1005–1027 Capriotti, P., & Moreeno, Á (2007) Corporate citizenship and public relations: The importance and interactivity of social responsibility issues on corporate websites Public Relations Review, 33, 84–91 Gigerenzer, G., Todd, P. M., & the ABC Research Group (1999) Simple heuristics that make us smart Oxford: Oxford University Press Koppl, R (2006) Austrian economics at the cutting edge Review of Austrian Economics, 19, 231–241 Macy, M. W., & Willer, R (2002) From factors to actors: Computational sociology and agent-based modeling Annual Review of Sociology, 28, 143–166 Smith, A (1981) The theory of moral sentiments Indianapolis, IN: Liberty Fund Original Work Published 1759 Vanberg, V. J (1986) Spontaneous market order and social rules: A critical examination of F. A Hayek’s theory of cultural evolution Economics and Philosophy, 2, 75–100 Wason, P. C., & Evans, J. St B. T (1975) Dual processes in reasoning? Cognition, 3, 141–154 Wilson, E.  O (1975) Sociobiology: The new synthesis Cambridge, MA: Harvard University Press INDEX A abstraction, 147, 156, 184, 187 accessible, 42, 50–51 acculturation, 208, 249, 312–313 action, 152, 156, 159, 220, 320 adaptation, 11, 92, 158, 161, 321 addiction, 35–37 agent-based model, 230 altruism, 24, 72, 76, 92, 120 anchoring, 8, 161 anomalies, 6–7 assimilation, 242 assumptions, 6, 21, 347–348 attention, 157, 191 Austrian school, 145, 170 availability, 7, 161 B backward induction, 260 bandwagon effect, 56 bargaining, 20, 216, 242 Bayesian, 45 behavior economic, 236 herd, 39–41, 52 regularity of, 22, 162 behavioral economics, 5–6 belief cultural, 335 formation, systems, 29, 167, 224, 264 biological game, 230 heritage, 12, 73 bottom-up, 2, 68, 230 brain, 17, 279 C capability, 283 cascade, 41, 313 catallaxy, 198–200 cheating, 23, 73 choice, 7, 10, 67, 155 choreographer, 88 civil society, 263 classification, 16, 147–148, 153 © The Editor(s) (if applicable) and The Author(s) 2016 S Teraji, Evolving Norms, DOI 10.1057/978-1-137-50247-6 351 352 INDEX coevolution gene-culture, 213–214 of mental models and institutions, 337 cognition, 13, 150 cognitive dissonance, 320 cognitive science, 325 commitment, 252, 255 common prior, 177 communication, 213 complementarities, 248, 316 complex adaptive system, 189, 231 complexity, 182 conformity, 69, 86, 103, 131 conjectures, 88 connections, 146–147 contagion, 40 contract, 21 convention, 84, 193, 226 cooperation, 78, 102, 218 cooperative, 248 coordination equilibrium, 84, 191, 194–195 failure, 262 meta-, 198 corporate social performance (CSP), 116 correlated equilibrium, 86–89, 335 correlation device, 89, 335 cultural transmission, 208, 211, 312 culture, 207, 215, 220, 238–239, 248 D decision-making, 16–17, 232 dimension, 327–328, 337 discounting exponential, 30–31, 35 hyperbolic, 31, 33, 37–38 discovery, 150, 180, 325 discrimination, 283 docility, 71–72, 344 dual process models, E efficiency, 23, 120 effort variability, 28, 239–240 emergence, 164, 187–189 enforcement, 2–3 entrepreneur, 159, 180 environment, 232, 286 envy, 92 epistemology, 144 equilibrium morale, 94 sub-optimal, 225, 248 evolution biological, 215 cultural, 214–215 institutional, 315, 337, 344 evolutionary anthropology, 76 biology, 75 process, 209 psychology, 54 stable strategies, 230 theory, 27 exchange game, 200 exclusion, 282 expectations convergence of, 51 mutual, 194 self-fulfilling, 192 expected utility theory, F firm, 20–21, 23 fMRI, 16 focal points, 191–192 framing effect, 8–9 free riding, 77 G game theory, 67, 84–85 gene, 76, 213 INDEX gift exchange games, 91 group selection, 227–228 H habits, 161, 229 habituation, 29, 224 herd externality, 40 heuristics, 7, 160, 232 hierarchy, 240 history, 192, 225 Homo sapiens, 175 353 K know-how, 187 knowledge common, 182, 195 conscious, 324 distributed, 150 division of, 178, 183 shared, 182 tacit, 155, 324 L law, 2, 68 learning collective, 164 social, 208 trial-and-error, 210, 215 lifetime utility function, 33 linkages, 15 lock-in, 25, 222 I ideal self-guide, 268 identity, 236, 267–268, 297 ignorance, 185, 325 imitation, 229, 316 incentive, 67, 251 inconsistency, 30–31, 162, 234 increasing returns, 26, 100, 221–222 indirect reciprocity, 77, 103 inequality aversion, 82 inertia, 43, 209 inflexibility, 221 information, 88, 210, 213, 318 inheritance, 213, 312 institutional change, 221, 229, 336 matrix, 167, 220 institutions -as-equilibria, 311, 329 -as-rules, 311, 334 intentional self-change, 267, 281 interaction, 18, 145, 224 interpretation, 153, 158, 168 M macro-level, 165–166, 326–327 map, 145–146, 150–151 market, 159, 179–180 mental models convergent, 29 shared, 29, 220, 318 methodological individualism, 21, 226 micro-level, 165–166, 326–327 mind, 14–16, 146 model, 146, 151–152 moral hazard, 24 motivations, 19, 163 multiple equilibria, 26, 67, 99, 335 multiplier effect, 286 mutation, 27, 213 J judgment, 7, 232 N Nash equilibrium, 87–88, 176, 194 354 INDEX neoclassical economic theory, 5, 116 neuroeconomics, 16–17 neurons, 16, 146, 316 new institutional economics, 20 nonergodicity, 221 norm compliance, 102, 114 descriptive, 4, 66 injunctive, social, 3, 66, 68–69, 90 O opinions, 18, 40 opportunism, 21 opportunities, 325 order extended, 225 physical, 146, 153, 331 sensory, 15, 144, 153 social, 198 spontaneous, 183 organism, 146, 151 organization, 24, 117 organized complexity, 189 P Pareto efficiency, 120 path dependence, 26, 100, 221–222 pattern, 167, 321, 329 payoff, 87, 176 perception, 7, 15, 152, 180 plan, 146, 179 population genetics, 214 positive feedbacks, 26, 100 positive-sum, 200 possible selves, 266 precedence, 191–192, 196–197, 336 prediction, 66, 191 preferences, 5–6, 32 procrastination, 30, 35 property rights, 199, 251–252 prospect theory, public goods, 79, 119 punishment, 23, 78–80 Q quasi-hyperbolic, 33 QWERTY, 26, 222 R rationality bounded, 11, 21, 231 constructivist, 12, 72 ecological, 12, 72–73, 232 global, 10–11 procedural, 11, 223 reality, 167, 175 reference point, 9, 129 regularity, 162, 195, 329 reinforcement, 161, 316 representativeness, 7, 160 reproduction, 148, 165, 214 reputation, 23, 74 risk, 158–159 routine, 27, 315 rule-following, 183, 224 rules cognitive, 13, 175, 334 of conduct, 155, 189, 219, 227 formal and informal, 65, 167 S salience, 192, 196–197, 332, 336 satisficing, 70 schemata, 211 scientism, 168 security, 258 self, 31, 267–268 self-confidence, 271 INDEX self-control, 30 self-enhancement, 268 self-interest, 91 self-organization, 176, 190 shareholder, 115–116 social brain, 319 socialization, 92, 100, 118 stakeholder, 116–117 state of nature, 251 stereotypes, 287 stigmatizing effect, 286 subjectivity, 15, 147, 162 sub-optimal, 248 survival, 210, 214 sympathy, 317 T tax compliance, team, 24 temptation, 35, 73 theory of mind, 316 threat, 90, 103 time, 70 time inconsistency, 31 top-down, tradition, 208, 215 transaction costs, 20 trust, 253 355 U ultimatum game, 83, 216–218 uncertainty, 158–159 unpredictability, 183, 221 updating, 149 V value function, variants, 209–210 viscosity, 72 volatility, 323 W wage, 285–286 Walrasian general equilibrium theory, 330 wealth, 199–200 welfare, 128 well-being, 76, 117, 283 X x-inefficiency, 28, 224, 296 Z zero-sum game, 200 ... http://www.springer.com/series/14720 Shinji Teraji Evolving Norms Cognitive Perspectives in Economics Shinji Teraji Yamaguchi University, Yamaguchi Japan Palgrave Advances in Behavioral Economics. .. People incorporate in themselves a set of social norms from their surroundings Norms govern behavior, and are self-sustaining in an PREFACE AND ACKNOWLEDGEMENTS ix interdependent system Norms. .. subjectivity of individual knowledge finds its foundation in the construction of the mind The brain is an adaptive system interacting with and adapting to its environment by performing a multi-level