In rational choice theory these costs are only extrinsic or external to the individual rather than being intrinsic or internal. That is strict rational choice theory would not see a criminal's self-punishment by inner feelings of remorse guilt or shame as relevant to determining the costs of committing a crime. In general rational choice theory does not address the role of an individual's sense of morals or ethics in decision-making. Thus economics Nobelist Amartya Sen sees the model of people who follow rational choice model as "rational fools." Because rational choice theory lacks understanding of consumer motivation some economists restrict its use to understanding business behavior where goals are usually very clear. As Armen Alchian points out competition in the market encourages businesses to maximize profits (in order to survive). Because that goal is significantly less vacuous than "maximizing utility" and the like rational choice theory is apt. Although models used in rational choice theory are diverse all assume individuals choose the best action according to unchanging and stable preference functions and constraints facing them. Most models have additional assumptions. Those proponents of rational choice models associated with the Chicago school of economics do not claim that a model's assumptions are a full description of reality only that good models can aid reasoning and provide help in formulating falsifiable hypotheses whether intuitive or not.citation needed In this view the only way to judge the success of hypotheses is empirical tests.4 To use an example from Milton Friedman if a theory that says that the behavior of the leaves of a tree is explained by their rationality passes the empirical test it is seen as successful. However it may not be possible to empirically test or falsify the rationality assumption so that the theory leans heavily toward being a tautology (true by definition) since there is no effort to explain individual goals. Nonetheless empirical tests can be conducted on some of the results derived from the models. In recent years the theoretical vision of rational choice theory has been subject to more and more doubt by the experimental results of behavioral economics. This criticism has encouraged many social scientists to utilize concepts of bounded rationality to replace the "absolute" rationality of rational choice theory: this points to the difficulties of data-processing and decision-making associated with many choices in economics political science and sociology. More economists these days are learning from other fields such as psychology in order to get a more accurate view of human decision-making than offered by rational choice theory. For example the behavioral economist and experimental psychologist Daniel Kahneman won the Nobel Memorial Prize in Economic Sciences in 2002 for his work in this field. Because of the relative success of economics at understanding markets rational choice theory has also become increasingly employed in social sciences other than economics such as sociology and political science in recent decades.5 It has had far-reaching impacts on the study of political science especially in fields like the study of interest groups elections behaviour in legislatures coalitions and bureaucracy.6 Models that rely on rational choice theory often adopt methodological individualism the assumption that social situations or collective behaviors are the result of individual actions alone with no role for larger institutions.7 The poor fit between this and sociological conceptions of social situations partially explains the theory's limited use in sociology. Among other things sociology's emphasis on the determination of individual tastes and perspectives by social institutions conflicts with rational choice theory's assumption that our tastes and perspectives are given and inexplicable. Contents 1 Actions assumptions and individual preferences 1.1 Other assumptions 2 Utility maximization 3 Criticism 4 Benefits 5 See also 6 References 7 Notes 8 External links Actions assumptions and individual preferences The basic idea of rational choice theory is that patterns of behavior in societies reflect the choices made by individuals as they try to maximize their benefits and minimize their costs. In other words people make decisions about how they should act by comparing the costs and benefits of different courses of action. As a result patterns of behavior will develop within the society that result from those choices. The idea of rational choice where people compare the costs and benefits of certain actions is easy to see in economic theory. Since people want to get the most useful products at the lowest price they will judge the benefits of a certain object (for example how useful is it or how attractive is it) compared to similar objects. Then they will compare prices (or costs). In general people will choose the object that provides the greatest reward at the lowest cost. Part of a series on Utilitarianism Predecessors Epicurus David Hume  William Godwin  Francis Hutcheson People Jeremy Bentham  John Stuart Mill Henry Sidgwick  Richard Mervyn Hare  Peter Singer Types of utilitarianism Preference  Rule  Act Two-level  Total  Average Relative  Negative  Hedonism Enlightened self-interest Key concepts Pain  Suffering  Pleasure Utility  Happiness  Eudaimonia Consequentialism  Felicific calculus Problems Mere addition paradox Paradox of hedonism Utility monster Related topics Rational choice theory  Game theory Social choice  Neoclassical economics   Politics portal v d e Rational decision making entails choosing an action given one's preferences the actions one could take and expectations about the outcomes of those actions. Actions are often expressed as a set for example a set of j exhaustive and exclusive actions: For example if a person is to vote for either Roger or Sara or to abstain their set of possible voting actions is: A RogerSaraabstain Individuals can also have similar sets of possible outcomes. Rational choice theory makes two assumptions about individuals' preferences for actions: Completeness all actions can be ranked in an order of preference (indifference between two or more is possible). Transitivity if action a1 is preferred to a2 and action a2 is preferred to a3 then a1 is preferred to a3. Together these assumptions form the result that given a set of exhaustive and exclusive actions to choose from an individual can rank them in terms of his preferences and that his preferences are consistent. An individual's preferences can also take forms: Strict preference occurs when an individual prefers a1 to a2 but not a2 to a1. In some models a weak preference can be held in which an individual has a preference for at least aj similar to the mathematical operator . Indifference occurs when an individual does not prefer a1 to a2 or a2 to a1. In more complex models other assumptions are often incorporated such as the assumption of independence axiom. Also with dynamic models that include decision-making over time time inconsistency may affect an individual's preferences. Other assumptions It is often claimed that rational choice theory makes some unrealistic assumptions in order to generate tractable and testable predictions. These can include: An individual has full or perfect information about exactly what will occur due to any choice made. More complex models rely on probability to describe outcomes. An individual has the cognitive ability and time to weigh every choice against every other choice. Studies about the limitations of this assumption are included in theories of bounded rationality. Even more realistic theories of human action include such components as Amos Tversky and Daniel Kahneman's prospect theory which reflects the empirical finding as that contrary to rational choice theory individuals attach extra value to items that they already own compared to similar items owned by others. To rational choice theory the amount that an individual is willing to pay for an item (such as a drinking mug) should equal the amount he or she is willing to be paid in order to part with it. In experiments the former price is typically significantly higher than the latter. Behavioral economics has added a large number of other amendments to our picture of human behavior that go against pure economic rationality. Utility maximization Often preferences are described by their utility function or payoff function. This is an ordinal number an individual assigns over the available actions such as: The individual's preferences are then expressed as the relation between these ordinal assignments. For example if an individual prefers the candidate Sara over Roger over abstaining their preferences would have the relation: Criticism Both the assumptions and the behavioral predictions of rational choice theory have sparked criticism from various camps. As mentioned above some economists have developed models of bounded rationality which hope to be more psychologically plausible without completely abandoning the idea that reason underlies decision-making processes. Other economists have developed more theories of human decision-making that allow for the roles of uncertainty institutions and determination of individual tastes by their socioeconomic environment (cf. Fernandez-Huerga 2008). In their 1994 work Pathologies of Rational Choice Theory Green and Shapiro argue that the empirical outputs of rational choice theory have been limited. They contend that much of the applicable literature at least in Political Science was done with weak statistical methods and that when corrected many of the empirical outcomes no longer hold. When taken in this perspective Rational Choice Theory has provided very little to the overall understanding of political interaction - and is an amount certainly disproportionately weak relative to its appearance in the literature. Yet they concede that cutting edge research by scholars well-versed in the general scholarship of their fields (such as work on the U.S. Congress by Keith Krehbiel Gary Cox and Mat McCubbins) has generated valuable scientific progress.8 Schram and Caterino (2006) contains a fundamental methodological criticism of rational choice theory for promoting the view that the natural science model is the only appropriate methodology in social science and that political science should follow this model with its emphasis on quantification and mathematization. Schram and Caterino argue instead for methodological pluralism. The same argument is made by William E. Connolly who in his work Neuropolitics shows that advances in neuroscience further illuminate some of the problematic practices of rational choice theory. Benefits Describing the decisions made by individuals as rational and utility maximizing may seem to be a tautological explanation of their behavior that provides very little new information. While there may be many reasons for a rational choice theory approach two are important for the social sciences. First assuming humans make decisions in a rational rather than a stochastic manner implies that their behavior can be modeled and thus predictions can be made about future actions. Second the mathematical formality of rational choice theory models allows social scientists to derive results from their models that may have otherwise not been seen and submit these theoretical results for empirical verification. Despite these benefits there is nothing about rational choice theory that tells scholars that they should reject other methods of investigating questions about the economy and society such as the sociological determination of individual tastes. See also Analytic narrative Bureaucracy Choice theory Decision theory Decision making software Efficient market hypothesis Framing (social sciences) Homo economicus James S. Coleman Game Theory Gerard Debreu Neoclassical economics Organizational theory Phronetic theory Positive political theory Public choice theory RAND Corporation Rational expectations Rational ignorance Rational pricing Rationality Rationality and power Social choice theory Theory of religious economy (an application of the rational choice theory as a theory of religion) Vicarious problem solving Parametric determinism References Abella Alex (2008). Soldiers of Reason: The RAND Corporation and the Rise of the American Empire. New York: Harcourt. Allingham Michael (2002). Choice Theory: A Very Short Introduction Oxford. Amadae S.M.(2003). Rationalizing Capitalist Democracy: The Cold War Origins of Rational Choice Liberalism Chicago:University of Chicago Press. Arrow Kenneth J. (1987 1989). "Economic Theory and the Hypothesis of Rationality" in The New Palgrave: Utility and Probability pp. 25-39. Bicchieri Cristina (1993). Rationality and Coordination. Cambridge University Press Bicchieri Cristina (2003). Rationality and Game Theory in The Handbook of Rationality The Oxford Reference Library of Philosophy Oxford University Press. Downs Anthony (1957). "An Economic Theory of Democracy." Harper. Coleman James S. (1990). Foundations of Social Theory Elster Jon (1979). Ulysses and the Sirens Cambridge University Press. Elster Jon (1989). Nuts and Bolts for the Social Sciences Cambridge University Press. Elster Jon (2007). Explaining Social Behavior - more Nuts and Bolts for the Social Sciences Cambridge University Press. Fernandez-Huerga (2008.) The Economic Behavior of Human Beings: The Institutionalist//Post-Keynesian Model" Journal of Economic Issues. vol. 42 no. 3 September. Schram Sanford F. and Brian Caterino eds. (2006). Making Political Science Matter: Debating Knowledge Research and Method. New York and London: New York University Press. Sen Amartya (1987). 2008. Rational behaviour" The New Palgrave: A Dictionary of Economics v. 3 pp. 68-76. Abstract. Walsh Vivian (1996). Rationality Allocation and Reproduction Oxford. Description and scroll to chapter-preview links. Notes Lawrence E. Blume and David Easley (2008). "rationality" The New Palgrave Dictionary of Economics 2nd Edition. Abstract & pre-publication copy (press +). Peter Hedstrm and Charlotta Stern (2008). "rational choice and sociology" The New Palgrave Dictionary of Economics 2nd Edition. Abstract. Gary S. Becker (1976). The Economic Approach to Human Behavior. Chicago. Description and scroll to chapter-preview links. a b Milton Friedman (1953) Essays in Positive Economics pp. 15 22 31. Scott John. "Rational Choice Theory". http://privatewww.essex.ac.uk/scottj/socscot7.htm. Retrieved 2008-07-30.  Dunleavy Patrick (1991). Democracy Bureaucracy and Public Choice: Economic Models in Political Science. London: Pearson.  Elster Jon (1989). Nuts and Bolts for the Social Sciences. Cambridge University Press.  Donald P. Green and Ian Shapiro (1994). Pathologies of Rational Choice Theory: A Critique of Applications in Political Science. Yale University Press. External links Rational Choice Theory at the Stanford Encyclopedia of Philosophy Rational Choice Theory - Article by John Scott What Is Neoclassical Economics at Post-Autistic Economics Review The New Nostradamus - on the use by Bruce Bueno de Mesquita of rational choice theory in political forecasting To See The Future Use The Logic Of Self-Interest - NPR audio clip