The Best Rules Are Those You Can’t Write Down

The origin, maintenance, and evolution of rule systems is at the core of our understanding of what makes societies work or fail. My own bias is to think in terms outlined by one of my dissertation advisors, Douglass C. North.

The static version of North’s view has two parts. First, institutions are the humanly devised “rules of the game” that shape and direct human behavior. Second, it is important to separate institutions, which are the rules that create incentives and structure payoffs, and organizations, which are humanly devised optimizing responses to institutions.

Institutions, because of path dependence, collective-action problems in voting (along the lines often argued by Bryan Caplan), and failures in our mental capacity to process feedback accurately, are rarely in any sense optimal.

Organizations, on the other hand, are always contingently optimal, given the (possibly pathological) incentives created by institutions.

The dynamic aspects of North’s theory are frustratingly vague. To be fair, though, that was in some ways intentional, along the lines of R.H. Coase’s famous but frustrating refusal ever to give a clear definition of “transaction costs.” North often said (I heard him say it), “The problem for theory is to explain why institutions almost never change, until they do.” Competition among organizations fosters innovation, and innovation can overwhelm institutions that remain relatively static because of “transitional-gains traps” (a la Gordon Tullock).

But by and large, it’s hard to say just what the specific rules of the game are, in most social settings. Knowledge of manners, norms, and social expectations usually requires being immersed in the particular culture in which you are trying to live.

Gamer Rules

I would contrast this fuzzy, murky process of rule perception with the “gamer” view I talked about last week here at AIER. The gamer view is that the rules, including even the very physics of the social world, are something that can be written down and therefore can be changed. The interactions among rules may be complex, and may affect the state of “play” in complex ways, but, overall, rules can be understood and modified by smart folks.

The alternative view, the view partly articulated by North but more fully developed by F.A. Hayek, is what I would call the “world traveler” view. If you visit another country, it is foreign, partly because you aren’t sure what the rules are. The etymology of the word “foreign” is to be on the other side of a door or boundary, to be out of your home territory. What this suggests is that the rules may be different.

Some of the rules you can look up or read about. But often the rules are just assumed because everyone knows them. In many cases, people may be so used to the rules they know that they don’t even recognize the possibility that it could be otherwise, unless they are world travelers. I described an experience of mine in Erlangen, Germany, in an earlier column, where I didn’t know about the practice of collecting a deposit on shopping carts. No one told me about this, and I thought I recognized the context of “grocery store” as familiar, one where I knew the rules. But I didn’t.

Bicycles and Pedestrians

I had another experience in Germany, one that made me think of the importance of what Hayek called “the particular circumstances of time and place.” Erlangen, where I taught at Friedrich Alexander University, is a city of bicycles. There are roads, but most are narrow and there are so many bikes that it can be frustrating to drive.

The bike riders, as is true in many American cities, paid little attention to the traffic lights. Often, there were so many bikes that it was not possible to cross the street without getting in the way. But I noticed that people did cross, just walking right out into the street.

I tried this, several times, in my first time in Erlangen. But being from the southern United States, I’m polite and deferential. So, I would start across the street, but then look up the street, and if a bike was close and coming fast I’d stop.

And get hit by a large, sturdy German on a large, sturdy German bicycle. And then I got yelled at, in German. What had I done wrong? Eventually, I figured it out: there had evolved a convention for crossing the street and for riding bicycles. The pedestrian simply walked at a constant speed, without even looking. The bicyclist would ride directly at the pedestrian, actually aiming at the spot where the pedestrian was at that point in time. Since the pedestrian kept moving in a predictable fashion, the cyclist would pass directly and safely behind the pedestrian.

If some idiot from the southern United States, in an effort to impose his own views of “polite” behavior on people whose evolved rules were different, tried to be polite and stop, the system broke down. Though that idiot (me) was stopping to avoid being hit, I was actually being rude by violating the rules. These rules were not written down and could not easily be changed.

In fact, a number of my German colleagues even denied that it was a rule, at first. But then they would say, “Well, right, you can’t stop. That would be dumb. So, okay, I guess it is a rule, after all.”

More precisely, this rule — like many other important rules you encounter in “foreign” settings — is really a convention. A convention, according to Lewis (1969), is a persistent (though not necessarily permanent) regularity in the resolution of recurring coordination problems, in situations characterized by recurrent interactions where outcomes are (inter)dependent.

Conventions, then, exist when people all agree on a rule of behavior, even if no one ever said the rule out loud or wrote it down. No one actor can choose an outcome, and no actor can challenge the regularity by unilaterally deviating from the conventional behavior. But deviation can result in substantial harm, as when someone tries to drive on the left in a country where “we” drive on the right, or social sanction, as when there is intentional punishment on behalf of other actors if deviation is observed and publicized.

According to David Hume, convention is

a general sense of common interest; which sense all the members of the society express to one another, and which induces them to regulate their conduct by certain rules. I observe that it will be to my interest [e.g.] to leave another in the possession of his goods, provided he will act in the same manner with regard to me. When this common sense of interest is mutually expressed and is known to both, it produces a suitable resolution and behavior. And this may properly enough be called a convention or agreement betwixt us, though without the interposition of a promise; since the actions of each of us have a reference to those of the other, and are performed upon the supposition that something is to be performed on the other part. (Hume, 1978; llI.ii.2)

Notice how different this is from the “gamer” conception of laws and rules. For the gamer, all the rules can be — in fact, must be — written down and can be examined and rearranged. For the world traveler, the experience of finding out the rules can involve trial and error, and even the natives likely do not fully understand that the rules and norms of their culture are unique.

The Left Turn

One of my favorite examples is actually from the United States, the so-called Pittsburgh Left Turn. In an article in the Pittsburgh City Paper in 2006, Chris Potter wrote:

As longtime residents know, the Pittsburgh Left takes place when two or more cars — one planning to go straight, and the other to turn left — face off at a red light without a "left-turn only" lane or signal. The Pittsburgh Left occurs when the light turns green, and the driver turning left takes the turn without yielding to the oncoming car.

Pittsburgh is an old city, many of whose streets were designed before automobiles held sway. [That means] that street grids are constricted, with little room for amenities like left-turn-only lanes. The absence of such lanes means drivers have to solve traffic problems on their own. Instead of letting one car at the head of an intersection bottle up traffic behind it, the Pittsburgh Left gives the turning driver a chance to get out of everyone else's way. In exchange for a few seconds of patience, the Pittsburgh Left allows traffic in both directions to move smoothly for the duration of the signal. Of course, the system only works if both drivers know about it. No doubt that's why newcomers find it so vexing.

The Pittsburgh Left is a very efficient convention. On two-lane streets, turning left can block traffic as the turning car waits for an opening. And left-turn arrows are expensive and add time to each traffic light cycle. Far better to let the left turners — if there are any — go first. If there are no left turners, traffic just proceeds normally, not waiting on a left arrow.

Of course, if some idiot from the southern United States (yes, me again) is driving in Pittsburgh, that person expects to go when the light turns green. I blew my horn when two cars turned left in front of me. And people on the sidewalk yelled at me, as did the left-turning drivers. Once again, I didn’t know the rules, because I was a foreigner, at least in terms of the rules of the road in Pittsburgh.

Actually, it’s worse than that. The Pittsburgh Left is technically illegal, according to the Pennsylvania Driver’s Handbook (p. 47): “Drivers turning left must yield to oncoming vehicles going straight ahead.” The written rules, the gamer rules, appear to endorse one pattern of action. But the actual rules, the ones you have to travel around to learn, may be quite different. Real rules are not written down, and the people living in that rule system may not understand either the nature or effects of the rules. It is very difficult to change conventions, because they represent the expectations people have developed in dealing with each other over years or decades.

Hayek understood this clearly, and argued for what I have called the “world traveler” conception over what I have called the “gamer” conception of rules and laws. As Hayek said in 1988, in The Fatal Conceit:

To understand our civilisation, one must appreciate that the extended order resulted not from human design or intention but spontaneously: it arose from unintentionally conforming to certain traditional and largely moral practices, many of which men tend to dislike, whose significance they usually fail to understand, whose validity they cannot prove, and which have nonetheless fairly rapidly spread by means of an evolutionary selection — the comparative increase of population and wealth — of those groups that happened to follow them.… This process is perhaps the least appreciated facet of human evolution.

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Michael Munger

Michael Munger is Professor of Economics at Duke University and Senior Fellow of the American Institute for Economic Research. His degrees are from Davidson College, Washingon University in St. Louis, and Washington University.