Rational choice theory is a way of looking at deliberations between a number of potential courses of action, in which "rationality" of one form or another is used either to decide which course of action would be the best to take, or to predict which course of action actually will be taken. Such a perspective finds itself in models for both human behavior and behavior of non-human but nonetheless potentially rational entities, such as corporations.
Obviously, what is taken as "rational" is of chief importance here. This varies with context:
- The technical meaning in economics is about preferences: preferences are defined to be rational if they are complete and transitive. That is, that the decision maker is able to compare all of the alternatives, and that these comparisons are consistent. See the preferences page for further explanation.
- If uncertainty is involved, then the independence axiom is often assumed in addition to rational preferences.
- Rationality can also mean that the decision maker always chooses the most preferred option, as in the Utility Maximization Problem.
Often, to simplify calculation and ease prediction, 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 time and ability to weigh every choice against every other choice.
- An individual is fully aware of all possible choices.
Assumptions such as these have sparked criticism from a number of camps. Some people have tried to create models of bounded rationality, which try to be more psychologically plausible without giving up completely on the idea that some kind of reason underlies decision-making processes.
Why rational choice theory?
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:
- They see people as "rational" beings, and thus believe that a model in which they are represented as such should be reasonably accurate
- Assumptions of rationality have useful formal properties
Various researchers has found some limits to this theory, under the name of bounded rationality, an element used for example in behavioral economics.
See also