Evolution of Economy is shaped by the interaction between organizations and institution.

A
group of individuals with same goal make an organization when they are bonded together. We
make take many examples such as political bodies, economic bodies, social bodies, and
educational bodies. An organization that emerges usually reflects the morals and rewards that
are provided by institutional matrix. Productive institutional matrix makes productive
organizations. The choices made by the entrepreneurs, and individuals initiate the process of
economic change. Usually, these decisions are routine in nature but sometimes re-contracting
and new contracts are formed between individuals and organization, thus making the norms of
behaviours be modified and altered and moreover this thing leads to the alteration of
institutions. These changes or modifications occur due to this fact that individuals believe that
due to restructuring they could increase the output or do better, the long run change is the
learning of the individuals and of organizations. Although curiosity leads to learning, but the
gradient of learning is proportional to competition amongst the organizations. The greater the
degree of monopoly power the lower the incentive to learn. Although economic change is the
function of rate of learning, but rate of learning is a function or derivative of payoffs.

Although rational choice approach says that individuals know what is in their best interest and
in the highly developed markets it may be even true, but in the uncertain outcome situations
this idea is not applicable. Herbert Simon has stated, ‘If… we accept the proposition that both
the knowledge and the computational power of the decision-maker are severely limited, then
we must distinguish between the real world and the actor’s perception of it and reasoning
about it. We must construct a theory (and test it empirically) of the process of decision. Our
theory must include not only the reasoning processes but also the processes that generated
the actor’s subjective representation of the decision problem, his or her frame. (Simon, 1986,
pp. S210-11)’. Our analytical framework built must take human learning in consideration and
try to understand it. Learning means the perception of signals from the environment and
making an outcome of those experiences so that one may remember as to what happened
when a specific reaction was produced. Learning process starts from birth and keeps on going
as long as it takes. Thus, the mental models may be continually redefined with new
experiences, including contact with others’ ideas. A human mind keeps on reordering and
ordering the mental models so that new spaces of learning are constantly available and that
evolves, this constant change underly and point to new choices which a human being make.
To reduce the divergence in the human mind a common cultural heritage provides the means
for the intergenerational transfer of unifying perceptions. There is unique bond between
mental models and the institutions. Mental models are the internal representations that
individual cognitive systems create to interpret the environment; institutions are the external
(to the mind) mechanisms individuals create to structure and order the environment