Rational choice theory

Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to political economist and philosopher, Adam Smith. The theory postulates that an individual will perform a cost-benefit analysis to determine whether an option is right for them. It also suggests that an individual's self-driven rational actions will help better the overall economy. Rational choice theory looks at three concepts: rational actors, self interest and the invisible hand. Rationality can be used as an assumption for the behaviour of individuals in a wide range of contexts outside of economics. It is also used in political science, sociology, and philosophy. The basic premise of rational choice theory is that the decisions made by individual actors will collectively produce aggregate social behaviour. The theory also assumes that individuals have preferences out of available choice alternatives. These preferences are assumed to be complete and transitive. Completeness refers to the individual being able to say which of the options they prefer (i.e. individual prefers A over B, B over A or are indifferent to both). Alternatively, transitivity is where the individual weakly prefers option A over B and weakly prefers option B over C, leading to the conclusion that the individual weakly prefers A over C. The rational agent will then perform their own cost-benefit analysis using a variety of criterion to perform their self-determined best choice of action. One version of rationality is instrumental rationality, which involves achieving a goal using the most cost effective method without reflecting on the worthiness of that goal. Duncan Snidal emphasises that the goals are not restricted to self-regarding, selfish, or material interests. They also include other-regarding, altruistic, as well as normative or ideational goals. Rational choice theory does not claim to describe the choice process, but rather it helps predict the outcome and pattern of choice.