Rational Choice Theory

RATIONAL CHOICE 3702
6061
6088
THEORY #CoopFam
WHAT IS RATIONAL CHOICE THEORY?
An economic principle that assumes that individuals

make prudent and logical decisions that provide them
with the greatest benefit or satisfaction and that are
in their highest self-interest is the idea behind
Rational Choice Theory. Human beings, thus, their
behavior on rational calculations of the benefits and
risks involved in doing action. People therefore act
with rationality when making choices that are aimed
at optimization of their pleasure or profit.
Is also known as the CHOICE THEORY or RATIONAL
ACTION THEORY. Is a general theory of action and
is considered one of the three overarching meta-
theoretical paradigms in the social sciences, with
structural-institutional theories and cultural
theories constituting its main competitors.
Rational choice theory explains social phenomena
as outcomes of individual choices that can—in
some way—be construed as rational.
CHOICES are RATIONAL. If they meet some
consistency criterion as defined by a decision
theory and are suitable to achieve specific goals,
given the constraints of the situation. Rational
choice theory comes in many varieties, depending
on the assumptions that are made concerning
preferences, beliefs, and constraints—the key
elements of all rational choice explanations.
PREFERENCES
Denotes the positive or negative

evaluations individuals attach to
possible outcomes of their actions.
Preferences can have many personal
habits and commitments.
BELIEFS
Refers to the perceived cause-effect

relations, including perceived
likelihood with which an individual’s
actions will result in different possible
outcomes.
CONSTRAINTS
Define the limits to the set of feasible

actions.
E C ON OM IST S USE A LOGI CA L A X I OM W HE RE I N T HE Y M A KE A
DE C I SI ON . T H E Y M A KE A C E RTA IN PAT TERN I N W H I C H T H E Y
CA N M A KE A RAT I ONAL OUTC OM E
1. A person starts with a desire – create a belief –

propels you to act.
2. A person starts with a desire – propels you to act
immediately.
3. A person starts with a desire – create a belief –
come upon new information – create a new belief –
propels you to act.
4. A person starts with a desire – seek information –
create a belief – propels you to act.
ASSUMPTIONS OF RATIONAL CHOICE
THEORY
1. Completeness – all actions can be ranked in a
complete partial ordering of preference (indifference
between two or more is possible).
2. Transitivity - if action A is preferred to B, and action B
is preferred to C, then A is preferred to C.
3. Independence of irrelevant alternatives – if A is
preferred to B out of the choice set (A,B), then
introducing a third alternative X, thus expanding the
choice set to (A,B,X), must leave A preferred to B.
AN INDIVIDUAL’S PREFERENCES CAN ALSO
TAKE FORMS:
STRICT PREFERENCE – occurs when an
individual prefers A to B and they are not
equally preferred.
a WEAK PREFERENCE – can be held in which
an individual has either prefers A over B or is
indifferent between them.
INDIFFERENECE – occurs when an individual
does not prefer A to B, or B to A.
STRENGTHS & OF
RATIONAL
CHOICE
WEAKNESSES THEORY
STRENGTHS
1. The rational choice approach allows preferences to be
represented as real-valued utility functions.
2. It provides a compact theory that makes empirical
predictions with a relatively sparse model.
3. This approach is strikingly general. It has been used to
analyze not only personal and household choices about
traditional economic matters like consumption and savings,
but also choices about education, marriage, child-bearing,
migration, crime and so on, as well as business decisions
about output, investment, hiring, entry, exit, etc. with
varying degrees of success.
WEAKNESSES
1. Bourdieu argued that social agents do not continuously
calculate according to explicit rational and economic
criteria. Social agents act according to their “feet for the
game”.
2. The empirical outputs of rational choice theory have been
limited, rational choice theory has provided very little to the
overall understanding of political interaction.
3. Nobel laureate Herbert Simon proposed the theory of
bounded rationality, which says that people are not always
able to obtain all the information they would need to make
the best possible decision.
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RATIONAL CHOICE 3702

An economic principle that assumes that individuals

Denotes the positive or negative

Refers to the perceived cause-effect

Define the limits to the set of feasible

1. A person starts with a desire – create a belief –

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