1 제목 서강대학교 교수학습센터 부소장 정유성 Rational Choice theory Nov. 04, 2013 Prof. Dr. Kyu Young LEE

Rational choice theory, also known as rational action theory, - a framework for understanding and often formally modeling social and economic behavior. - the dominant theoretical paradigm in microeconomics. - also central to modern political science and is used by scholars in other disciplines such as sociology The 'rationality' in rational choice theory - different from the colloquial and most philosophical uses of rationality. Although models of rational choice are diverse, all assume individuals choose the best action according to stable preference functions and constraints facing them. Most models have additional assumptions. 2 Rational choice theory – understanding (1)

Proponents of rational choice models - do not claim that a model's assumptions are a full description of reality, only that good models can aid reasoning and provide help in formulating falsifiable hypotheses, whether intuitive or not. Successful hypotheses are those that survive empirical tests. Rational choice theory is - a successor of much older descriptions of rational behavior. - widely used as an assumption of the behavior of individuals in microeconomic models and analysis. Although rationality cannot be directly empirically tested, empirical tests can be conducted on some of the results derived from the models. 3 Rational choice theory – understanding (2)

Over the last decades rational choice theory has also become increasingly employed in social sciences other than economics, such as sociology and political science. 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. Models that rely on rational choice theory often adopt methodological individualism, the assumption that social situations or collective behaviors are the result of individual actions. 4 Rational choice theory in social science

Rational choice theory makes two assumptions about individuals' preferences for actions: (1) Completeness - all actions can be ranked in an order of preference (indifference between two or more is possible). (2) Transitivity - if action a 1 is preferred to a 2, and action a 2 is preferred to a 3, then a 1 is preferred to a 3. Together these assumptions form the result that given a set of exhaustive and exclusive actions to chose from, an individual can rank them in terms of her preferences, and that her preferences are consistent. 5 Rational choice theory - assumptions

Jonathan Turner, The Structure of Sociological Theory, 5ed. (Belmont, Calif.: Wadsworth, 1991), p Assumptions of Rational Choice Theory 1. Humans are purposive and goal oriented. 2. Humans have sets of hierarchically ordered preferences, or utilities. 3. In choosing lines of behavior, humans make rational calculations with respect to: the utility of alternative lines of conduct with reference to the preference hierarchy the costs of each alternative in terms of utilities foregone the best way to maximize utility. 6 Rational choice theory – assumptions by J. Turner (1)

4. Emergent social phenomena - social structures, collective decisions, and collective behavior - are ultimately the result of rational choices made by utility-maximizing individuals. 5. Emergent social phenomena that arise from rational choices constitute a set of parameters for subsequent rational choices of individuals in the sense that they determine: the distribution of resources among individuals the distribution of opportunities for various lines of behavior the distribution and nature of norms and obligations in a situation. 7 Rational choice theory – assumptions by J. Turner (2)

An individual's preferences can also take forms: Strict preference occurs when an individual prefers a 1 to a 2, but not a 2 to a 1. In some models, a weak preference can be held in which an individual has a preference for at least a j, similar to the mathematical operator. Indifference occurs when an individual does not prefer a 1 to a 2, or a 2 to a 1. In more complex models, other assumptions are often incorporated, such as the assumption of independent axiom. Also, with dynamic models that include decision- making over time, time inconsistency may affect an individual's preferences. 8 Rational choice theory

Benefits: Describing the decisions made by individuals as rational and utility maximizing may seem to be a tautological explanation of their behavior that provided very little new information. While there may be many reasons for a rational choice theory approach, two are important for the social sciences. First, assuming humans make decisions in a rational, rather than stochastic manner implies that their behavior can be modeled and thus predictions can be made about future actions. Second, the mathematical formality of rational choice theory models allows social scientists to derive results from their models that may have otherwise not been seen. 9 Rational choice theory - Benefits

Criticism: Both the assumptions and the behavioral predictions of rational choice theory have sparked criticism from various camps. Some people have developed models of bounded rationality, which hope to be more psychologically plausible without completely abandoning the idea that reason underlies decision-making processes. For a long time, a popular strain of critique was a lack of empirical basis, but experimental economics and experimental game theory have largely changed that critique (although they have added other critiques, mainly by demonstrating some human behavior that consistently deviates from rational choice theory). 10 Rational choice theory - Criticism

In their 1994 piece, Pathologies of Rational Choice Theory: A Critique of Applications of in Political Science (New Haven: Yale UP, 1994), Green and 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 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 (Green and Shapiro, 1994) 11 Rational choice theory

Summary: Rational choice theory adopts a methodological individualist position and attempts to explain all social phenomena in terms of the rational calculations made by self-interested individuals. Rational choice theory sees social interaction as social exchange, modelled on economic action. People are motivated by the rewards and costs of actions and by the profits that they can make. Some rational choice theorists have seen rationality as a result of psychological conditioning. Others have adopted the position that it is simply necessary to assume that individuals act as if they were completely rational. 12 Rational choice theory – Summary (1)

The problem of collective action poses great difficulties for rational choice theory, which cannot explain why individuals join many kinds of groups and associations. The problem of social norms, the other aspect of the Hobbesian problem of order, also poses difficulties. Rational choice theories cannot explain the origins of social norms, especially those of altruism, reciprocity, and trust. The problem of social structure is a feature of methodological individualism, rather than rational choice theory per se, but it creates difficulties for the theories considered. Solutions to this problem have been in terms of the unintended consequences of individual action. 13 Rational choice theory – Summary (2)