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The rational choice model, also called rational choice theory refers to a set of guidelines that help understand economic and social behaviour. [1] The theory originated in the eighteenth century and can be traced back to the political economist and philosopher Adam Smith . [ 2 ]
The mythological judgement of Paris required selecting from three incomparable alternatives (the goddesses shown).. Decision theory or the theory of rational choice is a branch of probability, economics, and analytic philosophy that uses the tools of expected utility and probability to model how individuals would behave rationally under uncertainty.
The classical counter example to the expected value theory (where everyone makes the same "correct" choice) is the St. Petersburg Paradox. [3] In empirical applications, a number of violations of expected utility theory have been shown to be systematic and these falsifications have deepened understanding of how people actually decide.
When the model becomes accurate, it is just as difficult to understand as the real-world processes it represents. Buttered cat paradox: Humorous example of a paradox from contradicting proverbs. Intentionally blank page: Many documents contain pages on which the text "This page intentionally left blank" is printed, thereby making the page not ...
March and Olsen distinguish the logic of appropriateness from what they term the "logic of consequences," more commonly known as rational choice theory.The logic of consequences is based on the assumption that actors have fixed preferences, will make cost-benefit calculations, and choose among different options by evaluating the likely consequences for their objectives.
Moreover, the rational choice theory revolves around the idea that every individual attempt to maximize their own personal happiness or satisfaction gained from a good or service. This basic idea leads to the “rational” decision model, which is often used in the decision-making process. [2] [3]
The theory allows for rational and irrational decisions because both are examined using real-life experiments in the form of simple games. Simple games are often used in behavioral game theory research as a way of analyzing unexplored phenomena, such as social preferences and social utility, that are not explored in traditional game theory.
Philosophical approaches in decision theory focus on foundational concepts in decision theory – for example, on the natures of choice or preference, rationality, risk and uncertainty, and economic agents. [8] Game theory is shared between a number of disciplines, but especially mathematics, economics and philosophy. Game theory is still ...