Is There a Neurological Foundation for Institutions? Mirroring, Sympathy, and Institutional Design
Abstract: Is there a neurological foundation for institutions? Recent neuroscience research has expanded our understanding of the cognitive foundations of economic decision-making at the individual level, but the implications of this research for institutions and institutional design have not yet been fully explored using the tools and concepts of new institutional economics. This paper explores these implications generally, focusing in part on the implications of mirror neuron systems research and the possible connection of the mirror system with the concepts of sympathy and mutual sympathy that Smith (1759) characterized as being at the foundation of evolved human institutions that enable civil society. Smith's connection between mutual sympathy and institutions also generates some hypotheses regarding the role of social distance in the form that institutions can take (an analysis that is similar in many ways to that of Hayek (1973) on laws and extended orders), and why those institutions change, for example, in the move from personal to impersonal exchange. The connection of mirror neurons with these concepts is consistent with their hypotheses, as well as the experimental research on the effects of social distance and social cues in dictator games.