Rational choice theory

From Wikipedia, the free encyclopedia

This article may require cleanup to meet Wikipedia's quality standards.
Please discuss this issue on the talk page or replace this tag with a more specific message.
This article has been tagged since February 2007.

Rational choice theory postulates that human behavior is guided by instrumental reason. Accordingly, individuals choose what they believe to be the best means to achieve their given ends. That is, they are modeled as maximizing utility, the "currency" for everything they cherish (for example: money, a long life, moral standards). Rational choice theory is a successor of much older descriptions of rational behavior. It is widely used as a starting point of microeconomic analysis. Its theoretical restrictions on predicted outcomes have facilitated empirical tests of its implications in applied areas. Over the last decades it has also become increasingly employed in other social sciences.

Rational choice theory adopts methodological individualism; it describes social situations or collective behaviors as the result of individual actions or interactions. It has been extended in another way. Often, pursuit of specified objectives is postulated for collective entities, such as corporations or national governments.

For a choice to be described as "rational", a number of assumptions are ordinarily stated. In economics, the key concept is preference: a preference ranking for a set of items is described as rational if preferences are:

complete (all items from the choice set can be ranked from lower to higher)
transitive (if A is preferred to B, and B to C, then A is preferred to C).

Thus, the decision-maker is able to compare all of the alternatives, and all comparisons are consistent.

If uncertainty is involved, then the independence axiom is often assumed in addition to rational preferences.
If decision-making over time is involved, time consistency is generally postulated as well.

Often, to simplify calculation and facilitate testing, some rather unrealistic assumptions are made about the world. These can include:

An individual has precise information about exactly what will occur under any choice made. (Alternatively, an individual has a reliable probability distribution describing what will happen under any choice made.)
An individual has the cognitive ability to weigh every choice against every other choice.
An individual is aware of all possible choices.

Sometimes these assumptions have the status of "as if" propositions—statements that are not meant to be literally true but that predict the behaviors individuals are believed to exhibit.

Both the assumptions and the behavioral predictions of rational choice theory have sparked criticism from various camps. Some people have developed models of bounded rationality, which hope to be more psychologically plausible without completely abandoning the idea that reason underlies decision-making processes. For a long time, a popular strain of critique was a lack of empirical basis, but experimental economics and experimental game theory have largely changed that critique (although they have added other critiques, mainly by demonstrating some human behavior that consistently deviates from rational choice theory). Early critiques of the rational choice approach in political science for example, argued that the rational choice theorists could not explain why people voted, much less make more sophisticated arguments about political behavior.

Rational choice has had far-reaching impacts on the study of political science, especailly in fields like the study of interest groups, elections, behaviour in legislatures, coalitions, and bureaucracy (see Dunleavy, 1991).

One question that can be asked is why people try to base their models on concepts such as "reason", "preferences", and what is implied by them, free will. Some potential reasons: a) They see people as "rational" beings, and thus believe that a model in which they are represented as such should be reasonably accurate; b) Assumptions of rationality have useful formal properties; c) The individualistic methodology and the mathematical formalization of rational choice behavior allow for an easier understanding of complex social phenomena.

[edit] See also

[edit] References

Kenneth J. Arrow, 1987, “Economic theory and the hypothesis of rationality," The New Palgrave: A Dictionary of Economics, v. 2, pp. 69-75.
Amartya Sen (1987), “Rational behaviour," The New Palgrave: A Dictionary of Economics, v. 3, pp. 68-76.
Patrick Dunleavy "Democracy, Bureaucracy and Public Choice: Economic Models in Political Science" (London: Pearson, 1991, reissued 2001).