Rationality

Instrumental Rationality

Instrumental rationality is a normative concept: what is instrumentally rational is the best means to achieve an end. It is not meant to convey anything about the superiority of some ends over others. Thus, a rational choice is a conditional imperative pertaining to some end. We might judge that end to be crazy, immoral, or substantially unreasonable. With regard to instrumental rationality, however, the value of the end is irrelevant. One of the important results of examining human action through instrumentally rational eyes is that rational individuals might well act in ways that are against their collective interest. Individual rationality can lead to collective irrationality. This result, also known as the collective action problem, can be seen in game theory in games such as the prisoner's dilemma and chicken games.

Rationality in rational choice theory itself is in fact a purely formal concept that allows for predictability or interpretation of agents' actions. Rational choice theory is a methodology that is based on three definitions or conditions that constitute rational choice and from which we can draw revealed preference. Rational choice theory assumes that individuals can order their preferences over states of the world (or objects) with the base relation R. We define an R relation as one where the agent either prefers the first alternative to the other or is indifferent between them, and it can be read as “at least as good as.” Rational choice theory is then defined by three conditions concerned with preferences that are required for rationalizing or interpreting the behavior of agents. Preferences must be reflexive, complete, and transitive. If an individual's preferences are reflexive, then for any alternative x within a domain A an individual i either prefers or is indifferent between x and x itself (for all x 2 A, x Rix). From the preference relation R (weak preference), the preference relations P (strict preference) and I (indifference) can be defined. (Subscript i stands for the individual and lowercase letters for social states or objects. The uppercase letter A stands for the set of alternatives.) Second, completeness implies that any item in domain A must enter into the preference ordering so that for all alternatives x, y 2 A, either x Riy or y Rix (or both). In other words, either individual i prefers y to x or is indifferent between them. Transitivity means that for any triple of alternatives x, y, z 2 A, if x Riy and y Riz, then x Riz (which means that if i weakly prefers x to y and y to z, then the player must weakly prefer x to z). These conditions allow for the weak axiom of revealed preference (WARP), which enables rationalization, interpretation, and explanation of behavior. The claim is that any interpretation of behavior, whether given by the analyst or the agent, if the action is rationalizable (recognizable as a reason) must abide by these conditions.

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