Rational Choice Theory

Some Examples

A simple example will help. Imagine that the management team at ABC Corp., a publicly traded manufacturer of cell phones, faces a decision whether to license a new, patented technology (say, a novel memory chip) from XYZ Inc. or instead to develop its own memory chip using similar methods, despite the fact that doing so could arguably infringe on XYZ's patent. This is a complex decision.

In its explanatory capacity, RCT might explain ABC Corp.'s decision not to risk infringing XYZ's patent as a rational response to the anticipated costs and benefits of doing so. Clearly, if ABC Corp. chooses not to risk infringing the patent, it must be because managers there believe that the benefits and costs of not doing so jointly outweigh the benefits and costs of infringement. Perhaps, they see patent infringement as a very risky behavior (very likely to result in legal action by XYZ) or the likely legal penalty for patent infringement as being very important to avoid—and so they rationally choose to license the technology from XYZ Inc. instead.

In its predictive capacity, RCT might lead us to predict, prior to ABC Corp.'s choice, what managers there will in fact choose to do. The prediction made will depend on some assumptions about what the managers predict to be the costs and benefits of patent infringement. (In practice, a rational choice theorist might not make a prediction about what a specific company such as ABC Corp. will do but rather about what managers at companies facing a choice like the one faced by ABC Corp. are likely to do, on average. That would be typical of the use of RCT in modern economics.)

In its prescriptive (or normative) capacity, RCT might tell managers at ABC Corp. (or managers facing a choice like the one faced by ABC Corp.) what they ought to do in such a situation. So (depending on what is known about, or what assumptions are made about, the relevant costs and benefits of copyright infringement and about the company's own mission, vision, and values), the rational choice theorist might tell managers at ABC Corp. that given how much they value avoiding serious legal penalties and given how little it would cost simply to license the technology from XYZ Inc., it would be irrational to risk infringing XYZ's patent.

Rationality

Central to RCT, of course, is the idea of rationality itself. The term rationality is a contested one—it is used in different ways by different theories in different fields. As used by rational choice theorists, rationality simply means the capacity to evaluate options and to choose among them according to some set of criteria (normally, [Page 1759]the agent's own values or preferences). To say that an agent is rational is simply to say that the agent has the capacity to evaluate options and to choose among them to achieve goals. The standard of rationality assumed by RCT has little, if anything, to say about the quality of agents' goals. Rationality is a property that applies to agents (an agent is called rational to the extent to which she or he is effective at choosing actions conducive to the achievement of her or his goals) or to agents'choices (an agent's choice is called rational if it is conducive to securing the agent's ends); but for RCT, rationality is not a concept that applies to an agent's preferences or goals themselves. Thus, RCT leaves it to agents to determine what their goals are; there are no irrational preferences. RCT merely assumes that agents choose according to their own goals. This leaves open whether the agent's goals and preferences are narrowly selfish, nepotistic, sympathetic, or altruistic, or aim at promoting the well-being of all humankind, and so on. So contrary to the claims of some critics of RCT, calling an agent rational does not necessarily imply either a “cold,” emotionless demeanor or a narrow focus on the agent's own interests.

...