Was looking back at some old blog entries (ok... this sounds like some major ego surfing I suppose) and re-read the article I linked to in this entry.   In it, I found another very quotable quote from Francis Fukuyama:

I would say that there is still something limited in economists’ approach to understanding how norms are generated because they still depend on this rational utility maximiser model, and then use game theory to understand how norms develop. That explains how some norms come to be, but in other cases they come from religion, or inherited tradition, or some other source that does not have a rational utility maximising explanation. That's the weakness in the neo-classical paradigm—not that it ignores norms but it doesn't really have, and I would argue can't really have, a theory of norm generation that's adequate.

Bravo.   This is something I've tried to explain to some friends who argue that the difference in shoplifting rate (for example) between the US vs. India is the simple result of better law enforcement here.   For a given level of enforcement, there's a probability that if I engage in "cheating behavior" that I will get caught.  In most societies however, we steal  / cheat at far less than the micro-econ predicted "optimal" level based on an individual balancing of risk vs. reward (what Fukuyama refers to as the Neo-Classical paradigm).   

While there are some "socially beneficial" behaviors which have their origin in individual maximization, there are also significant "socially beneficial" impulses we carry which are actually extra-micro-economic in origin.  Among the reasons for this delta are the norms that Fukuyama describes - cultural, moral, pride, religion, genetic (kin selection), and so on.   *I feel* a level of disgust if *I* cheat even if I know I'll never get caught that goes above and beyond 'rational' impulses like reputation effects.

At a social level, this has tremendous consequences - for ex., a society w/ a dominant religion that tells you you'll go to hell if you cheat on your biz partner will go much farther than one that merely says "don't cheat a fellow tribesman".   We in the West often forget the degree to which our capitalist system rests on these unseen impulses and often misleadingly try to explain it "ass backwards" through the lens of our capitalistic success.