In this paper we offer a new theory of religion. Our theory relies on the assumption that individuals in society have different beliefs about the relation between their actions and the utility they gain in a strategic social interaction (specifically, a Prisoner's Dilemma). This heterogeneity of beliefs allows for the endogenous existence of religious institutions. Such institution is characterized by its members partaking in a costly and observable activity, thus the theory provides a rationale for social rituals. In addition, members of the religious organization share similar beliefs, tend to cooperate with one another, and also face a larger degree of cooperation from the rest of society than non-members do. Our theory provides therefore a link between individual beliefs, social rituals, and social cohesion.
