The Social Embeddedness of Labor Markets and Cognitive Processes

Conventional economic theory explains labor market outcomes in terms of the interaction of autonomous individual actors who continually calculate the relative advantages of different possible actions they might take. But it has trouble explaining cooperation among individuals in these terms; and even individualistic behavior in this model is based upon a series of prior misunderstandings, or causal models, which the actors are simply assumed to possess. This paper utilizes cognitive theory to explore the nature of these prior understandings, how we got them and the way in which they are likely to be revised and updated through experience. This explanation suggests that economic behavior is much more dependent upon direct interaction among individuals than conventional theory implies and it makes trust and cooperation central to economic activity. But it raises serious questions about whether a dynamic economic system could ever be housed in the competitive institutional structure which conventional theory prescribes.