Lesson 3.

2 Rational Choice Theory

Introduction

Life is full of choices. We make choices on what clothes to wear, what food to eat, and what jobs to
take. When we choose, we think about the choice that brings us the most benefit. What clothes will be
more comfortable? Which food will be more suitable to eat in hot weather? Which career is the most
profitable or most fulfilling?

Imagine the choices an individual makes in his or her life, then multiply those with each person in the
world today. Day in and day out, our choices can influence how other people behave and decide. We
may also make decisions that might be beneficial to us in some way but are detrimental to others.
Making choices is difficult. This is why it is important for us to think clearly when we make life
choices.

DepEd Competency

At the end of this lesson, you should be able to predict the social consequences of decision-making
based on scarcity (HUMSS_DIS 11-IVa-6).

Learning Objectives

In this lesson, you should be able to do the following:

• Define rational choice theory.

• Explain how rational choice theory can be applied in understanding choices.
• Interpret personal and social experiences using rational choice theory.
• Evaluate the strengths and weaknesses of rational choice theory.

Discover

Have you ever considered what motivates and influences the choices we make? Imagine going to the
market to compare the prices of bangus among the different stalls. We might be more inclined to buy
from the stall that sells the cheapest bangus per kilo because it is the most economically beneficial
decision for us.

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On the other hand, think of two police suspects under interrogation. Imagine that one suspect was
given the chance to be free. If he pinned the blame on the other suspect, the benefit of freedom
outweighed the cost of imprisoning the other suspect. In this example, the suspect is making a
decision based on the benefits and costs of his action.

Rational Choice Theory

Rational choice theory (RCT) assumes that individuals make decisions by

considering the costs, risks, and benefits of their choices. The theory was
proposed in the 18th century by the economist and philosopher Adam
Smith. He theorized that individuals carefully analyze their choices based
on what is good for them (self-interest). These choices are rational; this
means that individuals weigh in on the benefits and costs of their decisions
and choose one that most benefits them.

Rational choice theory has three key assumptions:

1. Individuals are motivated by personal goals and driven by their own desires.
2. Since resources such as money, time, and energy are finite, individuals must choose attainable
means to reach their goals and desires.
3. Social phenomena can be explained through rational individual actions.

Rational choice theory can be applied in every aspect of society. For example, it can be used to
understand how businessmen and entrepreneurs buy, sell, and trade goods to gain profit. Rational
choice theory is also used in the field of political science to analyze voting behaviors and government
policies.

Tragedy of the Commons

The activity that you did in the Explore part shows the tragedy of the commons. It explains the
difficulty of making a choice for one’s benefit, at the cost of another individual, especially when the
resource is scarce and limited. When individuals keep consuming for their own personal gain without
any restrictions, they may deplete the resources of their group, leaving none for others.

If you were to recall your role as farmers in that activity, you needed to sustain your family’s
resources by letting your sheep graze. Likewise, there were other farmers who also needed to sustain
their own family. The resource, which was the grazing land, was finite and may be depleted. If each
family were to decide based on their personal benefits, then the resources would be depleted more
quickly. This is why it is also important to calculate the risks alongside the benefits of our decisions.
If one farmer group’s sheep were allowed to graze for an unlimited amount of time, then the pasture
would diminish quickly.

Check Your Progress

Why is it important to cooperate with other groups or individuals when making rational choices?

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Consider this visual representation of the different scenarios in the tragedy of the commons. It shows
how long the grazing land will last depending on whether or not the two farmer groups limit their
grazing time.

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The table shows that the farming land will last longest when both farmer groups limit their grazing
time. This shows that if both parties want the land to last, they must cooperate and limit their grazing
time. Another implication of this table is that the absence of regulations in obtaining resources and
benefits may result in their depletion. Given the tragedy of the commons, the farming land will
diminish in five years if both farmer groups do not limit their grazing time. As a result, the farmers’
families may not have enough resources to survive in the future.

The Prisoner’s Dilemma

Another situation similar to the tragedy of the commons is the prisoner’s dilemma. In this situation,
two prisoners, both of whom are suspects in a crime, have been separated and unable to communicate.
Each of the two prisoners is given the option to confess or remain silent with the following
consequences:

• If Prisoner A confesses but Prisoner B remains silent, Prisoner A goes free while Prisoner B
gets eight years in prison.
• On the other hand, if Prisoner B confesses but Prisoner A is silent, then Prisoner B goes free
while Prisoner A gets eight years in prison.
• If both prisoners confess that each of them is guilty, they both serve five years in prison.
• If both prisoners remain silent, there would not be solid evidence against each of them,
making both of them serve only one year in prison.

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The key to understanding the prisoner’s dilemma is to remember that one prisoner will benefit if he or
she betrays the other prisoner. However, if both of them confess, they will spend more time in prison.
If both remain silent, they will spend less time in prison than if they both confess. Remember that they
cannot communicate. There is no way for them to agree whether to confess or not. Similar to the
tragedy of the commons, the prisoner’s dilemma shows us that a choice based on one’s individual best
interest may not always be the most rational one.

Thus, a decision based on rational choice theory is not always the best choice. Moreover, research
studies in economics and psychology show that people are not rational when they make decisions
(Levin & Milgrom 2004, 2). That is, we do not carefully analyze the benefits and costs of our own
choices. More often, we make decisions based on shortcuts or emotions that are not even clear to us
(Kahneman 2011). For example, you might have chosen a black shirt not because of a careful analysis
of pros and cons but because you feel sad.

Wrap-Up

• Rational choice theory (RCT) possesses the following characteristics: ○ Individuals are
motivated by personal goals and driven by their own desires. ○ Individuals must choose
attainable means to reach their goals and desires. ○ Social phenomena can be explained
through rational individual actions.
• When making decisions in society, benefits must be considered in the context of risks and
costs.
• Since resources are finite and excessive consumption may deplete these resources, limits must
be placed.
• The tragedy of the commons and the prisoner’s dilemma can explain situations wherein one
can receive more benefits when excessively consuming a scarce resource at the cost of other
individuals.
o The failure of parties to cooperate will result in undesirable consequences for both.
o Cooperation and implementing limits or regulations will benefit both parties in the long
term.