DISCIPLINES AND IDEAS IN THE SOCIAL SCIENCES

RATIONAL CHOICE THEORY (LESSON 7)

Rational Choice Theory is a method used by social scientists to explain human behavior. It is a body of theory
that tries to explain why people make rational (reasonable) decisions. Social scientists use Rational Choice
Theory to predict the outcome and pattern of choices. According to this method, humans are guided by self-
interest when making choices.
Adam Smith, a Scottish social philosopher and political economist, is generally acknowledged as the
forefather of Rational Choice Theory. In his book The Wealth of Nations, Smith talked about how people act in
their own self-interest. Smith wrote, "It is not from the benevolence of the butcher, the brewer or the baker
that we expect our dinner, but from their regard to their own self-interest"(Smith, 1776). A baker does not
make bread out of his love for his fellow man so that they may have food on their plate, but because he earns
an income from making bread.
Economists coined the term homo economicus or economic man to describe the rational human being.
The economic man refers to an imaginary individual who acts rationally out of self-interest in order to
maximize his benefits or profits. Rational individuals choose the best alternative that is most likely to give
them the most benefit.
Scarcity refers to the basic economic problem of people having unlimited wants but only have limited
resources available to fulfill those wants. Scarcity causes people to find ways how to satisfy their wants and
needs given their limited resources.
Rational choice is an important factor to an individual’s decision-making. However, every choice we make
has trade-offs which require us to sacrifice something. In order to make rational decisions, the alternatives
must be identified. For example, Andi has one thousand pesos and she is torn between buying an eight
hundred pesos pair of pants that she had been wanting for a long time or a six hundred pesos scientific
calculator that she needs for her Calculus subject.
Due to scarcity, that is, her limited money, she has to choose only one. It would be in her best interest to
buy the scientific calculator because she needs it more than the pair of pants. Andi, however, could buy the
same pair of pants on sale at a different boutique for seven hundred pesos and buy the scientific calculator at
a second-hand store for three hundred pesos. Rational Choice Theory predicts that Andi would choose the
latter being the better alternative for she could get both what she wants and need.

Strengths and Criticisms:

According to Michael Ogu, a Professor at the Department of Political Science and Public Administration at
Babcock University, one of the strengths of rational choice is generality. It is the assumption that one set of
hypotheses applies to all set of structural hypotheses, that it is the most general theory of social action which
can be used to understand all human behavior. Another strength would be parsimony, a principle to which an
explanation of a thing or event is made with the fewest possible assumptions. Rational choice theory is also
seen as predictive, that decisions of individuals depend on the structures and assumptions.
As for the weaknesses of rational choice theory, one issue would be the difficulty encountered by
individuals to make decisions in case of inadequate information and uncertainty, in which case they may
resort to other ways of making decisions, hence the rational choice assumption that individuals make
decisions based on getting maximum benefits at the least possible cost will not apply. Finally, the rational
choice assumption that almost everything humans do is rational is problematic, since not all human actions
are rational.
Name: _____________________________________ Year & Section: ____________________
Date: __________________

EVALUATION:
Directions: Read the situation carefully and circle the letter of the correct answer.
A. In a group of 40 schoolchildren, the teacher asks the pupils if they would prefer a balloon or cotton
candy as part of an experiment. 20 children indicate a preference for balloons. The other 20 children
prefer cotton candy. The teacher gives out 20 balloons and 20 cotton candies randomly to the children.
Because the process is random, some children receive their preferred item while others do not. Using
the theory of rational choice, if the children were given the option of trading what would we expect to
see in terms of children trading balloons and cotton candies? Explain your answer.
a) No trading would occur.
b) We would expect the children who receive their preferred item to give it away to other children
who did not receive their preferred item.
c) Because there are enough balloons and cotton candies to meet the exact preferences of every
child, we would expect those children who didn't receive their preferred item to trade with
each other. In the end, everyone would receive their preferred item.
d) We cannot predict what the children would do.

B. Which of the following statements describes the concept of scarcity?

a) Scarcity happens because there are too many goods in the market.
b) Scarcity is the product of man’s unlimited wants and resources.
c) High demands and limited supplies cause scarcity.
d) Scarcity causes people to act irrationally.