Rational Choice

Theory
 Rational Choice Theory
Use rational calculations to
make rational choices and
achieve outcomes that are To maximize the result
aligned with their own (greatest benefit & satisfaction)
personal objectives.

Assume that they are clear

Describe the motivations,
objectives, adequate
preferences, restrictions on behavior
information & ability to
and behavior itself of individuals as
analyze the problem
well as groups or organizations in
accurately
society
Rational Decision Making Process
 Pros & Cons of RCT
PPros Cons

• Individuals do not always make rational decisions.

• Helpful in explaining individual and collective
behaviors • In reality, people are often moved by external
factors that are not rational, such as emotions.

• All theories attempt to give meaning to the
things we observe in the world.
• Can help to explain behavior that seems
irrational
• There are obstacle in making decision
• Individuals do not have perfect access to the
information they would need to make the most
rational decision every time.
• Rarely the power to make decisions belongs to one
individual.
PRINCIPAL-AGENT THEORY
WHO ARE THE AGENT?
WHOA THE PRINCIPAL?