1. Rationality Philosophical concepts of rationality
Instrumental vs. Principled rationality
Utilitarianism
Economics and rational choice
Assumptions and ambitions of rational choice theory
Game theory
Bounded rationality

2. Definitions Reason Cognition Logic Rationality
The intellectual ability to apprehend the truth cognitively, either immediately in intuition, or by means of a process of inference.
Cognition
The portion of human experience comprising thought, knowledge, belief, and inference (as opposed to sensation, volition, or feeling).
Logic
Branch of philosophy concerned with the distinction between correct and incorrect reasoning. It commonly comprises both deductive and inductive arguments.
Rationality
the quality of being consistent with or based on logic
the state of having good sense and sound judgment; "his rationality may have been impaired"; "he had to rely less on reason than on rousing their emotions"

3. Rational behaviour
A theory of rational choice presupposes that choices can be influenced by reason
That implies that
not only are we reasoning beings
possessing cognitive abilities
applying principles of logic (deduction/induction) to comprehend the world
but also do we let reasoning guide behaviour/decisions/choices
In that sense, RC theory proposes that reasoning is not an abstract human ability, but applied in behaviour, which allows behaviour to be explained and predicted

4. Instrumental rationality
David Hume ( )
”Reason alone can never be a motive to any action of the will”
”reason is, and ought only to be the slave of passions”
Instrumental view of rationality
Human actions/choices are ultimately driven by passions, desires
Action determined by psychological states
Rationality of action consists of acting in a way that promises to achieve the desired goal
Passions or desires themselves cannot be irrational
Only irrational if based on false judgment, and then the judgment is the irrational element, not the evoked passion
Irrational can be the choice of means to satisfy the passion/desire

5. Principled rationality
Immanuel Kant ( )
Hypothetical imperatives
Effectively Humean instrumental rationality
If you want to achieve Y, and this can only be accomplished by the course of action X, then it is (instrumentally or hypothetically) imperative to do X
Categorical imperatives
Do X regardless of your wants
Reasoning about what actions to take requires that we conceive of ourselves as able to determine our actions autonomously
Passions are alien influences that should not affect our reasoning
Categorical are imperatives recognised by any agent possessing the faculty of reason
”Act only on that maxim which you can at the same time will that it should become a universal law”

6. Utility Jeremy Bentham (1748-1832) Principle of utility
”approves or disapproves of every action whatsoever, according to the tendency which it appears to have to augment or diminish the happiness of the party whose interest is in question”
Utility: property of an object to produce benefit, advantage, pleasure, good, happiness
Consequentialism: rationality of action is determined by the results those actions provide
Allows for reason to override passion, if long-term balance of happiness is maximised by foregoing current passionate urge
Social choices (utilitarian principle of justice)
A social state is preferable to another if it provides a net increase in utility for the members involved (more tend to gain than to lose)

7. Economics and rational choice
Marginal utility theory
Mathematical modelling of utility functions
Material self-interest as psychological underpinning of theories of market and consumer behaviour (Homo economicus)
Vilfredo Pareto ( )
Pareto optimality
Thin rationality: Utility as a mere representation of preference-orderings
”The theory of economic science thus acquires the rigour of rational mechanics; it deduces its results from experiences, without bringing in any metaphysical entity”
Revealed preferences: observed choice as indicator of reasoning behind choice
Expected utility

8. Core assumptions of RC Utility maximisation Consistency
Goals and preferences are exogenous (given); utility is the property of different courses of actions, i.e. their likelihood to achieve goals
Consistency
Rank-order of preferences
Transitivity (if A is preferred over B; and B preferred over C; then A must also be preferred over C)
Expected utility
Choices are made under uncertainty
The calculus of choice not only entails the consideration of preferences over a set of options, but also consideration of the relative likelihood of an action producing the desired outcome
Radical individualism
Collective action is nothing more than ”the action of individuals when they choose to accomplish purposes collectively rather than individually” (Buchanan and Tullock, 1962)

9. Explaining the world Rational choice theory
Universal: aims to explain all economic, social and political outcomes as caused by intentional acts of individuals
Deductive: deriving law-like statements, predictions, explanations from theoretical axioms (whereas inductive theories aim to derive generalities from observation of many comparable occurrences of events)
Deterministic: search for equilibria (given institutional structures and preference orderings, outcomes are causal consequences)
Positivist: explaining what is, not explicating what ought to be
Parsimonious: (high-leverage theory) aiming at universal explanations on the basis of few assumptions, little complexity
Lack of realism: (thick or thin) rationality assumed to be dominant if not sole driving force of human behaviour; also assuming homogeneity between individuals; perfect information
Theoretical legitimacy derived from predictive power: modelling the world AS IF everyone were a ulitility maximiser

10. Game theory Neumann/Morgenstern Game theory defines rationality as
The Theory of Games and Economic Behaviour (1944)
Game theory defines rationality as
Maximising expected utilities
Based on concept of instrumental rationality
But contingent upon other player’s strategies
Modelling how individuals interact directly, and not through markets
Game theory shows choices are constrained by the behaviour of others, and how rational strategies can lead to suboptimal, perverse outcomes

11. The Prisoner’s dilemma
Assume two burglars, Al and Bob being captured
Given two options by police
Confess and implicate the other in the burglary
Don’t confess
Outcomes
If both confess, implicating the other, both get 10 years in jail
If neither confesses, each gets 1 year in jail
If one confesses, implicating the other, and the other does not, the confessors goes free, the other gets 20 years in jail
Dominant strategy is for both to confess
Perverse outcome; 10 years for each
Nash equilibrium: no one can gain from changing strategy
Applications:
Hobbes’ social contract theory
Realist paradigm in international relations
Israeli-Palestine conflict

13. Collective action Mancur Olson (1965)
”The Logic of Collective Action”
Predominant view that he challenged:
Organized groups are basic units of politics
Group membership and participation based on shared values and beliefs
Sociological explanations of political processes
Rational choice approach to collective action
Radical individualism
Requirement of separate and selective incentives to engage individuals
Groups do not have preferences, neither do states or society; all of these are just machines allowing collective action to take place
Problem of free-riding

14. Bounded rationality Herbert Simon (1916-2001) →Reasonable choice
“if we take into account the limitations of knowledge and computing power of the choosing organism, then we may find it incapable of making objectively optimal choices. If, however, it uses methods of choice that are as effective as its decision-making and problem-solving means permit, we may speak of procedural or bounded rationality, that is, behaviour that is adaptive within the constraints imposed both by the external situation and by the capacities of the decision maker.”
→Reasonable choice
Substantive rational choice
“we need to know only the choosing organism's goals and the objective characteristics of the situation. We need to know absolutely nothing else about the organism”
Procedural/bounded rational choice
“we must know the choosing organism's goals, the information and conceptualization it has of the situation, and its abilities to draw inferences from the information it possesses. We need know nothing about the objective situation in which the organism finds itself, except insofar as that situation influences the subjective representation”