Rational Choice Theory Term Paper

Rational Choice Theory

History and Development of Rational Choice theory

When we are faced with a decision, there are always some options involved. Which path is the correct one, which option would best serve our purpose, which choice appears most suitable are some of the key questions on which we base our decision. Man by nature is interested in maximization of his profits whether professional or personal. No one would deliberately want to take a risk that is bound to go awry. In almost every case, man carefully studies the situation and then chooses the best option available to him. And this is not something limited to money matters but extends itself to almost every area of life including social relationships, religion, politics etc.

Rational choice is thus defined as: "A choice of a course of actions is "rational" if it results in a maximization of well-being. In short, rational action is the maximization of causal profit." Let us suppose that there is more than one university who are willing to accept your application. And it appears that all of them are suitably recognized in the country. Now you are required to make a rational choice based on a number of other factors including tuition fee, distance from home state, choice of courses offered, expertise and experience of faculty etc. It is only after all these have been carefully considered that one can make a rational choice. This is the entire concept behind the development of Rational Choice theory.

Rational Choice theory was essentially developed as an economic theory but with passage of time, it extended itself to other realms as well. The theory seeks to offer an explanation of people's behavior when faced with a decision. As an economic theory, rational choice is not concerned with explanation of rational behavior itself but is concerned with the method man adopts when faced with more than one options. Theorists maintain that, "it is only individuals who ultimately take actions and social actions... individual actions and social actions are optimally chosen.... individuals' actions and social actions are entirely concerned with their own welfare" (Abell, p. 260)

The theory came to the limelight with Max Weber's work in 1920 where he used rationality as the basis for various sociological concepts. Talcott Parsons later expanded this in 1937 and brought the concept to mainstream field of sociology. George Homans (1961) played a key role in establishing rational choice theory as an important sociological concept, which is now broadly used in almost every field as it provides an insight into the system that governs rationality. Various other key figures emerged in 1960s and 1970s who worked relentlessly on the expansion of this theory. Blau (1964), Coleman (1973), and Cook (1977) are some important names in this connection. Prominent economists used the theory to understand human behavior in others areas including criminal behavior and mating.

Rationality is thus the main force influencing people's decisions in both social and economic situations. It is important to understand that rationality pattern of a single individual may differ from situation to situation. In other words, a man is not primarily driven by his likes or dislikes but essentially preferences under various situations. For example a man may never like apple and always prefers oranges. However when faced with a situation where he has apples and some other fruits that may not have the same nutritional value as apple, what would he do? This is what rationality theory is concerned with-Preferences of a person under various circumstances and in different situations. Gauthier (1986) explains it aptly in his book, 'Morals by Agreement' (p. 22):

The theory of rational choice takes as primary a conception even more clearly subjective and behavioral than interest, the relation of individual preference. Preference relates states of affairs; one speaks of preferring an apple to a pear, but more strictly one prefers the eating of an apple to the eating of a pear in some given environment or set of environments. The theory of rational choice is of course primarily concerned with preferences between states of affairs conceived as alternative possibilities realizable in action. These states of affairs are therefore not direct objects of choice, but rather are possible outcomes of the actions among which one chooses. The theory does not analyze particular relations of preference, which are treated as ultimate data, but sets of these relations, each set representing the preferences of one individual over the pairs of realizable outcomes in a choice situation

Holton believes that the approach adopted by Weber on rationality of human behavior all center on, "on the calculability, intellectualization, and impersonal logic of goal-directed action.The instrumental approach to action takes values as given and focuses instead on the efficient choice of means to reach such goals" (p. 43). Rational choice is grounded in the notion that people are always motivated by their own profit. They would never do anything that is likely to hurt their own interests. This theory came to the lime light with EMPIRICAL TESTING OF RATIONAL CHOICE THEORY

Rational choice theory as we mentioned above comes from the belief that all human beings are essentially rational. This has resulted in the theory facing severe empirical heat as theorists one after the other criticized the approach for its lack of empirical support. Allais, Ellsberg, Tversky and Kahneman, and such other behavioral researchers first questioned the validity of this theory. Many others including Shafer and Sugden challenged the theory on the basis of lack of consistency readily accepted their views. They felt that while the theory appeared sound, it could not be applied to all circumstances and all situations because man may sometimes now behave rationally. Mirowski's More Heat than Light took it a little further calling the theory nothing but a result of erroneous "physics envy." Kadane and Larkey in their papers on the subject termed rational theory "cumulatively useless."

However these attacks on the empirical side of rational choice theory were milder compared to the serious bashing by Green and Shapiro in their 1994 book 'Pathologies of Rational Choice Theory' where they claimed that the theory suffered from lack of empirical support and went on to prove this with various arguments and examples. "[W]e have the historical fact that many social scientists have become disillusioned with game theory. Initially there was a naive band-wagon feeling that game theory solved innumerable problems of sociology and economics, or that, at least, it made their solution a practical matter of a few years' work. This has not turned out to be the case." (1957, p. 10) They further questioned the use of rational choice theory in political arena and felt that this theory fails to show much scholarly support. Green and Shapiro add:

We do not dispute that theoretical models of immense and increasing sophistication have been produced by practitioners of rational choice theory, but in our view the case has yet to be made that these models have advanced our understanding of how politics works in the real world. To date, a large proportion of the theoretical conjectures of rational choice theorists have not been tested empirically. Those tests that have been undertaken have either failed on their own terns or garnered theoretical support for propositions that, on reflection, can only be characterized as banal: they do little more than restate existing knowledge in rational choice terminology. The discrepancy between the faith that practitioners place in rational choice theory and its failure to deliver empirically warrants closer inspection of rational choice theorizing as a scientific enterprise. In our view, the weaknesses of rational choice scholarship are rooted in the characteristic aspiration of rational choice theorists to come up with universal theories of politics. (p. 6-7)

Ferejohn and Satz tried to defend rational choice theory and explained that this theory is based not exactly on rationality factor. Instead it is more useful if we view it as theory of intention. Theorists claimed that regardless of what opponents of the theory may say, the fact remains that all actions and decisions of man are intentional. Elster upheld this support for rational choice theory in his 1986 paper where he said: "In our view, the requirement that social explanations be compatible with intentional explanation constrains what counts as good social science. Because society is composed of human beings, social science explanations have to be compatible with psychological processes. This means both that it is physically possible for people to act as the social science explanation requires, and to hold or form the relevant beliefs and desires.... Green and Shapiro surrender the explanatory aspirations of social science. Such a surrender is both premature and self-defeating. And, insofar as intentionality is itself a ground for universalism, it is also unwarranted."

Theorists including Fiorina, Murphy and Ordeshook offered further empirical support. Ordeshook for example writes: "Green and Shapiro's critique, though sometimes incomplete and inaccurate, nevertheless seems to be largely correct: the substantive relevance of much formal rational choice analysis is tenuous, and its empirical content….....