Rational choice model

Rational choice modeling refers to the use of decision theory as a set of guidelines to help understand economic and social behavior. The theory tries to approximate, predict, or mathematically model human behavior by analyzing the behavior of a rational actor facing the same costs and benefits.
Rational choice models are most closely associated with economics, where mathematical analysis of behavior is standard. However, they are widely used throughout the social sciences, and are commonly applied to cognitive science, criminology, political science, and sociology.

Overview

The basic premise of rational choice theory is that the decisions made by individual actors will collectively produce aggregate social behaviour. The theory also assumes that individuals have preferences out of available choices. These preferences are assumed to be complete or transitive. Completeness refers to the individual being able to say which of the options they prefer. Alternatively, transitivity is where the individual weakly prefers option A over B and weakly prefers option B over C, leading to the conclusion that the individual weakly prefers A over C. The rational agent will then perform their own cost–benefit analysis using a variety of criterion to perform their self-determined best choice of action.
One version of rationality is instrumental rationality, which involves achieving a goal using the most cost effective method without reflecting on the worthiness of that goal. Duncan Snidal emphasises that the goals are not restricted to self-regarding, selfish, or material interests. They also include other-regarding, altruistic, as well as normative or ideational goals.
Rational choice theory does not claim to describe the choice process, but rather it helps predict the outcome and pattern of choice. It is consequently assumed that the individual is a self-interested or “homo economicus”. Here, the individual comes to a decision that optimizes their preferences by balancing costs and benefits.
Rational choice theory has proposed that there are two outcomes of two choices regarding human action. Firstly, the feasible region will be chosen within all the possible and related action. Second, after the preferred option has been chosen, the feasible region that has been selected was picked based on restriction of financial, legal, social, physical or emotional restrictions that the agent is facing. After that, a choice will be made based on the preference order.
The concept of rationality used in rational choice theory is different from the colloquial and most philosophical use of the word. In this sense, "rational" behaviour can refer to "sensible", "predictable", or "in a thoughtful, clear-headed manner." Rational choice theory uses a much more narrow definition of rationality. At its most basic level, behavior is rational if it is reflective and consistent. More specifically, behavior is only considered irrational if it is logically incoherent, i.e. self-contradictory.
Early neoclassical economists writing about rational choice, including William Stanley Jevons, assumed that agents make consumption choices so as to maximize their happiness, or utility. Contemporary theory bases rational choice on a set of choice axioms that need to be satisfied, and typically does not specify where the goal comes from. It mandates just a consistent ranking of the alternatives. Individuals choose the best action according to their personal preferences and the constraints facing them.

Actions, assumptions, and individual preferences

Rational choice theory can be viewed in different contexts. At an individual level, the theory suggests that the agent will decide on the action they most prefer. If the actions are evaluated in terms of costs and benefits, the choice with the maximum net benefit will be chosen by the rational individual. Rational behaviour is not solely driven by monetary gain, but can also be driven by emotional motives.
The theory can be applied to general settings outside of those identified by costs and benefits. In general, rational decision making entails choosing among all available alternatives the alternative that the individual most prefers. The "alternatives" can be a set of actions or a set of objects. In the case of actions, what the individual really cares about are the outcomes that results from each possible action. Actions, in this case, are only an instrument for obtaining a particular outcome.

Formal statement

The available alternatives are often expressed as a set of objects, for example a set of j exhaustive and exclusive actions:
For example, if a person can choose to vote for either Roger or Sara or to abstain, their set of possible alternatives is:
The theory makes two technical assumptions about individuals' preferences over alternatives:

Completeness – for any two alternatives a_i and a_j in the set, either a_i is preferred to a_j, or a_j is preferred to a_i, or the individual is indifferent between a_i and a_j. In other words, all pairs of alternatives can be compared with each other.
Transitivity – if alternative a₁ is preferred to a₂, and alternative a₂ is preferred to a₃, then a₁ is preferred to a₃.

Together these two assumptions imply that given a set of exhaustive and exclusive actions to choose from, an individual can rank the elements of this set in terms of his preferences in an internally consistent way, and the set has at least one maximal element.
The preference between two alternatives can be:

Strict preference occurs when an individual prefers a₁ to a₂ and does not view them as equally preferred.
Weak preference implies that individual either strictly prefers a₁ over a₂ or is indifferent between them.
Indifference occurs when an individual neither prefers a₁ to a₂, nor a₂ to a₁. Since the individual does not refuse a comparison, they must therefore be indifferent in this case.

Research since the 1980s sought to develop models that weaken these assumptions and argue some cases of this behaviour can be considered rational. However, the Dutch book theorems show that this comes at a major cost of internal coherence, such that weakening any of the Von Neumann–Morgenstern axioms makes. The most severe consequences are associated with violating independence of irrelevant alternatives, and transitive preferences, or fully abandoning completeness rather than weakening it to "asymptotic" completeness.

Utility maximization

Often preferences are described by their utility function or payoff function. This is an ordinal number that an individual assigns over the available actions, such as:
The individual's preferences are then expressed as the relation between these ordinal assignments. For example, if an individual prefers the candidate Sara over Roger over abstaining, their preferences would have the relation:
A preference relation that as above satisfies completeness, transitivity, and, in addition, continuity, can be equivalently represented by a utility function.

Benefits

The rational choice approach allows preferences to be represented as real-valued utility functions. Economic decision making then becomes a problem of maximizing this utility function, subject to constraints. This has many advantages. It provides a compact theory that makes empirical predictions with a relatively sparse model – just a description of the agent's objectives and constraints. Furthermore, optimization theory is a well-developed field of mathematics. These two factors make rational choice models tractable compared to other approaches to choice. Most importantly, this approach is strikingly general. It has been used to analyze not only personal and household choices about
traditional economic matters like consumption and savings, but also choices about education, marriage, child-bearing, migration, crime and so on, as well as business decisions about output, investment, hiring, entry, exit, etc. with varying degrees of success.
In the field of political science rational choice theory has been used to help predict human decision making and model for the future; therefore it is useful in creating effective public policy, and enables the government to develop solutions quickly and efficiently.
Despite the empirical shortcomings of rational choice theory, the flexibility and tractability of rational choice models lead to them still being widely used.

Applications

Rational choice theory has become increasingly employed in social sciences other than economics, such as sociology, evolutionary theory and political science in recent decades. 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. In these fields, the use of rational choice theory to explain broad social phenomena is the subject of controversy.

Rational choice theory in political science

Rational choice theory provides a framework to explain why groups of rational individuals can come to collectively irrational decisions. For example, while at the individual level a group of people may have common interests, applying a rational choice framework to their individually rational preferences can explain group-level outcomes that fail to accomplish any one individual's preferred objectives. Rational choice theory provides a framework to describe outcomes like this as the product of rational agents performing their own cost–benefit analysis to maximize their self-interests, a process that doesn't always align with the group's preferences.