DISS-Q2-W1-RATIONAL-CHOICE.pptx.........

Diss

1. SITUATION ANALYSIS: A girl/boy went to the mall to buy school shoes. Upon entering the shoes section, a pair of ragged shoes caught her/his attention. The girl/boy was having a hard time choosing between school shoes or ragged shoes.

2. 1. What was the situation all the about? 2. If you are in the same situation, what will you choose ?

3. RATIONAL CHOICE

4. RATIONAL CHOICE also called as rational action theory or choice theory, states that individuals use rational calculations to make rational choices and achieve outcomes that are aligned with their own personal objectives.

5. RATIONAL CHOICE It is used to model human decision making, especially in the context of Microeconomics, where it helps Economists better understand the behavior of a society in terms of individual actions as explained through rationality, in which choices are consistent because they are made according to one’s personal preferences. For Economists, rationality simply means that when you make a choice, you will choose the thing you like best.

6. RATIONAL CHOICE Rational choice theory is a theory in social science that argues with human behavior, and social life in general, that can be explained in terms of rational choices of individuals. The ‘rationality’ defined by the rational choice theory adopts a more specific and narrower definition, which simply means that “an individual acts as if balancing costs against benefits to arrive at action that maximizes personal advantage” (Friedman, 1953).

7. RATIONAL CHOICE Rational Choice Theory is an approach that could be used by social scientists to understand human behavior, because this theory explains that human action and behavior are products of choice. Individuals rationalize their situations by processing between the most beneficial choice and the lesser individual cost. In this theory, cost –benefit analysis is always performed in every given situation and is considered an instinctual response to every human. Cost is something disadvantageous to or what is lost by an individual, while benefit is what should be gained or advantageous to the individual after making the choice.

8. Here are some questions commonly asked during cost –benefit analysis: - Will this benefit me? - How will this benefit me? - How far I’m going to negotiate? - What will I have to sacrifice? - How much will it cost?

9. For example, Sebastian has two classmates whom he wants to be friends with: Ethan, a social outcast but has the newest action game, and Alyster , the most popular in the class but does not like to play action games. Sebastian’s first level of cost –benefit analysis is choosing between having the chance to play the newest game or not. His second level of cost-benefit analysis is choosing whether he would like to be associated with social outcast or with the most popular student in class. The rational choice for Sebastian would then be dependent on which is more important to him- to play the game or to be associated with the popular crowd. This example provides the basic principle of rational choice theory wherein preferences play an important role in decision-making, while the individual rationalizes the burdens and benefits of his/her individual choices.

10. The key elements of all rational choice explanations are individual preferences, beliefs, and constraints.

11. PREFERENCES Preferences denote the positive or negative evaluations individuals attach to the possible outcomes of their actions.

12. BELIEFS Beliefs refer to perceived cause-effect relations, including the perceived likelihood with which an individual’s actions will result in different possible outcomes.

13. CONSTRAINTS Constraints define the limits to the set of feasible actions.

14. ASSUMPTIONS OF THE RATIONAL CHOICE THEORY

15. INDIVIDUALISM it is the individuals who ultimately take actions. Individuals, as actors in the society and everywhere the go, behave and act always as rational beings, self-calculating, self-interested and self-maximizing. These individual social actions are the ultimate source of larger social outcomes.

16. OPTIMALITY Individuals choose their actions optimally, given their individual preferences as well as the opportunities or constraints with which they are faced with. Abell (2000) defines optimality as taking place when no other course of social action would be preferred by the individual over the course of action the individual has chosen.

17. STRUCTURES Abell argues that structures and norms that dictate a single course of action are merely special cases of rational choice theory. In other words, the range of choices in other circumstances differ from choices in a strong structural circumstance, where there may be only one choice.

18. SELF-REGARDING INTEREST This assumption states that the actions of the individual are concerned entirely with his or her own welfare. Abell (2000) noted that in as much as this is a key assumption in the rational choice approach, is not as essential to the approach as the assumption on optimality.

19. RATIONALITY This appears to be the most predominant assumption of the rational choice theory. All individuals, according to this assumption, act in ways that would benefit them more; every individual is most likely to undertake courses of actions that they perceive to be the best possible option and one that would immensely be to their own advantage.

20. SOCIAL CONSEQUENCES OF SCARCITY-BASED DECISION Human beings have unlimited wants but only limited resources. Scarcity of resources and the requirements of human’s unending ambitions force us to make a choice. The most essential rational choice is to conserve the limited resources and share these with each other.

21. IMPORTANT THEORISTS

22. William Stanley Jevons ( 1835–1882) was an English economist who applied the principles of rational choice theory in political economy. Jevons was one of the first to advance the theory of marginal utility(value), which sought application in determining and understanding consumer’s behaviour . This theory states that the utility (value) of something decreases as more of it is consumed. The theory held that the utility (value) of each additional unit of a commodity—the marginal utility—is less and less to the consumer. When you are thirsty, for example, you get great utility from a glass of water. Once your thirst is quenched, the second and third glasses are less and less appealing. Feeling waterlogged, you will eventually refuse water altogether. “Value,” said Jevons, “depends entirely upon utility.”

23. Jevons also identified the concept called “ equation of exchange,” which shows that for a consumer to be maximizing his or her utility, the ratio of the marginal utility of each item consumed to its price must be equal. Marginal utility, in this sense, points to the line wherein the value for certain object is still within satisfactory level.

24. Gary Becker (1930–2014) was an American economist who expanded the study of economics to the realm of sociology and other social sciences. Suggesting that human behaviour is subject to economic analysis, Becker argued that individuals act to minimize their own welfare, thereby taking the scope of economics beyond mere calculation of financial gains. Like other theorist of rational choice theory, Becker ascribes to the principle that humans behave according to their “perceived values and preferences”.

25. For Becker, it is detrimental to choose preferences outside the necessary skills and talents required to complete the task. He said that if the purpose of human behaviour is the maximization of welfare, then discrimination in a corporate setting leads to an opposite effect. Becker, added that preferences are also to be chosen based on rational decisions. Thus, a “True Rational Choice” is having a clear understanding not only of the situation and the given choices, but also of the factors that are imposed by the individual actors in decision making.

26. Criticisms and Limitations Rational choice theory is heavily criticized for its neglect of ethical and moral standards. The main philosophy of rational choice theory is the acquisition of personal interest, power and wealth. It is not strict with the method and the product of decision-making: rather, it analyses the outcome and the preferences based on what is optimal and ultimately beneficial for individual actor.