Abstract

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. Individuals construct mental models to produce expectations about institutions, while institutions make individual expectations relatively compatible. The main purpose of this paper is to develop a general framework within which it is possible to analyze coevolution of individual mental models and institutions.