It worked fine for decades and it wasn't a bad way to live, really- just different. It did fall apart into something rather horrifying though, I'll admit. I suppose there wouldn't be books if it didn't.
I'm from Dauntless, but I was- It is rather limiting. I don't entirely agree with the faction system, to be honest. There are some people who are considered divergent which means they have more flexible minds than most. You don't have to remain in the faction you're born into, however. You can switch, so it's at least not so restrictive in that sense.