Uncertainty, bias and the institution bootstrapping problem

Abstract: Institutions play a critical role in enabling communities to manage common-pool resources and avert tragedies of the commons. However, a fundamental issue arises: Individuals typically perceive participation as advantageous only after an institution is established, creating a paradox: How can institutions form if no one will join before a critical mass exists? We term this conundrum the institution bootstrapping problem and propose that misperception, specifically, agents' erroneous belief that an institution already exists, could resolve this paradox. By integrating well-documented psychological phenomena, including cognitive biases, probability distortion, and perceptual noise, into a game-theoretic framework, we demonstrate how these factors collectively mitigate the bootstrapping problem. Notably, unbiased perceptual noise (e.g., noise arising from agents' heterogeneous physical or social contexts) drastically reduces the critical mass of cooperators required for institutional emergence. This effect intensifies with greater diversity of perceptions. We explain this counter-intuitive result through asymmetric boundary conditions: proportional underestimation of low-probability sanctions produces distinct outcomes compared to equivalent overestimation. Furthermore, the type of perceptual distortion, proportional versus absolute, yields qualitatively different evolutionary pathways. These findings challenge conventional assumptions about rationality in institutional design, highlighting how "noisy" cognition can paradoxically enhance cooperation. Finally, we contextualize these insights within broader discussions of multi-agent system design and collective action. Our analysis underscores the importance of incorporating human-like cognitive constraints, not just idealized rationality, into models of institutional emergence and resilience.