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Purpose – To show that Hayek's cognitive theory sheds light on Hayek's institutional theory.

Methodology/Approach – Although F. A. Hayek contributed richly to many fields of economics – from capital theory to monetary theory, and from institutions to spontaneous order – one theme is omnipresent in his work: the knowledge problem. This paper examines Hayek's work in psychology, The Sensory Order, and argues that there exist strong parallels between Hayek's cognitive and institutional theories.

Findings – Hayek's institutional (or social) theory makes a lot more sense when understood as a necessary consequence of his cognitive theory. Furthermore, Hayek's cognitive theory allows for rational individuals making choices that are socially embedded.

Research limitations/implications – Three Hayekian themes are explored: (1) institutional implications of limited knowledge; (2) learning and knowledge generation; and (3) mental models. The paper then uses a challenge within Hayek – the tension between microlevel methodological individualism and macrolevel institutional evolution – as a starting point toward resolving the lingering individual-culture methodological puzzle in contemporary economics. These are mere starting points for further research.

Originality/value of paper – Horwitz (2000) writes that “Hayek's thought will have come to fruition when the social sciences abandon rationalist and constructivist explanations of social phenomena in favor of ones that recognize the roles of tacit and contextual knowledge, institutional evolution, and spontaneous order. Such an approach would dramatically improve our understanding of the human mind.” This paper offers a step in that direction.

Purpose – Overview of Hayek's cognitive theory and the contributions of chapters.

Methodology/approach – Perspective on significance of Hayek's cognitive theory for the social sciences.

Findings – Hayek's cognitive theory provides insight into his oeuvre; more importantly, it is relevant for social theory in its own right.

Research limitations/implications – Hayek's cognitive theory warrants further attention by economists and social theorists interested in evolutionary social processes.

Originality/value of paper – To counter a widespread view that the contribution to economics and social science of Hayek's cognitive theory is largely confined to methodology. Hayek's cognitive theory also provides a useful framework for furthering the understanding of evolution within the social realm.