Sociological theory
The rational choice model, also called rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to the political economist and philosopher Adam Smith. The theory postulates that an individual will perform a cost–benefit analysis to determine whether an option is right for them. Rational choice theory looks at three concepts: rational actors, self interest and the invisible hand.
Rationality can be used as an assumption for the behaviour of individuals in a wide range of contexts outside of economics. It is also used in political science, sociology, and philosophy.
Overview.
The basic premise of rational choice theory is that the decisions made by individual actors will collectively produce aggregate social behaviour. The theory also assumes that individuals have preferences out of available choice alternatives. These preferences are assumed to be complete and transitive. Completeness refers to the individual being able to say which of the options they prefer (i.e. individual prefers A over B, B over A or are indifferent to both). Alternatively, transitivity is where the individual weakly prefers option A over B and weakly prefers option B over C, leading to the conclusion that the individual weakly prefers A over C. The rational agent will then perform their own cost–benefit analysis using a variety of criterion to perform their self-determined best choice of action.
One version of rationality is instrumental rationality, which involves achieving a goal using the most cost effective method without reflecting on the worthiness of that goal. Duncan Snidal emphasises that the goals are not restricted to self-regarding, selfish, or material interests. They also include other-regarding, altruistic, as well as normative or ideational goals.
Rational choice theory does not claim to describe the choice process, but rather it helps predict the outcome and pattern of choice. It is consequently assumed that the individual is a self-interested or “homo economicus”. Here, the individual comes to a decision that optimizes their preferences by balancing costs and benefits.
Rational choice theory has proposed that there are two outcomes of two choices regarding human action. Firstly, the feasible region will be chosen within all the possible and related action. Second, after the preferred option has been chosen, the feasible region that has been selected was picked based on restriction of financial, legal, social, physical or emotional restrictions that the agent is facing. After that, a choice will be made based on the preference order.
The concept of rationality used in rational choice theory is different from the colloquial and most philosophical use of the word. In this sense, "rational" behaviour can refer to "sensible", "predictable", or "in a thoughtful, clear-headed manner." Rational choice theory uses a much more narrow definition of rationality. At its most basic level, behavior is rational if it is reflective and consistent (across time and different choice situations). More specifically, behavior is only considered irrational if it is logically incoherent, i.e. self-contradictory.
Early neoclassical economists writing about rational choice, including William Stanley Jevons, assumed that agents make consumption choices so as to maximize their happiness, or utility. Contemporary theory bases rational choice on a set of choice axioms that need to be satisfied, and typically does not specify where the goal (preferences, desires) comes from. It mandates just a consistent ranking of the alternatives. Individuals choose the best action according to their personal preferences and the constraints facing them.
Actions, assumptions, and individual preferences.
Rational choice theory can be viewed in different contexts. At an individual level, the theory suggests that the agent will decide on the action (or outcome) they most prefer. If the actions (or outcomes) are evaluated in terms of costs and benefits, the choice with the maximum net benefit will be chosen by the rational individual. Rational behaviour is not solely driven by monetary gain, but can also be driven by emotional motives.
The theory can be applied to general settings outside of those identified by costs and benefits. In general, rational decision making entails choosing among all available alternatives the alternative that the individual most prefers. The "alternatives" can be a set of actions ("what to do?") or a set of objects ("what to choose/buy"). In the case of actions, what the individual really cares about are the outcomes that results from each possible action. Actions, in this case, are only an instrument for obtaining a particular outcome.
Formal statement.
The available alternatives are often expressed as a set of objects, for example a set of "j" exhaustive and exclusive actions:
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For example, if a person can choose to vote for either Roger or Sara or to abstain, their set of possible alternatives is:
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The theory makes two technical assumptions about individuals' preferences over alternatives:
Together these two assumptions imply that given a set of exhaustive and exclusive actions to choose from, an individual can "rank" the elements of this set in terms of his preferences in an internally consistent way (the ranking constitutes a total ordering, minus some assumptions), and the set has at least one maximal element.
The preference between two alternatives can be:
Research since the 1980s sought to develop models that weaken these assumptions and argue some cases of this behaviour can be considered rational. However, the Dutch book theorems show that this comes at a major cost of internal coherence, such that weakening any of the Von Neumann–Morgenstern axioms makes. The most severe consequences are associated with violating independence of irrelevant alternatives, and transitive preferences, or fully abandoning completeness rather than weakening it to "asymptotic" completeness.
Additional assumptions.
Alternative theories of human action include such components as Amos Tversky and Daniel Kahneman's prospect theory, which reflects the empirical finding that, contrary to standard preferences assumed under neoclassical economics, individuals attach extra value to items that they already own compared to similar items owned by others.
Utility maximization.
Often preferences are described by their utility function or "payoff function". This is an ordinal number that an individual assigns over the available actions, such as:
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The individual's preferences are then expressed as the relation between these ordinal assignments. For example, if an individual prefers the candidate Sara over Roger over abstaining, their preferences would have the relation:
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A preference relation that as above satisfies completeness, transitivity, and, in addition, continuity, can be equivalently represented by a utility function.
Benefits.
The rational choice approach allows preferences to be represented as real-valued utility functions. Economic decision making then becomes a problem of maximizing this utility function, subject to constraints (e.g. a budget). This has many advantages. It provides a compact theory that makes empirical predictions with a relatively sparse model - just a description of the agent's objectives and constraints. Furthermore, optimization theory is a well-developed field of mathematics. These two factors make rational choice models tractable compared to other approaches to choice. Most importantly, 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.
In the field of political science rational choice theory has been used to help predict human decision making and model for the future; therefore it is useful in creating effective public policy, and enables the government to develop solutions quickly and efficiently.
Despite the empirical shortcomings of rational choice theory, the flexibility and tractability of rational choice models (and the lack of equally powerful alternatives) lead to them still being widely used.
Applications.
Rational choice theory has become increasingly employed in social sciences other than economics, such as sociology, evolutionary theory and political science in recent decades. It has had far-reaching impacts on the study of political science, especially in fields like the study of interest groups, elections, behaviour in legislatures, coalitions, and bureaucracy. In these fields, the use of rational choice theory to explain broad social phenomena is the subject of controversy.
Rational choice theory in political science.
Rational choice theory provides a framework to explain why groups of rational individuals can come to collectively irrational decisions. For example, while at the individual level a group of people may have common interests, applying a rational choice framework to their individually rational preferences can explain group-level outcomes that fail to accomplish any one individual's preferred objectives. Rational choice theory provides a framework to describe outcomes like this as the product of rational agents performing their own cost–benefit analysis to maximize their self-interests, a process that doesn't always align with the group's preferences.
Rational choice in voting behavior.
Voter behaviour shifts significantly thanks to rational theory, which is ingrained in human nature, the most significant of which occurs when there are times of economic trouble. An example in economic policy, economist Anthony Downs concluded that a high income voter ‘votes for whatever party he believes would provide him with the highest utility income from government action’, using rational choice theory to explain people's income as their justification for their preferred tax rate.
Downs' work provides a framework for analyzing tax-rate preference in a rational choice framework. He argues that an individual votes if it is in their rational interest to do so. Downs models this utility function as B + D ; C, where B is the benefit of the voter winning, D is the satisfaction derived from voting and C is the cost of voting. It is from this that we can determine that parties have moved their policy outlook to be more centric in order to maximise the number of voters they have for support. It is from this very simple framework that more complex adjustments can be made to describe the success of politicians as an outcome of their ability or failure to satisfy the utility function of individual voters.
Rational choice theory in international relations.
Rational choice theory has become one of the major tools used to study international relations. Proponents of its use in this field typically assume that states and the policies crafted at the national outcome are the outcome of self-interested, politically shrewd actors including, but not limited to, politicians, lobbyists, businesspeople, activists, regular voters and any other individual in the national audience. The use of rational choice theory as a framework to predict political behavior has led to a rich literature that describes the trajectory of policy to varying degrees of success. For example, some scholars have examined how states can make credible threats to deter other states from a (nuclear) attack. Others have explored under what conditions states wage war against each other. Yet others have investigated under what circumstances the threat and imposition of international economic sanctions tend to succeed and when they are likely to fail.
Rational choice theory in social interactions.
Rational choice theory and social exchange theory involves looking at all social relations in the form of costs and rewards, both tangible and non tangible.
According to Abell, Rational Choice Theory is "understanding individual actors... as acting, or more likely interacting, in a manner such that they can be deemed to be doing the best they can for themselves, given their objectives, resources, circumstances, as they seem them". Rational Choice Theory has been used to comprehend the complex social phenomena, of which derives from the actions and motivations of an individual. Individuals are often highly motivated by their wants and needs.
By making calculative decisions, it is considered as rational action. Individuals are often making calculative decisions in social situations by weighing out the pros and cons of an action taken towards a person. The decision to act on a rational decision is also dependent on the unforeseen benefits of the friendship. Homan mentions that actions of humans are motivated by punishment or rewards. This reinforcement through punishments or rewards determines the course of action taken by a person in a social situation as well. Individuals are motivated by mutual reinforcement and are also fundamentally motivated by the approval of others. Attaining the approval of others has been a generalized character, along with money, as a means of exchange in both Social and Economic exchanges. In Economic exchanges, it involves the exchange of goods or services. In Social exchange, it is the exchange of approval and certain other valued behaviors.
Rational Choice Theory in this instance, heavily emphasizes the individual's interest as a starting point for making social decisions. Despite differing view points about Rational choice theory, it