Cognitive Rules and Institutions - On the Interrelation of Intrapersonal and Interpersonal Rules

Rules possess an important influence on rational individual behaviour. In economic analyses, two different types of rules occur that both induce rule-following behaviour, however, they are rarely distinguished. The differentiation of interpersonal rules (institutions as collective rules) and intrapersonal rules (cognitive rules and models as individual rules) allows for a clarification of substantial differences of the two types of rules, for example, concerning the incorporated knowledge and rule-persistence. Above all, the analysis of the interrelation of the two types of rules offers fruitful theoretical and political insights that still are not explored much in economics. The important dimensions to be considered are rule-harmony that stabilizes institutional arrangements and rule-conflict that induces pressure to persistent institutions. In this context, competition can be seen as a medium of interaction that allows individual agents to learn both about the behaviour of interacting agents and the nature and effects of the institutional framework. Applications of the generated insights include the driving forces and obstacles of institutional reform. Along with other influential factors, institutional reforms are inhibited if harmony between the old institutional arrangement and the prevailing cognitive theories and rules dominates, and encouraged if rule-conflict prevails. Thus, institutional policy has to consider the interrelation of intrapersonal and interpersonal rules to achieve its targets with a suitable probability. Further research probably will allow to derive general principles to institutional policy that facilitate successful institutional reforms.