Shared Mental Models: Ideologies and Institutions

Denzau and North argue that ideas matter, and that the way that ideas are communicated among people is crucial to building useful theories that will enable us to deal with strong uncertainty problems at the individual level. Under conditions of uncertainty, individuals' interpretation of their environment will reflect the learning that they have undergone. Individuals with common cultural backgrounds and experiences will share reasonably convergent mental models, ideologies and institutions and individuals with different learning experiences (both cultural and environmental) will have different theories (models, ideologies) to interpret that environment. It is the argument of this essay that in order to understand decision making under such conditions of uncertainty we must understand the relationship between the mental models that individuals construct to make sense out of the world around them, the ideologies that evolve from such constructions, and the institutions that develop in a society to order interpersonal relationships.

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