Rational Choice Theory

Rational choice theory holds that people make decisions by weighing the costs and benefits of their options. They then choose whichever option offers the greatest net benefit.

Origin and Premises

Rational Choice Theory states that people use rational calculations to make rational choices and achieve outcomes that are aligned with their own, personal objectives.

Everyone weighs costs, risks, and benefits first. What seems irrational to one person can make sense to another, because the choice reflects that person’s own preferences.

At its core, rational choice theory assumes that people control their own decisions. The theory helps explain why people, groups, and society move toward certain choices, and it does this by weighing specific costs against specific rewards.

Rational choice theory conflicts with some other theories in sociology. For example, the psychodynamic theory states that people seek gratification due to unconscious properties.

Meanwhile, rational choice theory holds that there is always a rational justification for behaviors, and people try to maximize rewards because they are worth the cost.

Self-Interest and the Invisible Hand

Rational choice theory traces its roots to the economist Adam Smith. His essay An Inquiry into the Nature and Causes of the Wealth of Nations (Smith, 1776) first set out the idea.

Smith argued that human nature tends toward self-interest. He proposed that this self-interest produces prosperity through the “invisible hand”: the combined effect of many self-interested individual actions.

The idea has an earlier source, too. Smith’s invisible hand drew on Thomas Hobbes’s Leviathan (1651), which argued that political institutions arise from individual choices.

Further Iterations

Rational choice theory began in economics. In the 1950s and 1960s, though, it moved into the social sciences. George C. Homans, Peter Blau, and James Coleman each linked rational choice to social exchange.

These theorists borrowed the theory’s economic roots. They argued that social behavior itself is driven by a rational calculation of costs and rewards.

Homans’s (1958) essay on social behavior as exchange argued that social interactions and small-group processes could be explained using principles from microeconomic theory.

Blau’s (1964) book on social exchange theory used rational choice to describe interactions within a bureaucracy (Oberschall, 1979).

Harsanyi applied ideas from game theory to social systems. This included social exchange situations specifically. Coleman (1964) developed another branch of social exchange theory, modeling social behavior mathematically and treating collective decisions like an economic market.

Characteristics

There are multiple rational choice theories, and the benefits that people are said to receive from their choices vary from one rational choice theory to the next.

Rational choice theories disagree about what people actually want. Some hold that individuals seek money or re-election; others argue that people’s goals are not always self-serving (Becker, 1976; Downs, 1957; Olson, 1965; Schelling, 1960; Green and Fox, 2007).

Nonetheless, rational choice theories make a few assumptions:

At its core, Rational Choice Theory is a system of axioms. These axioms give a basis for predicting how individuals will make decisions, and they say that choices between any two alternatives are consistent, transitive, independent, continuous, and monotonic.

Consistency means a decision maker can rank all of their options by how desirable they are. This is also called the assumption of connectedness. Preferences must be equal or unequal, and unequal preferences can be ordered across the decision maker’s whole list.

Transitivity works differently: if A is preferred to B, and B to C, then A must also be preferred to C (Green and Shapiro, 1994).

The distance between preferences or the magnitude of preferences does not need to be known to the person analyzing this ranking of choices.

Independence assumes that all preferences are completely independent of other preferences.

For example, the preferability of choice A does not depend on the preferability of choices B or C. Moreover, continuity assumes that preferences hold across time and space. Given the same conditions, the decision-maker will still prefer choice A in, say, a decade if they preferred it today.

Lastly, rational choice theorists assume monotonicity. This means that all decision rules and preferences are the same across individuals and times.

This assumption is in place because allowing for the assumption that there will be major variations in individual preferences dependent on individual characteristics creates major mathematical problems (Storm, 1990).

Rational Choice vs. Organizational Theories

Rational Choice Theory and Organizational Theory are two different but closely related theories.

Economic theorists use it as a tool for aggregation. It links changes in individual action to changes in organizational structure and function.

However, economic theorists tend to take a broad view where organizational context, organizational structure, and individual actions interact to change organizational functioning.

In this view, individual choices alone don’t explain organizational behavior. Many organizational theories set individual actions aside entirely, focusing instead on relationships between organizational and contextual characteristics.

Rational choice theory is premised on the assumption that people will carry out actions to maximize utility. Organizational theory assumes organizations are structured rationally for efficiency.

A school of thought known as Organizational economic theory links Rational Choice Theory and Organizational Theory.

Critical Evaluation

Rational choice theory has been tested extensively at the empirical level, with mixed results that have polarized opinion across the social sciences.

Rational choice theory assumes that a good sociological theory is one that interprets any social phenomenon as the culmination of rational, individual actions.

This assumption lets sociological theories set aside vague forces, such as cognitive bias or evolution, as explanations for human behavior. That gives rational choice theory real power, but scholars such as Boudon (2003) have criticized how well it describes several social phenomena. Five recurring challenges stand out:

1. The voting paradox: a single vote barely affects an election, so rational actors should not bother voting, yet millions do.
2. The ultimatum game: a “rational” low offer is often rejected, when theory predicts it should always be accepted.
3. The overreaction paradox: people sometimes fight hard over trivial, low-stakes issues.
4. Boudon’s three exceptions: uncommon beliefs, consequence-free norms, and non-self-interested behavior all sit outside the theory’s reach.
5. Riker’s defense: the theory’s critics, Riker argues, mostly test it under conditions with no real stakes.

The Voting Paradox

Consider what Boudon (2003) calls the voting paradox. According to rational choice theory, a single vote has too little effect on an election’s outcome to justify voting.

The cost of voting, the theory says, is always higher than the benefit, so rational actors should always refrain. Yet millions of people vote in national elections every year.

Scholars have proposed several solutions. One is that people would feel strong regret if their vote would have changed the outcome, even though the probability of that is vanishingly small (Ferejohn & Fiorina, 1974).

Another is that not voting risks one’s reputation (Overbye, 1995). Boudon (2003) argues that none of these explanations fully removes the paradox.

Both attempts try to preserve the theory’s core claim that voting, like any choice, must ultimately serve the voter’s own interest.

The Ultimatum Game

Psychologists have also devised experiments, such as the “ultimatum game,” that resist rational choice theory (Wilson, 1993; Hoffman & Spitzer, 1985).

Two players take part. One player splits money from a shared pool. The other can accept or reject the split.

If the second player accepts, both keep their share. If they reject, neither gets anything.

Under rational choice theory, the first player should always offer as little as possible, and the second player should always accept. In practice, second players rarely accept less than about a third of the pool, and many first players split the money evenly.

This pattern suggests that fairness matters to people in its own right, which a purely self-interested calculation struggles to explain on its own account.

The Overreaction Paradox

People also frequently take actions where the benefit to them is zero or even negative. C. W. Mills (1951) called this the “overreaction paradox.”

Mills studied female clerks who sat in a large room doing identical tasks at identical desks. Conflicts broke out often, over minor issues such as who sat closer to a heat or light source.

Boudon sees this as a genuine puzzle. He argues it can be explained by either irrationality or rational choice theory, which is exactly what makes it so hard to resolve.

Boudon’s Three Exceptions

Boudon (2003) identifies three kinds of phenomena that tend to fall outside rational choice theory’s reach. Each has its own logic.

The first involves choices based on beliefs that are not widely shared. Someone may avoid a doctor because they fear being harmed.

The second involves normative beliefs with no real consequence for the believer (Boudon, 2001b). A citizen may strongly disapprove of corruption even though it does not affect them personally.

The third involves behavior that isn’t self-interested. An audience member may side fiercely with a fictional character, even though the outcome means nothing to them personally.

The same happens in real life. People can hold strong views on issues like capital punishment without ever being personally affected by them (Boudon, 2003).

Riker’s Defense of Rational Choice Theory

Not every scholar is a critic. Riker (1995) argues strongly for the theory.

He points out that most experiments showing rational choice theory failing involve no real stakes for participants, such as bets with no real money on the line.

He also argues that the “naive” student participants typical of these experiments are not representative of highly trained policymakers making real political and economic decisions.

Examples

• Criminology: Rational choice theory sees criminal behavior as the outcome of decisions and choices made by an offender. Cornish and Clarke (1987) use the theory as a framework for understanding crime control policies. According to Cornish and Clarke, individuals who commit crimes choose between criminal and non-criminal alternatives when seeking to achieve their goals.
• For example, someone who is drunk may choose to drive (criminal behavior), call a taxi, use public transportation, walk, or persuade a sober friend to drive them home. Usually, rational choice theory posits that non-criminal alternatives tend to be considered before criminal ones are, as criminal alternatives tend to come at a greater cost.
• Cornish and Clarke use “choice structures” to categorize crimes into different categories under rational choice theory. These are the factors a person weighs before offending.
• Theft involving cash has its own choice structure. Relevant factors include the severity of punishment, the likely cash yield, the planning required, and whether there is an identifiable victim.
• Drug use has a different structure again. It depends on how far the drug interferes with everyday tasks, the intensity of the “high”, and how the drug is taken (Cornish & Clarke, 1986).
• Bounded rationality: Cornish and Clarke (1986) argued that offenders reason with only limited information, time, and foresight, relying on shortcuts and experience rather than exhaustive calculation. A burglar sizing up a house, for instance, may judge risk from a few visible cues rather than weighing every possible outcome.
• The researchers argue that a rational choice perspective on crime can suggest lines of inquiry that account for stability and change and criminal behavior and that people will generally choose to commit the crimes that provide the lowest cost-to-benefit ratio.
• In this view, strategies that attempt to attack the “root” cause of crime should focus on the difficulty of committing crimes over using non-criminal means (Cornish and Clarke, 1987).
• Situational crime prevention: The theory’s main real-world product changes the situation rather than the offender: better locks, CCTV, and clearer signage raise the effort, risk, or excuses around an offence (Clarke, 1997). A 2015 discrete-choice study of burglars’ actual house selections found their choices tracked exactly these kinds of measurable features, giving quantitative support to the idea (Vandeviver et al., 2015).
• Political Sociology: Rational choice theory has been used extensively in political science. One advocate of the theory was William H. Riker.
• In his article, “The Political Psychology of Rational Choice Theory,” Riker (1995) presents a model of expected utility — a mathematical approximation of how much benefit people ought to derive from a situation — in considering why people vote.
• Countering the criticisms of people such as Boudon (2003), Riker accounts for factors unrelated to the outcome of an election pertinent to voting — such as pride in citizenship and satisfaction in taking sides (Riker, 1995).

References

Becker, G. S. 1976. The Economic Approach to Human Behaviour. Chicago: University of
Chicago Press.

Blau, P. M. (1964). Social exchange theory. Retrieved September, 3(2007), 62.

Boudon R. 2001b. Sociology. International Encyclopedia of the Social and Behavioral Sciences. Amsterdam: Elsevier

Boudon, R. (2003). Beyond rational choice theory. Annual review of sociology, 29(1), 1-21.

Clarke, R. V. (Ed.). (1997). Situational crime prevention: Successful case studies (2nd ed.). Harrow and Heston.

Coleman, J. S. (1964). Introduction to mathematical sociology. Introduction to mathematical sociology.

Cornish, D. B., & Clarke, R. V. (1986). The reasoning criminal: Rational choice perspectives on offending. Springer-Verlag.

Cornish, D. B., & Clarke, R. V. (1987). Understanding crime displacement: An application of rational choice theory. Criminology, 25(4), 933-948.

Downs, A. 1957. An Economic Theory of Democracy. New York: Harper and Brothers.

Ferejohn, J. A., & Fiorina, M. P. (1974). The paradox of not voting: A decision theoretic analysis. American political science review, 68(2), 525-536.

Green, D. P., & Fox, J. (2007). Rational choice theory. Social Science Methodology. L.: Sage Publications, 269-281.

Green, D., & Shapiro, I. (1994). Pathologies of rational choice theory: A critique of applications in political science. Yale University Press.

Hobbes, T (1651/1939). Leviathan. New York: Modern Library

Hoffman, E., & Spitzer, M. L. (1985). Entitlements, rights, and fairness: An experimental examination of subjects” concepts of distributive justice. The Journal of Legal Studies, 14(2), 259-297.

Homans, G. C. (1958). Social behavior as exchange. American journal of sociology, 63(6), 597-606.

Mills CW. 1951. White Collar. The American Middle Classes. New York: Oxford Univ.Press

Oberschall, A. (1979). 13. SOCIAL EXCHANGE AND CHOICE. Qualitative and Quantitative Social Research: Papers in Honor of Paul F. Lazarsfeld, 158.

Olson, M. (1965). The logic of collective action: Public goods and the theory of groups. Cambridge, MA: Harvard University Press

Overbye, E. (1995). Making a case for the rational, self‐regarding, ‘ethical’ voter… and solving the ‘Paradox of not voting’ in the process.

European Journal of Political Research, 27(3), 369-396.

Riker, W. H. (1995). The political psychology of rational choice theory. Political Psychology, 23-44.

Schelling, T. C. (1960). The Strategy of Conflict, 15. Auflage, Cambridge, MA.

Smith, A. (1776). An inquiry into the nature and causes of the wealth of nations: Volume One. London: printed for W. Strahan; and T. Cadell, 1776.

Vandeviver, C., Neutens, T., Van Daele, S., Geurts, D., & Vander Beken, T. (2015). A discrete spatial choice model of burglary target selection at the house-level. Applied Geography, 64, 24-34.

Wilson JQ. 1993. The Moral Sense. New York: Free Press

Further Information

• Introduction to Choice Theory
• Lovett, F. (2006). Rational choice theory and explanation. Rationality and Society, 18(2), 237-272.