RATIONAL

CHOICE THEORY
 RATIONAL CHO
To explain human decision-
making behavior. This theory
assumes that individuals are
rational actors who make choices
that maximize their self-interest,
given the information and
resources available to them.
ICE THEORY
While rational choice theory is a
powerful tool for understanding
many aspects of human
behavior, it is essential to
recognize its limitations and
consider other factors that may
influence decision-making in
real-world situations.
RATIONAL CHOCE THEORY
• Rationality: assumes that individuals
are rational decision-makers. People
make choices that they believe will
lead to the best outcomes for
themselves.
• Utility: Utility is a central concept in
rational choice theory. It represents the
satisfaction or benefit that individuals
derive from their choices.
• Self-interest: Rational choice theory
assumes that individuals act in their own
self-interest, seeking to maximize their
own well-being or utility. This self-interest
can encompass various motivations, such
as material gain, personal satisfaction, or
avoiding negative consequences.
• Set of Choices: Rational choice theory
acknowledges that individuals face a set of
options or alternatives when making
decisions. They evaluate these options and
choose the one that they believe will yield
the highest utility.
COST-BENEFIT
ANALYSIS
 COST-BENEFIT ANALYSIS
Rational actors engage in cost-benefit analysis when
OBJECTIVES making decisions. They weigh the costs and benefits
associated with each option and select the one that offers
the greatest net benefit

COST BENEFIT

is something disadvantageous what is gained and

to or what is lost by an advantageous to an
individual after making the individual after making the
choice
choice
WILLIAM STANLEY JEVONS
TO ESTABLISH THE FOUNDATIONS OF MODERN UTILITY THEORY AND
RATIONAL CHOICE THEORY.

• Theory of Utility: Jevons refined the concept of utility, arguing that

individuals make choices to maximize their utility or happiness. He
introduced the idea of "marginal utility,“
-which states that the additional satisfaction gained from
consuming one more unit of a good decreases as the quantity
consumed increases.

• Theory of Exchange: Jevons explored the theory of exchange and the

principles governing market transactions. He emphasized that
individuals engage in economic transactions based on their
perceptions of utility and the relative marginal utilities of goods
and services.
WILLIAM STANLEY JEVONS
TO ESTABLISH THE FOUNDATIONS OF MODERN UTILITY THEORY AND
RATIONAL CHOICE THEORY.

• Theory of Consumer Behavior: Jevons contributed to the

understanding of consumer behavior by analyzing how
individuals allocate their resources to maximize
utility. He argued that people make choices based on a
comparison of the marginal utilities and prices of goods.
GARY BECKER’S

-WORK ON THE ECONOMICS OF DISCRIMINATION IS A SEMINAL

CONTRIBUTION THAT APPLIES ECONOMIC PRINCIPLES AND RATIONAL CHOICE
THEORY TO UNDERSTAND THE PERSISTENCE OF DISCRIMINATION IN
VARIOUS ASPECTS OF SOCIETY, PARTICULARLY IN LABOR MARKETS.

• Discrimination:
-Becker defined discrimination as the act of treating individuals differently based on
their race, gender, ethnicity, or other characteristics unrelated to their productivity or
qualifications. Discrimination, in Becker's view, is an economic decision-making process
driven by individuals or firms seeking to maximize their own utility.
GARY BECKER'S

• Perceived Values: Perceived values refer to how individuals assess and assign
values to the outcomes or consequences associated with different choices or
actions. These values are subjective and can vary from person to person. In the
rational choice framework, individuals make decisions by comparing the
perceived values of the available alternatives. Essentially, they weigh the benefits
and costs of each option and choose the one that maximizes their overall well-
being or utility.

• Preferences: Preferences refer to an individual's ranking or ordering of different

outcomes or choices based on their perceived values. Preferences are a
fundamental component of rational choice theory because they reflect the
individual's subjective desires and priorities.
 Assignment
The Lunch Dilemma
INSTRUCTIONS
Scenario Presentation
You have 300.00 to spend on lunch, and you can choose
between two nearby restaurants or a packed lunch from
home.

• What factors would you consider when making this lunch

choice?
• What are the benefits and costs associated with each
option?
• How might your personal preferences influence your
decision?
• Rank your preferences for the three lunch options
(restaurant 1, restaurant 2, packed lunch) from 1 to 3, with 1
being their top choice.
INSTRUCTIONS

Cost and Benefit Analysis

• Write down the costs and benefits associated with each lunch
option.
• For example, costs could include the price, waiting time, and
distance to each restaurant, while benefits might include the
taste of the food, convenience, or healthiness of the meal.