rational choice theory

rational choice theory, school of thought based on the assumption that individuals choose a course of action that is most in line with their personal preferences. Rational choice theory is used to model human decision making, especially in the context of microeconomics, where it helps economists better understand the behaviour of a society in terms of individual actions as explained through rationality, in which choices are consistent because they are made according to personal preference. Rational choice theory increasingly is applied to other areas as well, including evolutionary theory, political science, and warfare.

(Read Steven Pinker’s Britannica entry on rationality.)

In rational choice theory, agents are described by their unchanging sets of preferences over all conceivable global outcomes. Agents are said to be rational if their preferences are complete—that is, if they reflect a relationship of superiority, inferiority, or indifference among all pairs of choices—and are logically ordered—that is, they do not exhibit any cyclic inconsistencies. In addition, for choices in which the probabilities of outcomes are either risky or uncertain, rational agents exhibit consistencies among their choices much as one would expect from an astute gambler.

The consistency relations among preferences over outcomes are stated in mathematical axioms; a rational agent is one whose choices reflect internal consistency demanded by the axioms of rational choice. Rational choice theory holds that all considerations pertinent to choice (that may include attitudes toward risk, resentment, sympathy, envy, loyalty, love, and a sense of fairness) can be incorporated into agents’ preference rankings over all possible end states. Social scientists have only indirect access to agents’ desires through their revealed choices. Therefore, researchers infer back from observed behaviour to reconstruct the preference hierarchy that is thought to regulate a rational agent’s decisions.

Rational choice theory is a fundamental element of game theory, which provides a mathematical framework for analyzing individuals’ mutually interdependent interactions. In this case, individuals are defined by their preferences over outcomes and the set of possible actions available to each. As its name suggests, game theory represents a formal study of social institutions with set rules that relate agents’ actions to outcomes. Such institutions may be thought of as resembling the parlour games of bridge, poker, and tic-tac-toe. Game theory assumes that agents are like-minded rational opponents who are aware of each other’s preferences and strategies. A strategy is the exhaustive game plan each will implement, or the complete set of instructions another could implement on an agent’s behalf, that best fits individual preferences in view of the specific structural contingencies of the game. Such contingencies include the number of game plays, the sequential structure of the game, the possibility of forming coalitions with other players, and other players’ preferences over outcomes.

For social scientists using game theory to model, explain, and predict collective outcomes, games are classified into three groups: purely cooperative games in which players prefer and jointly benefit from the same outcomes; purely competitive games in which one person’s gain is another’s loss; and mixed games, including the prisoner’s dilemma, that involve varied motives of cooperation and competition. Game theory is a mathematical exercise insofar as theorists strive to solve for the collective result of various game forms, considering their structure and agents’ preferences. Equilibrium solutions are of the most interest because they indicate, following the Nash equilibrium concept, that, given the actions of all other agents, each agent is satisfied with his or her chosen strategy of play. Equilibrium solutions have the property of stability in that they are spontaneously generated as a function of agents’ preferences. Solving games is complicated by the fact that a single game may have more than one equilibrium solution, leaving it far from clear what the collective outcome will be. Moreover, some games have no equilibrium solutions whatsoever.

A perplexing feature of game theory relates to the assumption of reflexivity on the part of agents: agents must choose strategies in response to their beliefs of what strategies others will choose. This idea of reflexivity leads some researchers to associate methodological individualism with game theory. This is the assumption that the individual is the pivotal unit of analysis for understanding collective outcomes in politics and economics. However, as the use of game theory for understanding interactions in populations studied in evolutionary biology makes clear, the assumption of reflexivity and a view of the individual that could sustain a liberal understanding of politics and economics are not essential. Still, having made this observation, it remains the case that many who adopt game theory in social science find it consistent with individualistic approaches that view the individual as the sole determinant of personal preferences, goals, and values. Among the outstanding successes of rational choice theory in the late 20th century was its extensive refashioning of understanding of how and why markets and democracy function to respect individual choices.

The science of rational choice includes both research on the abstract conditions (or norms) governing human rationality and research that seeks to explain and predict outcomes assuming rational agency. There are two views on whether the theory simply represents a descriptive means to model behaviour without presupposing that agents actually reason in accordance with the theory or whether instead it actually describes the decision rules manifested by rational agency. Researchers upholding the first view generally are content to use the axioms of rational choice to model actions and predict outcomes. The second view maintains that rational actors exhibit purposive action consistent with the behavioral norms of rational choice. The first view is modest by not suggesting anything about the internal thought processes of agents, and the second view upholds rational choice theory as a theory that describes the normative foundations of rational decision making. Even though the first view is more restrained and is sufficient for applying rational choice methods to understanding social and political phenomena, many researchers hold the view that rational choice theory is a powerful analytic tool precisely because it reflects the actual principles that must characterize purposive agency.

Rational choice theory has been central to methodological debates throughout the social sciences because of its adherence to a limited view of human rationality as consistency among preferences that categorically deems irrational modes of conduct not reducible to this description. As with any robust research tradition, intense controversies abound both internally and externally. Debates internal to the field have tended to focus on complex nuances of the formal theory as well as the suitability of associating consistency of choice with choices characterized by narrow self-interest. Whereas the former is previously touched on, the latter attempt, for example, is to determine if altruistic behaviour can be consistent with rational choice. Researchers generally agree that altruistic preferences could be readily encompassed within rational choice theory, but this leaves open the question of whether a satisfactory concept of altruism can be reduced to agents’ preferences over outcomes.