Rational ChoiceTheory

They say the decisions we make ultimately shape our lives. That's why it's common for humans to make decisions (especially important ones) after considering the situations. And this phenomenon has a name, i.e., rational choice theory.

If you're pursuing your higher education in social sciences, economics, or business, you've probably heard this name already. Now, if you want a simple yet in-depth understanding of what this concept is all about, then you should read on.

What is a rational choice theory?

Rational choice theory starts and ends with the idea that individuals make rational decisions depending on a sensible calculation of a situation. As per the rational choice theory, these decisions are taken because they’re likely to achieve the specific objectives of the person in question.

Essentially, rational choice theory results in people making the right choice because the right choice is the one that provides the most satisfaction and the surest benefit. 

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Who developed the rational choice theory?

Philosopher and economist Adam Smith is identified as the originator of this concept. In his essay "An Inquiry into the Nature and Causes of the Wealth of Nations", Smith highlighted the tendency of human nature toward self-interest leading to prosperity. Smith’s term “the invisible hand” indicated the unseen forces driving the free market. Get lewis turning point assignment help.

Both the self-interest and invisible hand theory develops into the rational choice theory. The concept refutes any negative misconceptions related to self-interest. Instead, these concepts indicate that rational actors acting with their self-interest in mind can generate benefits for the economy at large.

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What are the three components of rational choice theory?

The rational choice theory explains that people evaluate the impact of costs and benefits of every decision. Get more details about psychodynamic theory. They pick the most sensible option based on their circumstances. The decision may involve several variables.

• Cost

Cost is a vital element to everyone. Those who have lower incomes may be more sensitive to this element. People with high incomes may assign little weight to this factor. The cost of a product is often self-explanatory and can often demonstrate the quality and trust of the product.

• Information

When deciding something, information is another essential component. For instance, when determining what kind of laptop to buy, the consumer may need to find what the term means. How much storage do they require, and how essential is a graphics card for your laptop? Such details allow the consumer to make a rational decision depending on their individual preferences. Get information about acquisition.

• Time

When deciding between two options, time is a valuable component. After all, we only get a limited 24 hours each day. So, if we can save time, it can be worthwhile. The value of time is different in the case of different people. Maybe we value leisure time more than working an extra hour for $20. Or, we may prefer an overpriced snack because it saves us time from going to the cheaper store down the road.

What is the purpose of a rational choice theory?

The primary purpose of rational choice theory is to elaborate why individuals and huge groups opt for certain choices, depending on specific costs and rewards. As per the rational choice theory, individuals focus on their self-interests to make choices that allow them to reap the greatest benefit. People ponder over their options and make the choice they think will serve them best.

Explains irrational behaviour

Rational choice theory indicates that each person makes a rational decision. For example, employees can attend the office Christmas party each year. However, many employees may not want to attend, yet they decide to go despite not wanting to. This comes across like an irrational decision – doing something they don't want.

However, rational choice theory challenges the assumption that the decision of these employees is irrational. That's because the employee is faced with costs and benefits. The cost of not going may result in social exclusion in the workplace or impact their chances of promotion. 

The predictive approach of the theory

The rational choice theory has made way for multiple theories in a host of different fields. It has reduced a range of possible human actions to more defined results.

Each action by a person is seen rationally based on the cost and benefits of that decision. So, this is considered when attempting to predict human actions. It has helped economists base their theories around this assumption. 

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What is a rational decision-making model? Explain with an example

The rational decision-making model presents a structured approach to decision making. Using this approach allows you to maintain discipline and consistency is into your decision-making process.

As the word rational indicates, this approach offers logic and order to decision making. Our rational decision-making model comprises a series of steps, starting with problem/opportunity identification and concluding actions to be taken on decisions made. Use systematic sampling.  

Mentioned below is a perfect example of a rational decision-making model.

Anne works at a local boutique. It’s around 20 minutes away from her house but takes only 5 minutes to drive. The cost is that she has to spend an extra 15 minutes of her time walking. However, the benefit is that she saves on fuel and gets some exercise in the process.

The conclusion is she comes to is considered rational as it relies on her individual preferences and values. Just because it may come across as an irrational choice for one doesn't make it so for another.

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According to rational choice theory, why might a criminal decide not to commit a crime?

In criminology, the rational choice theory assumes a person as a reasoning actor who considers cost and benefits and makes a sensible choice. The origin of rational choice theory is behavioural choices. This involves the choice of the person to get involved in criminal activity based onthe intent/premedication and that the probable benefits outweigh the risks.

An excellent example of rational choice theory would be a white-collar crime. An investment banker chooses to skim money from his clients’ accounts and covers up the loss, and then takes the money to fund his lavish lifestyle. The white-collar criminal considered the cost and benefits of his choice. Then, he decides that the personal benefit of stealing money outweighs any chance of his/her theft being discovered. Know about leadership styles.

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Endnote,

Rational choice theory is a concept you'll find in economics, business, and social sciences, making it an important topic. And if you need help learning about this topic, we hope this post was helpful for you.