What is rational choice theory

Rather, they use a logical decision-making process that takes into account the costs and benefits of various options, weighing the options against each other. Adam Smith, who proposed the idea of an "invisible hand" moving free-market economies in the mids, is usually credited as the father of rational choice theory. The main goal of rational choice theory is to explain why individuals and larger groups make certain choices, based on specific costs and rewards.

According to rational choice theory, individuals use their self-interests to make choices that will provide them with the greatest benefit. People weigh their options and make the choice they think will serve them best. States, intergovernmental organizations, nongovernmental organizations, and multinational corporations are all made up of human beings. In order to understand the actions of these entities, we must understand the behavior of the humans running them.

Rational choice theory helps to explain how leaders and other important decision-makers of organizations and institutions make decisions. Rational choice theory can also attempt to predict the future actions of these actors. One of the strengths of rational choice theory is the versatility of its application. It can be applied to many different disciplines and areas of study.

It also makes reasonable assumptions and compelling logic. The theory also encourages individuals to make sound economic decisions. By making sound economic decisions, it is possible for an individual to acquire more tools that will allow them to further maximize their preferences in the future.

The majority of classical economic theories are based on the assumptions of rational choice theory: individuals make choices that result in the optimal level of benefit or utility for them. Further, people would rather take actions that benefit them versus actions that are neutral or harm them.

Although many criticisms of rational choice theory exist—because people are emotional and easily distracted, and therefore, their behavior does not always follow the predictions of economic models—it is still widely applied across different academic disciplines and fields of study. Behavioral Economics. Trading Psychology. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.

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I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Economics Behavioral Economics. Table of Contents Expand. What Is Rational Choice Theory? Understanding Rational Choice Theory. Self-Interest and the Invisible Hand.

Advantages and Disadvantages of Rational Choice Theory. Examples of Rational Choice Theory. The Bottom Line. Key Takeaways Rational choice theory states that individuals rely on rational calculations to make rational choices that result in outcomes aligned with their own best interests. Rational choice theory is often associated with the concepts of rational actors, self-interest, and the invisible hand. It helps to pinpoint why people, groups and society as a whole move toward certain choices, based on specific costs and rewards.

Because rational choice theory states that all behavior is rational, any type of action can be examined for underlying rational motivations. A limitation of rational choice theory is that it focuses on individual action. While one could say that individual action drives large social structures, some rational choice theory critics argue the theory is too limited in its explanation. For decisions that must be made in an instant, such as decisions that influence survival, there may not be time to weigh the costs and benefits.

In social work , rational choice theory helps social workers understand the motivations of those they work with. Using rational choice theory, social workers can uncover why their clients do certain things and have gotten into certain situations, even when they seem unfavorable.

Knowing that their clients will make decisions based on what benefits them, social workers can use that understanding to guide their interactions with and recommendations for their clients. Rational choice theory can be used in conjunction with other social work theories, like social learning theory and psychosocial development theory. Rational choice theory provides a framework for social worker intervention. Did you know that you can study for a degree in social work online?

We have made it easier for you to find and compare online social work degrees at all levels. Introduction to Rational Choice Theory in Social Work Rational choice theory in social work is an important concept because it helps explain how individuals make decisions. What is Rational Choice Theory? History of rational choice theory Rational choice theory origins date back centuries. Assumptions of rational choice theory In order to fit the criteria for rational choice theory, the following assumptions are made.

All actions are rational and are made due to considering costs and rewards. The reward of a relationship or action must outweigh the cost for the action to be completed. When the value of the reward diminishes below the value of the costs incurred, the person will stop the action or end the relationship.

Individuals will use the resources at their disposal to optimize their rewards. Here's what you'll find in our full Black Swan summary :. Amanda Penn is a writer and reading specialist. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Skip to content. Posted by Amanda Penn Nov 23, Rational Choice Theory: Definition and Example. Read the rest of the world's best summary of "Black Swan" at Shortform.

Learn the book's critical concepts in 20 minutes or less. Here's what you'll find in our full Black Swan summary : Why world-changing events are unpredictable, and how to deal with them Why you can't trust experts, especially the confident ones The best investment strategy to take advantage of black swants Get the world's best book summaries now.