Why Rules Exist Even When They Make No Sense

Why This Seems Stupid

You encounter a rule that's obviously counterproductive. Your company requires approval from three different managers for decisions any one could make. Your institution requires paperwork that serves no purpose. The government mandates compliance that wastes resources without achieving stated goals.

Everyone recognizes the rule is inefficient. Yet nobody changes it. This seems irrational, yet it's remarkably consistent.

How Normal Thinking About Rules Works

Intuitively: Rules exist for reasons. If a rule persists, it must serve some purpose.

If you don't understand the purpose, you either:

1. Haven't looked deep enough
2. Are missing context
3. Should defer to whoever made the rule

This rationality-assuming view misses how rules actually persist.

How Rules Actually Persist (Mechanisms)

Mechanism 1: Bureaucratic Inertia & Path Dependence

Once a rule is established, reversing it requires action and justification. Maintaining it requires nothing—it's the default.

Why rules persist despite being inefficient:

• Cost of change is visible and concentrated (on whoever proposes change)
• Cost of keeping bad rule is diffuse and invisible (spread across everyone)
• Power protects established rules (whoever benefits from rule will resist change)
• Sunk costs anchor decision-makers (we've already invested in this rule, invested in training people for it)

Real example: IT project failures

• 16.2% of IT projects succeed (on time, on budget)
• 52.7% fail significantly (over budget, behind schedule)
• Yet organizations keep using same project management frameworks

Why? Sunk cost fallacy. Investment in methodology, training, processes creates inertia even when failing.

• Each failure, rather than triggering reassessment, triggers additional investment
• "If we just commit more resources, it'll work" (classic escalation)
• Previous investment justifies continued investment

Mechanism 2: Institutional Isomorphism

Organizations adopt practices not because they work, but because:

1. Competitors use them (mimetic isomorphism)
2. Professional standards require them (normative isomorphism)
3. Law mandates them (coercive isomorphism)

The key: Cause-and-effect relationships are unclear. So organizations copy what appears successful.

Real example: Management practices

• Best-practice frameworks spread across industries
• Organizations adopt them without evidence they improve outcomes
• Adoption is justified because competitors do it, not because it works

Companies use Six Sigma, Agile, OKRs, balanced scorecards—not necessarily because these improve performance, but because other companies use them and success is ambiguous anyway.

Mechanism 3: Legitimacy Protection

Breaking rules appears illegitimate. Keeping dysfunctional rules appears legitimate because they're established and expected.

Organizations maintain rules not because they're efficient, but because they're seen as legitimate, proper, and appropriate.

A startup with no approval process looks chaotic. A corporation with three approval levels looks serious, professional, accountable.

The appearance of legitimacy can matter more than actual efficiency.

Mechanism 4: The Sunk Cost Trap

Investment in a rule (training, building infrastructure around it) creates psychological anchoring.

Abandoning the rule means admitting the investment was wasted. So rather than cut losses, organizations invest more.

70% of mergers fail to create value, yet companies continue pursuing acquisition strategies.

Why? Sunk costs in M&A processes, corporate development departments, advisors.

Organizational bad hires persist 5+ years because:

• Recruiting cost was "invested"
• Training cost was "invested"
• Managers irrationally believe continued investment can recover the cost

The cost cannot be recovered either way. But sunk cost psychology makes abandonment feel worse than continued loss.

Mechanism 5: Power Protection

Rules protect incumbent power. Changing rules threatens those benefiting from them.

A manager benefits from approval authority. A rule requiring their approval persists because changing it threatens their position.

A professional license restricts competition. The rule persists because licensing boards are staffed by incumbents.

Those with most power to change rules are those most benefiting from them—creating a lock-in.

Mechanism 6: Coordination Problems

Everyone recognizes the rule is bad. But nobody can unilaterally change it without appearing to violate rules (which is punishable).

Coordination to change the rule requires everyone agreeing simultaneously. But agreeing requires trusting others will follow through.

Easier to stay with known bad rule than risk coordination failure.

Why Dysfunctional Rules Spread (The Multiplier Effect)

Rules Create Need for More Rules:

A dysfunctional rule creates problems. Solutions to those problems are new rules. New rules create new problems. Rules proliferate.

Tax code example:

• Original tax code: simple, clear
• Business lobbying creates exemptions (rule 1)
• Exemptions create loopholes, requiring clarifications (rule 2)
• Clarifications enable new loopholes, requiring new rules (rule 3)
• 80+ years later: 10,000+ page tax code nobody understands

Each rule solved a problem. But no rule was ever removed. Net result: system nobody can navigate.

Real Problems This Creates

1. Organizational Paralysis

So many rules that nothing gets done. So much approval required that projects stall.

2. Regulatory Barriers

Rules ostensibly protecting consumers instead protect incumbents from competition.

Medical licensing prevents too few doctors (protecting those licensed) while harming patients (higher costs, less access).

3. Innovation Suppression

Rules make established ways of doing things frictionless, new ways costly.

Would-be startups calculate regulatory compliance costs, conclude they're unviable, abandon businesses that would create value.

4. Hidden Complexity

Rules designed to prevent bad outcomes instead create labyrinthine processes.

Whoever understands the maze gains power. Most people lose time and freedom.

Common Myths

Myth 1: "Bad rules will change once people understand they're bad."

False. Understanding is insufficient. Changing requires overcoming path dependence, sunk costs, power protection, coordination problems.

Myth 2: "Efficiency matters more than legitimacy."

False. Organizations care deeply about appearing legitimate. A dysfunctional-but-legitimate rule persists over efficient-but-illegitimate alternative.

Myth 3: "More rules solve problems."

False. Rules proliferate solving old problems, creating new ones.

Myth 4: "Rules are just formalized best practices."

False. Many rules persist despite being demonstrably worse than alternatives.

Why Trending Now?

2024-2025 Regulatory Burden Conversation:

• Increasing recognition that compliance costs outweigh benefits in many sectors
• Startups bypassing industries entirely because rules make them unviable
• Organizations attempting to simplify overgrown rule systems
• Tension between legitimacy (requires rules) and efficiency (requires fewer rules)

Are These Rule Mechanisms a Threat?

To Innovation: Absolutely. Rules create barriers to entry and new approaches.

To Efficiency: Yes. Dysfunctional rules compound into systems nobody can navigate.

To Freedom: Yes. Rules create compliance burden that consumes time, money, and autonomy.

Future Outlook

Rule Simplification Efforts:

• Regulatory reform attempting to eliminate redundant rules
• Agencies tasked with removing rules for every new rule created
• Sunset clauses requiring periodic rule justification

Decentralization & Autonomy:

• Organizations flattening approval hierarchies
• Self-managed teams replacing rule-based management
• Trust-based culture replacing compliance-based culture

Systemic Risk:

• Complexity increasing faster than simplification efforts
• Rule systems becoming incomprehensible to everyone
• Power protecting dysfunctional rules increasing rather than decreasing

Conclusion

Rules persist not because they're efficient but because changing them requires overcoming path dependence, sunk costs, power protection, legitimacy concerns, and coordination problems. Bureaucratic inertia makes the default (maintaining rules) easier than acting (changing them). Institutional isomorphism spreads rules not because they work but because others use them. Sunk costs anchor decision-makers, making continued investment in bad rules rational despite losses. Power protects rules that benefit incumbents. The result: systems accumulate rules solving old problems while creating new ones, producing complexity that benefits those who understand the maze while harming everyone else. Understanding these mechanisms reveals that dysfunctional rules are not anomalies but inevitable outputs of how institutions actually operate.