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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 ]
Rationality plays a key role in economics and there are several strands to this. [110] Firstly, there is the concept of instrumentality—basically the idea that people and organisations are instrumentally rational—that is, adopt the best actions to achieve their goals.
In economics, rationalization is an attempt to change a pre-existing ad hoc workflow into one that is based on a set of published rules. There is a tendency in modern times to quantify experience, knowledge, and work. Means–end (goal-oriented) rationality is used to precisely calculate that which is necessary to attain a goal.
The concept of economic rationality arises from a tradition of marginal analysis used in neoclassical economics. The idea of a rational agent is important to the philosophy of utilitarianism, as detailed by philosopher Jeremy Bentham's theory of the felicific calculus, also known as the hedonistic calculus.
Bounded rationality was coined by Herbert A. Simon, where it was proposed as an alternative basis for the mathematical and neoclassical economic modelling of decision-making, as used in economics, political science, and related disciplines.
Homo economicus is a term used for an approximation or model of Homo sapiens that acts to obtain the highest possible well-being for themself given available information about opportunities and other constraints, both natural and institutional, on their ability to achieve their predetermined goals.
Classical economics assumes that people act in their best (rational) interest. [2] In this context, rationality would dictate that, when given a choice, an individual will select an option that maximizes their self-interest.
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.