Rational Choice Theory
REVIEWED BY JAMES CHEN
 
 Updated Jul 30, 2018
What is Rational Choice Theory?
Rational choice theory is an economic principle that
assumes that individuals always make prudent and
logical decisions that provide them with the highest
amount of personal utility. These decisions provide
people with the greatest benefit or satisfaction —
given the choices available — and are also in their
highest self-interest. Most mainstream academic
assumptions and theories are based on rational
choice theory.
BREAKING DOWN Rational Choice Theory
Rational choice theory assumes that all people try to
actively maximize their advantage in any situation
and therefore consistently try to minimize their
losses. The theory is based on the idea that all
humans base their decisions on rational calculations,
act with rationality when choosing, and aim to
increase either pleasure or profit. Rational choice
theory also stipulates that all complex social
phenomena are driven by individual human actions.
Therefore, if an economistwants to explain social
change or the actions of social institutions, he needs
to look at the rational decisions of the individuals
that make up the whole.
Arguments Against Rational Choice Theory
However, many economists do not believe in
rational choice theory. Dissenters have pointed out
that individuals do not always make rational utility-
maximizing decisions. For example, the field
of behavioral economics is based on the idea that
individuals often make irrational decisions and
explores why they do so.
Additionally, 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. Further, economist Richard
Thaler's idea of mental accounting shows how
people behave irrationally by placing greater value
on some dollars than others, even though all dollars
have the same value. They might drive to another
store to save $10 on a $20 purchase, but they would
not drive to another store to save $10 on a $1,000
purchase.
An Example against Rational Choice Theory
While rational choice theory is clean and easy to
understand, it is often contradicted in the real world.
For example, political factions that were in favor
of the Brexit vote held on June 24, 2016, used
promotional campaigns that were based on emotion
rather than rational analysis. These campaigns led to
the semi-shocking and unexpected result of the vote,
when the United Kingdom officially decided to leave
the European Union. The financial markets then
responded in kind with shock, wildly increasing
short-term volatility, as measured by the CBOE
Volatility Index (VIX).
Further, research conducted by Christopher Simms
of Dalhousie University in Halifax, Canada, shows
that when people are anxious, they fail to make
rational decisions. Stressors that produce anxiety
have been shown to actually suppress parts of the
brain that aid in rational decision-making.
How does rational choice theory relate to social facts
and individual psychology?
Rational choice theory is a mid-level theory of
human agency, intended to capture core features of
human decision-making in order to provide a basis
for abstract and generalized theories of the
dynamics of various areas of social behavior. The
disciplines of political science and economics make
particularly extensive use of versions of rational
choice theory (decision theory, expected utility
theory, game theory, theories of parametric and
strategic rationality) in designing theories and
models of stylized circumstances of social action
(e.g. market decision-making, production decisions,
voting decisions, collective action decisions). Homo
economicus -- the rationally self-interested
preference- or utility-maximizing individual -- stands
at the foundation of typical models in economics and
political science.
The theory of economic rationality can be specified
in numerous ways. In all its versions it is an
abstraction from real human behavior, in two
senses. The theory abstracts from idiosyncratic
differences in reasoning across individuals; and it
abstracts from other, perhaps systematic, factors
that might influence reasoning (emotions and
morals, for example). The theory allows for
differences across individuals, of course, but
primarily in the individual's preferences or utility
function. (The nature of the decision rule is also a
variable: more risk averse or less, optimizing or
satisficing, maximin or maximize expected utility).
The question here is, what role does rational choice
theory play in social explanations and in formal
models in political science and economics, and how
does it function in description of individual
psychology and behavior?
Some formalistic economists and political scientists
treat the assumptions of rational choice theory as
purely formal axioms that can provide the basis for a
mathematical treatment of a stylized problem --
solution to an n-person non-zero sum game, for
example. These theorists are not concerned about
the descriptive adequacy of the axioms, but rather
the feasibility of employing the axioms to derive a
solution to the problem.
This approach is unsatisfying, however, if we think
that the results of formal economic or political
analysis are supposed to be explanatory in some
sense of actual social phenomena. Suppose we
explain the low level of public contribution to public
radio, by saying that the "contribution/non-
contribution" game is an n-person prisoners'
dilemma, and the mathematical solution to such a
game demonstrates an equilibrium of low
contribution. This mathematical finding is only
potentially explanatory if we have some reason to
think that the model bears a relevant relationship to
the system of behavior it is modeling; the model
assumes rationally self-interested maximizers; so the
model is potentially explanatory of the public radio
result only if the listeners are to some degree
approximately well-described as "rationally self-
interested maximizers." In other words, the rational-
choice explanation of this real social situation
appears to require that there be some degree of
realism in the assumption of individual rationality.
The purely formalistic interpretation of the axioms
would render the account devoid of explanatory
value.
This suggests a different approach to the question. It
suggests that we should regard the assumption of
rationality as an approximately true description of
most human beings. Rational choice theory is an
empirical theory of human behavior, at a high level
of abstraction. "Abstract" in this context means
"disregarding of interfering or contrary factors" -- as
the theory of ideal gases is abstract in its disregard
of intermolecular forces. In other words, the theory
of rationality might be construed as a particularly
abstract part of an empirical theory of human
psychology.
If we take this approach, then we are naturally
invited to test and improve upon this theory of
human decision-making. Are there other factors of
deliberation and action that need to be introduced?
Are there differences across human groups and
cultures with respect to the system of reasoning that
individuals employ in practical decisions? Is the
theory of maximizing rationality true of at least a
certain range of individuals and decision-making
problems? (Perhaps, for example, we are maximizing
decision-makers when it comes to choosing a loaf of
bread, but are influenced by emotions and
commitments when it comes to choosing a political
party to support.)
The advantage of a simple, abstract theory of
deliberation (the theory of economic rationality) is
that it provides a mathematically tractable way of
modeling certain common situations of social action.
If we advance a theory of deliberation and agency
that postulates more nuance at the individual level
and more variation across individuals and cultures,
we may lose the ability to put forward models that
result in equilibrium. More empirical adequacy may
reduce the theoretical or deductive adequacy of the
disciplines. However, it seems unavoidable that
social science is better served by a theory of human
agency and deliberation that is somewhat more
faithful to actual human practical cognition. And it
would remain possible that the narrow assumptions
of economic rationality emerge as being adequately
descriptive in certain well defined problem
circumstances (the circumstances of anonymous
markets, for example). Finally, it may be that other
methods of aggregating from individual-level
assumptions to models of collective behavior are
feasible -- for example, the agent-based models that
are advocated by the Santa Fe Institute.
There may be one additional reason why rational
choice theory asserts a centrality that separates it
from the rest of social psychology -- that is the role
that rationality plays in a normative sense. We might
think that reason and rationality are especially
important human creations, and that it is valuable to
have a theory of pure rationality (and its
implications) even if the typical human reasoner falls
far short of its assumptions.
Human Nature is Not Always Rational- How Behavioral
Science can Aid Development
SUBMITTED BY PAOLO MEFALOPULOS ON TUE,
01/27/2015
4 COMMENTS
I am not sure if I was more surprised, glad, or excited
to see the recent 2015 World Development Report
published by the World Bank Group. Knowing well
this institution, I admit I did not expect to see the
day when it would acknowledge that human
behavior is not necessarily guided by rational
considerations and that behavior change is not a
linear process and needs to reflect the complexity of
factors affecting such process. The possibility that
rational thought is not at the basis of every human
action is something quite revolutionary, at least
within the mainstream boundaries of economic
discourse.
The WDR entitled “Mind, Society and Behavior”
seems to suggest that economists might actually
have something to learn from behavioral scientists!
However, such concepts have been floating around
for a quite some time. A handful of social scientists,
development scholars, and practitioners have been
exploring, advocating, and applying to a different
degree principles, which are now illustrated in the
WDR and applying approaches that promote human
agency and facilitate social change.
Orlando Fals-Borda, Paulo Freire, Richard Chambers,
Erskine Childers, Luis Ramiro Beltran are some of the
pioneers that have called for social change based on
dialogic processes that work in the absence of
hierarchical relations and that take into account local
networks and participatory processes. They
advocated for people’s active participation in
development initiatives because it is every person’s
right and because human behavior is more likely to
change in a sustainable manner if the individual is
part of the decision-making process.
In many instances, human actions are irrational or
are guided by a rationality considered to be such
only by the individual and are, hence, not truly
rational.  The lack of a clear consensus on what
should be considered rational and what not (is there
a rationality concept delinked from cultural
considerations?) is also linked to a process in which
decisions that are guided by rational considerations
on the part of specific individuals become irrational
when applied by a multitude of individuals (stock
exchange crises are a good example of this).
The development literature is full of initiatives that
have failed to deliver what they were expected to
achieve. I have written and debated on a number of
occasions how such under-achievements can be
attributed mostly to two reasons, which are closely
interlinked. The first is the belief that human
behaviors are guided by rational decision-making
processes, and the WB Development Report explains
well how this is not so. The second is the belief,
unfortunately still strong, that knowledge, when
properly packaged in clear messages, can be a major
factor in making people change their behaviors and
practices.
Let me start from this second point. Despite the fact
that the dominant discourse seems now to accept
that behavior change needs to be addressed in a
systematic, rigorous and integrated manner, the
practice says something different. Just pick any
major communication campaign aimed at promoting
a specific change. You will see how the majority of
such campaigns have no baseline or survey that can
provide rigorous measurement on its effectiveness.
Even more, some of these campaigns have received
praises and awards and yet their messaging does not
even stand the test of current theoretical
appropriateness.
I am not sure about the best way to persuade
decision-makers and professionals to walk the talk,
but certainly being open and frank and nicely
pointing out the specific campaigns that are not
meeting the requisites for the intended change are
necessary steps. Currently, I am aware of a couple of
major multimillion campaigns that point out in their
messages that a great number of people are
adopting the wrong behavior and need to change.
Evidence shows that such messages are actually
more likely to reinforce the wrong behavior rather
than influence people to adopt the intended one.
Yet, some communication professionals continue to
implement such campaigns which give high visibility
returns (as it appears on mass media) and low-risks
of perceived failure, but no proof of any positive
impact!
The three principles enumerated in the WDR (i.e.
thinking automatically, thinking socially, and thinking
with mental models) synthesize well the theory and
practice of human behavior, providing valuable
insights about understanding, assessing, and
planning “change”.  They can also shed some insights
about the recent tragic events in Paris, which
indicate once more (tragically) violent, irrational
behaviors are usually rooted in some social
dimension, being political or religious. That is why
adopting participatory communication approaches
attuned to the cultural context is not always
possible. It is not possible where there is no
tolerance, no love[1] 
Going back to the significance of the WDR, it should
be highlighted that there is no such thing as a
universal tendency to act rationally, or better there
is not a recognizably rational way of thinking which
seems to guide human beings across the world.
Human decisions are influenced by expectations and
perceptions of those around us and guided by
different factors and values— only some of which
might belong to the western notion of rationality.
That is why, when promoting change in
development, the agenda cannot be set only, or
mostly, by external experts but must be
“negotiated” equally among the social realities of all
stakeholders.
Follow PublicSphereWB on Twitter!
Photograph, "Green Thought Bubbles" by MD
via Flickr 
 
[1] I include this word at a risk of sounding
stereotypical, but I cannot find a better term to
illustrate what is at the basis of any relationship
based on respect, dialogue and empathy and, most
important in these times, non-violence. After all,
love is the common denominator of the greatest
human beings in history, such as Martin Luther King,
Gandhi, Mother Teresa, Chico Mendes, Nelson
Mandela, Aung San Suu Kyi and many others.
Rational Choice Theory Defined
States and most other international 'actors,' like
intergovernmental organizations, nongovernmental
organizations and multinational corporations, are
intangible concepts that can only act through human
beings. Students of international relations, as well as
actors in the international system, want to know
how leaders and other important decision-makers of
these organizations and institutions make decisions
so they can predict their actions in international
relations. Rational choice theory is one attempt to
explain how and why actors behave the way they do.
Rational choice theory is a theory in social science
that argues human behavior, and social life in
general, can be explained in terms of rational
choices of individuals. Social interaction, including
political interaction, is considered to be a type of
exchange where individuals will interact with each
other if the expected gains outweigh the expected
costs arising from the interaction. For example, you
may decide to enter into a friendship if you believe
you will get more out of the friendship than the
burden the friendship will impose upon you.
Principles
Let's take a quick look at its key principles and
assumptions. Rational choice theory argues that
people make choices based upon a set of individual
preferences in a rational manner where they seek to
maximize gain while minimizing loss.
Preferences can take different forms. A strict
preference means that you prefer one choice over
its alternative. For example, you prefer cola A over
cola B. A weak preference means that you have a
preference for at least some minimal outcome. For
example, you prefer your cola to at least be
caffeinated. Finally, you are indifferent if you have
no preference for the available choices. For example,
you may not care if the restaurant serves cola A or
cola B; you'll take whatever is available.
Assumptions
In order to apply rational choice theory, we must
make a few assumptions:
An individual acts rationally in pursuit of her own
self-interest and not in the interests of others.
Individuals seek to maximize their gains and
minimize their losses.
An individual has sufficient information upon which
to establish her preferences and perform her
rational analysis.
Preferences are transitive in nature. This is a logical
principle that sounds more complicated than it really
is. According to transitivity, if someone prefers
strawberry ice cream over vanilla ice cream, but
vanilla ice cream over chocolate ice cream, then it
logically follows that she'll prefer strawberry ice
cream over chocolate ice cream.
In addition to these general assumptions, we need to
make some assumptions about the world of
international relations:
In order to understand the behavior of international
actors, including states, intergovernmental
organizations, nongovernmental organizations and
multinational companies, we must understand the
behavior of the humans running them.
The behaviors of each individual can be added up in
order to understand these international actors. In
other words, you can understand how and why a
state, or other international actor, acts the way they
do by analyzing the aggregate choices made by each
individual decision-maker acting on the nonhuman
actor's behalf. For example, while a state may
'decide' to go to war, it's really the decisions of the
humans operating the government that make the
decision.
Rational Choice Theory
1. Rational Choice Theory
2. Introduction  Rational choice theory is the view
that people behave as they do because they believe
that performing their chosen actions has more
benefits than costs.  That is, people make rational
choices based on their goals, and those choices
govern their behavior.  Some sociologists use
rational choice theory to explain social change.
According to them, social change occurs because
individuals have made rational choices.
3. Contd…  For example, suppose many people
begin to conserve more energy, lowering
thermostats and driving less. An explanation for this
social change is that individual people have decided
that conserving energy will help them achieve their
goals (for example, save money and live more
healthfully) and cause little inconvenience.  Critics
argue people do not always act on the basis of cost-
benefit analyses.
4. Assumptions  Humans are purposive and goal
oriented.  Humans have sets of hierarchically
ordered preferences, or utilities.  In choosing lines
of behavior, humans make rational calculations with
respect to:  the utility of alternative lines of
conduct with reference to the preference hierarchy
 the costs of each alternative in terms of utilities
foregone  the best way to maximize utility.
5. Contd…  Emergent social phenomena -- social
structures, collective decisions, and collective
behavior -- are ultimately the result of rational
choices made by utility-maximizing individuals. 
Emergent social phenomena that arise from rational
choices constitute a set of parameters for
subsequent rational choices of individuals in the
sense that they determine:  the distribution of
resources among individuals  the distribution of
opportunities for various lines of behavior  the
distribution and nature of norms and obligations in a
situation.
6. Contd…  Attempts to explain all (conforming and
deviant) social phenomenon in terms of how self-
interested individuals make choices under the
influence of their preferences. It treats social
exchange as similar to economic exchange where all
parties try to maximize their advantage or gain, and
to minimize their disadvantage or loss.
7. RCT's basic premises 1. Human beings base their
behavior on rational calculations, 2. They act with
rationality when making choices, 3. Their choices are
aimed at optimization of their pleasure or profit. 
RCT, however, cannot explain the existence of
certain social phenomenon such as altruism,
reciprocity, and trust, and why individuals voluntarily
join associations and groups where collective and
not individual benefits are pursued.
8. STRENGTHS  Comprehensive rationality holds
great appeal as a model of choice over other models.
The  Approach lays out a logical and deliberative
framework for planning practice marking one of its 
core strengths.(Hudson,1979). These include
identifying a particular problem, setting goals, 
articulating aims and objectives, predicting and
projecting outcomes, testing and implementing 
plans of action. (Alexander, 1986, Branch 1975) in
Raine 2005. The model also considers a wide  range
of alternatives and ensures that only the best plan of
action is chosen and implemented.
9. CRITISISM  It is naive to assume a stable and
widely accepted values to structure goal setting.  It
is difficult to have each person agree on common
goals as each and every person perceives issues
differently and have different interests.
Incorporating all this differences would pose a big
challenge to the planners. More over not everyone
can, and should, accept and adopt one form of
universal values and beliefs.
10. Contd…  Human beings cannot comprehend
everything nor can they even fully comprehend one
planning aspect.  Concerning the need to develop
alternative approaches, critics censor comprehensive
rationality. The nature of the problems and the
complexity of the environment would generate an
unmanageable number of alternatives to consider. 
It is important to note that all activities directed
towards allocation and reallocation of the scarce
resources is essentially political. Rational decision
making model tend to ignore this dimension of social
planning.
11. CONCLUSION  Despite the criticism levelled
against rational comprehensive approach to
planning, the approach has taken root in most
countries as the paradigm of choice and is the most
utilised approach in decision – making. For it has the
goal of maximising efficiency by picking the best
alternative based on specific criteria and also
provides a structured way to address a problem and
arrive at a solution.  However in order to realise
total success it is important to incorporate political
interactions and public participation in the planning
and decision making process.
12. REFERENCE  Raine. M Approaches to
participation in Urban Planning Theories ,2005
http://0125.myteran.ir/portals/0102/documents/Ap
p  Marios ,Camhis Planning Theory and Philosopy
1979 Tavistock Publications Ltd,USA 
Barclay.M.Hudson Comparison of Current Planning
Theories; Counterparts and Contradictions 1979
Retrieved on 24th oct 2012 from
http://classweb.gmu.edu/erodger1/prls531/Hudson.
pdf