Rational choice modeling refers to the use of decision theory (the theory of rational choice) as a set of guidelines to help understand economic and social behavior.Lawrence E. Blume and David Easley (2008). "[Rationality]," The New Palgrave Dictionary of Economics, 2nd Edition. http://www.dictionaryofeconomics.com/article?id=pde2008_R000277&q Abstract." by Abstract & pre-publication copy Amartya Sen (2008). "Rational Behaviour," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract . The theory tries to approximate, predict, or mathematically model human behavior by analyzing the behavior of a rational actor facing the same costs and benefits.Gary Browning, Abigail Halcli, Frank Webster (2000). Understanding Contemporary Society: Theories of the Present, London: Sage Publications.
Rational choice models are most closely associated with economics, where mathematical analysis of behavior is standard. However, they are widely used throughout the social sciences, and are commonly applied to cognitive science, criminology, political science,Susanne Lohmann (2008). "Rational Choice and Political Science," The New Palgrave Dictionary of Economics, 2nd Edition.Abstract . and sociology.Peter Hedström and Charlotta Stern (2008). "Rational Choice and Sociology," The New Palgrave Dictionary of Economics, 2nd ed., Abstract.
Overview Rational choice theory assumes that individuals have discrete preferences among available choices and these preferences can be meaningfully ordered and weighed against each other so that an individual can decide on an action by balancing costs and benefits. These preferences are assumed to be complete and transitive. As outlined in instrumental rationality the individual may or may not include the path to the goal as a factor in the decision.
For the purposes of rational choice theory, a decision is rational if it is the logical outcome of the stated preferences. More specifically, behavior is only considered irrational if it is logically incoherent.
Early neoclassical economists writing about rational choice, including William Stanley Jevons, assumed that agents make consumption choices so as to maximize their happiness, or utility. Contemporary theory typically does not specify where the goal (preferences, desires) comes from, and mandates just a consistent ranking of the alternatives. Duncan Snidal emphasises that the goals are not restricted to self-regarding, selfish, or material interests. They include other-regarding, altruistic, as well as normative or ideational goals.
Despite the empirical shortcomings of rational choice theory, the flexibility and tractability of rational choice models (and the lack of equally powerful alternatives) lead to them still being widely used.
Applications Rational choice theory has become increasingly employed in social sciences other than economics, such as sociology, evolutionary theory and political science in recent decades. It has had far-reaching impacts on the study of political science, especially in fields like the study of interest groups, elections, behaviour in legislatures, coalitions, and bureaucracy. In these fields, the use of rational choice theory to explain broad social phenomena is the subject of controversy.Donald P. Green and Ian Shapiro (1994). Pathologies of Rational Choice Theory: A Critique of Applications in Political Science. New Haven: Yale University Press.
Rational choice theory in political science Rational choice theory provides a framework to explain why groups of rational individuals can come to collectively irrational decisions. For example, while at the individual level a group of people may have common interests, applying a rational choice framework to their individually rational preferences can explain group-level outcomes that fail to accomplish any one individual's preferred objectives. Rational choice theory provides a framework to describe outcomes like this as the product of rational agents performing their own cost–benefit analysis to maximize their self-interests, a process that doesn't always align with the group's preferences.Rakner, L (1996) Rational choice and the problem of institutions. A discussion of rational choice institutionalism and its application by Robert Bates Bergen: Chr. Michelsen Institute (CMI Working Paper WP 1996:6)
Rational choice in voting behavior Voter behaviour shifts significantly thanks to rational theory, which is ingrained in human nature, the most significant of which occurs when there are times of economic trouble. An example in economic policy, economist Anthony Downs concluded that a high income voter ‘votes for whatever party he believes would provide him with the highest utility income from government action’,Anthony Downs (1957). "An Economic Theory of Political Action in a Democracy", Journal of Political Economy, Vol. 65, No. 2, pp. 135–150 using rational choice theory to explain people's income as their justification for their preferred tax rate.
Downs' work provides a framework for analyzing tax-rate preference in a rational choice framework. He argues that an individual votes if it is in their rational interest to do so. Downs models this utility function as B + D > C, where B is the benefit of the voter winning, D is the satisfaction derived from voting and C is the cost of voting.Downs, A (1957) "An Economic Theory of Political Action in a Democracy", Journal of Political Economy, vol. 65, No. 2, pp. 135–150 It is from this that we can determine that parties have moved their policy outlook to be more centric in order to maximise the number of voters they have for support. It is from this very simple framework that more complex adjustments can be made to describe the success of politicians as an outcome of their ability or failure to satisfy the utility function of individual voters.
Rational choice theory in international relations Rational choice theory has become one of the major tools used to study international relations. Proponents of its use in this field typically assume that states and the policies crafted at the national outcome are the outcome of self-interested, politically shrewd actors including, but not limited to, politicians, lobbyists, businesspeople, activists, regular voters and any other individual in the national audience. The use of rational choice theory as a framework to predict political behavior has led to a rich literature that describes the trajectory of policy to varying degrees of success. For example, some scholars have examined how states can make credible threats to deter other states from a (nuclear) attack.T.C. Schelling (1960). The Strategy of Conflict. Cambridge, MA: Harvard University Press; G. H. Snyder and P. Diesing (1977). Conflict among Nations: Bargaining, Decision Making, and System Structure in International Crises. Princeton, NJ: Princeton University Press; R. Powell (1990). Nuclear Deterrence Theory: The Search for Credibility. Cambridge: Cambridge University Press. Others have explored under what conditions states wage war against each other.Bruce Bueno de Mesquita (1981). "Risk, Power Distributions, and the Likelihood of War," International Studies Quarterly, 25(4), pp. 541–568; J.D. Fearon (1995). "Rationalist Explanations for War," International Organization, 49(3), pp. 379–414. Yet others have investigated under what circumstances the threat and imposition of international economic sanctions tend to succeed and when they are likely to fail.Jaleh Dashti-Gibson, Patricia Davis, and Benjamin Radcliff (1997). "On the Determinants of the Success of Economic Sanctions: An Empirical Analysis," American Journal of Political Science, 41(2), pp. 608–618; Daniel W. Drezner (1999). The Sanctions Paradox: Economic Statecraft and International Relations. Cambridge: Cambridge University Press; Lisa L. Martin (1992). Coercive Cooperation: Explaining Multilateral Economic Sanctions. Princeton: Princeton University Press. Claas Mertens, Carrots as Sticks: How Effective Are Foreign Aid Suspensions and Economic Sanctions?, International Studies Quarterly, Vol. 68, Iss. 2, June 2024
Rational choice theory in social interactions G.S Becker concludes that people marry if the expected utility from such marriage exceeds the utility one would gain from remaining single, and in the same way couples would separate should the utility of being together be less than expected and provide less (economic) benefit than being separated would.
George C. Homans suggested that behavior of humans in social situations can be modelled as individual actors who have preferences on how others behave, and expectations based on their personal history.
Criticism
Both the assumptions and the behavioral predictions of rational choice theory have sparked criticism from various camps. The fundamental concept of rational choice theory has been criticized by numerous economists and philosophers for decades.For an in-depth examination of rationality and economic complexity, see Foley (1998). For an account of rationality, methodology and ideology, see Foley (1989, 2003).Somewhat surprisingly and independently, Hollis and Nell (1975) and Boland (1982) both use a ‘cross sectional approach’ to the understanding of neo-classical economic theory and make similar points about the foundations of neo-classicism. For an account see Nell, E.J. and Errouaki, K (2011)
Some economists have developed models of bounded rationality, such as Herbert Simon, which hope to be more psychologically plausible without completely abandoning the idea that reason underlies decision-making processes. His concepts of 'satisficing' and 'optimizing' suggest sometimes we settle for a decision which is good enough, rather than the best decision. Other economists have developed more theories of human decision-making that allow for the roles of uncertainty, institutions, and determination of individual tastes by their socioeconomic environment.cf. Fernandez-Huerga, 2008
Psychological critiques The validity of Rational Choice Theory has been generally refuted by the results of research in behavioral psychology. The revision or alternative theory that arises from these discrepancies is called Prospect Theory.
The 'doubly-divergent' critique of Rational Choice Theory implicit in Prospect Theory has sometimes been presented as a revision or alternative. Daniel Kahneman's work has been notably elaborated by research undertaken and supervised by Jonathan Haidt and other scholars.
Empirical critiques In their 1994 work, Pathologies of Rational Choice Theory, Donald P. Green and Ian Shapiro argue that the empirical outputs of rational choice theory have been limited. They contend that much of the applicable literature, at least in political science, was done with weak statistical methods and that when corrected many of the empirical outcomes no longer hold. When taken in this perspective, rational choice theory has provided very little to the overall understanding of political interaction – and is an amount certainly disproportionately weak relative to its appearance in the literature. Yet, they concede that cutting-edge research, by scholars well-versed in the general scholarship of their fields (such as work on the U.S. Congress by Keith Krehbiel, Gary Cox, and Mat McCubbins) has generated valuable scientific progress.Donald P. Green and Ian Shapiro (1994). Pathologies of Rational Choice Theory: A Critique of Applications in Political Science. New Haven: Yale University Press.
Methodological critiques