Rational choice theory, also known as choice theory or rational action theory, is a framework for understanding and often formally modeling social and economic behavior. The basic premise of rational choice theory is that aggregate social behavior results from the behavior of individual actors, each of whom is making their individual decisions. The theory also focuses on the determinants of the individual choices. Rational choice theory then assumes that an individual has preferences among the available choice alternatives that allow them to state which option they prefer. These preferences are assumed to be complete and transitive. The rational agent is assumed to take account of available information, probabilities of events, and potential costs and benefits in determining preferences, and to act consistently in choosing the self-determined best choice of action.
Public choice, or public choice theory, is "the use of economic tools to deal with traditional problems of political science". Its content includes the study of political behavior. In political science, it is the subset of positive political theory that studies self-interested agents and their interactions, which can be represented in a number of ways – using standard constrained utility maximization, game theory, or decision theory.
Rationality is the quality or state of being rational – that is, being based on or agreeable to reason. Rationality implies the conformity of one's beliefs with one's reasons to believe, and of one's actions with one's reasons for action. "Rationality" has different specialized meanings in philosophy, economics, sociology, psychology, evolutionary biology, game theory and political science.
Bounded rationality is the idea that rationality is limited, when individuals make decisions, by the tractability of the decision problem, the cognitive limitations of the mind, and the time available to make the decision. Decision-makers, in this view, act as satisficers, seeking a satisfactory solution rather than an optimal one.
In economics and business decision-making, a sunk cost is a cost that has already been incurred and cannot be recovered. Sunk costs are contrasted with prospective costs, which are future costs that may be avoided if action is taken. In other words, a sunk cost is a sum paid in the past that is no longer relevant to decisions about the future. Even though economists argue that sunk costs are no longer relevant to future rational decisionmaking, in everyday life, people often take previous expenditures, say, on repairing a car or house into their future decisions regarding those properties.
Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the economic decisions of individuals and institutions and how those decisions vary from those implied by classical theory.
In psychology, decision-making is regarded as the cognitive process resulting in the selection of a belief or a course of action among several alternative possibilities. Decision-making is the process of identifying and choosing alternatives based on the values, preferences and beliefs of the decision-maker. Every decision-making process produces a final choice, which may or may not prompt action.
Decision theory is the study of an agent's choices. Decision theory can be broken into two branches: normative decision theory, which analyzes the outcomes of decisions or determines the optimal decisions given constraints and assumptions, and descriptive decision theory, which analyzes how agents actually make the decisions they do.
Irrationality is cognition, thinking, talking, or acting without inclusion of rationality. It is more specifically described as an action or opinion given through inadequate use of reason, or through emotional distress or cognitive deficiency. The term is used, usually pejoratively, to describe thinking and actions that are, or appear to be, less useful, or more illogical than other more rational alternatives.
Rational emotive behavior therapy (REBT), previously called rational therapy and rational emotive therapy, is an active-directive, philosophically and empirically based psychotherapy, the aim of which is to resolve emotional and behavioral problems and disturbances and to help people to lead happier and more fulfilling lives.
Matching pennies is the name for a simple game used in game theory. It is played between two players, Even and Odd. Each player has a penny and must secretly turn the penny to heads or tails. The players then reveal their choices simultaneously. If the pennies match, then Even keeps both pennies, so wins one from Odd. If the pennies do not match Odd keeps both pennies, so receives one from Even.
Kavka's toxin puzzle is a thought experiment about the possibility of forming an intention to perform an act which, following from reason, is an action one would not actually perform. It was presented by moral and political philosopher Gregory S. Kavka in "The Toxin Puzzle" (1983), and grew out of his work in deterrence theory and mutual assured destruction.
Backward induction is the process of reasoning backwards in time, from the end of a problem or situation, to determine a sequence of optimal actions. It proceeds by first considering the last time a decision might be made and choosing what to do in any situation at that time. Using this information, one can then determine what to do at the second-to-last time of decision. This process continues backwards until one has determined the best action for every possible situation at every point in time. It was first used by Zermelo in 1913, to prove that chess has pure optimal strategies.
The two envelopes problem, also known as the exchange paradox, is a brain teaser, puzzle, or paradox in logic, probability, and recreational mathematics. It is of special interest in decision theory, and for the Bayesian interpretation of probability theory. Historically, it arose as a variant of the necktie paradox. The problem typically is introduced by formulating a hypothetical challenge of the following type:
The Allais paradox is a choice problem designed by Maurice Allais (1953) to show an inconsistency of actual observed choices with the predictions of expected utility theory.
Social movement theory is an interdisciplinary study within the social sciences that generally seeks to explain why social mobilization occurs, the forms under which it manifests, as well as potential social, cultural, and political consequences.
Henry E. Kyburg, Jr.'s lottery paradox arises from considering a fair 1000-ticket lottery that has exactly one winning ticket. If this much is known about the execution of the lottery it is therefore rational to accept that some ticket will win. Suppose that an event is very likely only if the probability of it occurring is greater than 0.99. On these grounds it is presumed rational to accept the proposition that ticket 1 of the lottery will not win. Since the lottery is fair, it is rational to accept that ticket 2 will not win either—indeed, it is rational to accept for any individual ticket i of the lottery that ticket i will not win. However, accepting that ticket 1 will not win, accepting that ticket 2 will not win, and so on until accepting that ticket 1000 will not win entails that it is rational to accept that no ticket will win, which entails that it is rational to accept the contradictory proposition that one ticket wins and no ticket wins.
The Myth of the Rational Voter: Why Democracies Choose Bad Policies is a 2007 book by the economist Bryan Caplan, in which the author challenges the idea that voters are reasonable people that society can trust to make laws. Rather, Caplan contends that voters are irrational in the political sphere and have systematically biased ideas concerning economics.
The altruism theory of voting is a model of voter behavior which states that if citizens in a democracy have “social” preferences for the welfare of others, the extremely low probability of a single vote determining an election will be outweighed by the large cumulative benefits society will receive from the voter’s preferred policy being enacted, such that it is rational for an “altruistic” citizen, who receives utility from helping others, to vote. Altruistic voting has been compared to purchasing a lottery ticket, in which the probability of winning is extremely low but the payoff is large enough that the expected benefit outweighs the cost.
