Tips for Logical Thinkers
Rational Choice Theory and self-interest
Q. What is rational choice theory?
A. Also known as the theory of rational choice, choice theory, or rational action theory, This a framework for understanding and often formally modeling social and economic behavior. The basic premise of rational choice theory is that social behavior formed by combining several (typically disparate) elements (social aggregate behavior) results from the behavior of individual actors (players), each of whom is making their individual decisions. The theory also focuses on the determinants of individual choices.
Ever since I developed an interest in applied game theory, I have researched the idea of logic, rationality, and what makes people make intuitively, emotionally, and objectively driven choices
That’s how I came across the concept of rational choice theory.
Once you become a skilled critical thinker, you can then apply what you know to prosper in many ways.
There are many preferences among the available choice alternatives. These alternatives allow each individual to state which option they prefer. These preferences are assumed to be complete.
Put simply, when I say that preferences are assumed to be complete I mean:”
- the person can always say which of two alternatives they consider preferable
- that neither is preferred to the other
- if option A is preferred over option B and option B is preferred over option C, then A is preferred over C).
When making a choice it is assumed that a rational agent (player) will take account of available information, probabilities of events, and potential costs and benefits in determining preferences, and to act consistently in choosing the self-determined best choice of action.
In simpler terms, this theory dictates that every person, even when carrying out the most mundane of tasks, perform their own personal cost and benefit analysis in order to determine whether the action is worth pursuing the best possible outcome. And following this, a person will choose the optimum venture in every case. This could culminate in a student deciding on whether to attend a lecture or stay in bed, a shopper deciding to provide their own bag to avoid the five pence charge or even a voter deciding which candidate or party based on who will fulfill their needs the best on issues that have an impact on themselves especially.
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Rationality is widely used as an assumption of the behavior of individuals in HAGT (Harrison’s Applied Game Theory) and microeconomic models analyses.
Microeconomics (from Greek prefix mikro- meaning “small” + economics) is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.
Rational choice theory appears in almost all economics textbooks concerned with how humans make choices, and in research in decision-science.
Gary Becker was an early proponent of applying rational actor models more widely. Becker won the 1992 Nobel Prize for his studies of discrimination, crime, and human capital. Human capital is an intangible asset or quality not listed generally measured by a group, or on a company’s balance sheet. It can be classified as the economic value of an individual’s experience and skills. This includes assets like education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality. IN HAGT we use 25 Core Resources that include time, space, information, influence, and specialized skills.
Here is an introduction with a short video explanation of the basics of game theory. Applied game theory and Rational Choice are profoundly linked. Please click on the puzzle below to learn more…
Author: Lewis Harrison is a corporate consultant on creativity and innovation. An Independent Scholar and a Results-Oriented Success Coach, He has a passion for knowledge, personal development, self-improvement, creativity, innovation, and problem-solving.
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