Institutions Have Knowledge, Not People

Charlie Plott gave us the Fundamental Equation for an economic explanation. The simplified version is Preferences + Beliefs + Institutions = Outcomes. To explain differences on the right-hand side, you need differences on the left-hand side. Given our understanding of decision theory since Savage, decision-makers are simply endowed with beliefs and preferences. Those are starting assumptions. We don’t think of those changing directly. After all,

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