The ancient rabbis were quite wise overall, imho. As the wiki points out, the rabbis humanized the principle. Whereas Hammurabi’s code was actual retribution, the rabbis eventually worked it out to restitution. I think this is a general human tendency, that people would prefer being made whole instead of making the other suffer. After all, if your wife was murdered, would you rather her murderer be executed or somehow undo your wife’s murder? Of course, you might be against executing the murderer anyway, but the point is that I think most people would prefer undoing the crime if at all possible. Reciprocal retribution is a limiter on violence. Instead of killing any person who has wronged you, you may only do to him what he has done to you.
But there must be violence or the threat thereof for there to be restitution. If we were to rely upon criminals to grow consciences and then pay restitution, we would be very lucky indeed if victims ever saw restitution. Reciprocal retribution limits the violence that can be used or threatened in order to receive restitution. Of course, the victim might decide he prefers the retribution to the restitution, but in a system of customary law, this would be the exception rather than the rule. See Clayton’s post on A Praxeological Account of Law for why this is likely.
Well, this is getting into knowledge of social norms and customs, and it is entirely relevant. If a mugger is part of a group that kidnaps and kills people who resist, that knowledge is entirely relevant to the matter at hand. Perhaps there are some libertarians who believe that it is irrelevant and that only the immediate facts of the case are relevant, but I think it would be foolish to throw out the extra knowledge. If there is an implicit threat of deadly force, there is still a threat of deadly force. What constitutes an implicit threat can only really be known through social norms and customs, but they are still threats nonetheless.