Week 5 - Rational Choice Theory

Question 1

Levels & Nature of Analysis in Social Sciences

Answer 1

Social science research is defined by:
- Level of Analysis: individual (micro) vs group/institution/system (macro)
- Nature of Analysis: explanation (causes) vs understanding (reasons, meaning)

1. At which level is the analysis being performed?
2. What is the nature of the research conducted?
   - do we want to explain phenomena by examining their causes, or do we want to understand phenomena by examining people’s reasons and intentions

Question 2

Types of Research

Answer 2

The answer to the previous questions determines the types of research we conduct.

1. Microeconomics research examines preferences and choices of individuals
   - main variable: individual preferences, expectancies & behaviours
2. Macroeconomics research examine trends at a much higher level of aggregation

3, Methodological Individualism: individuals determine the way society is
- based on Ontological Individualism: only individuals truly exist, not collectives

Question 2

Hermeneutics: Art of Interpretation

Answer 2

Max Weber explains the difference of explaining and understanding through Hermeneutics.

Hermeneutics
- Understanding human action by interpreting meanings
- Emphasises motives, culture, context, not just data or stats
- the art of understanding meaning in order to explain observations

Question 2

Rational Choice Theory

Answer 2

Method through which we can try to understand social institutions & social changes as resulting from the actions and interactions of rational individuals
- Rational individuals are individuals who try to optimise their own preferences to the fullest

• Assumes perfectly rational agents:
  1. people’s preferences are ordered according to priority
  2. Individuals do have all information about all options and results
  3. They are capable of calculating the best mix of results (e.g. expected utility)

Question 3

Game Theory: Application of Rational Choice Theory

Answer 3

• Focuses on interdependent decisions: one person’s outcome depends on others’ choices
• Nash Equilibrium: situation where no one can benefit by changing strategy unless others do too
• Pareto Optimal: outcome where improving one person’s outcome would hurt another
• Rules and conventions emerge to coordinate behaviour

Question 4

Agents vs Actors

Answer 4

Agents: described from outside (modeled using rational choice assumptions)

Actors: people with subjective motives (must be understood from the inside)

Problem: Rational choice theory interprets behaviour from a spectator perspective, yet makes claims about actors’ internal preferences

Question 5

Problems & Individual Motives

Answer 5

Game theorists assume that preferences have weight and individuals strive for a maximisation of preference.
- however satisfaction is not always the determining factor

• 2 conceptions of preference:
  1. Behaviourist: preferences = observed choices
  2. Mentalist: preferences = internal experiences (pleasure, satisfaction

Question 6

Critique to Rational Choice Theory

Answer 6

People have complex reasons, including values and obligations.

Rational choice theory is useful, but must recognise its limitations:
- individuals aren’t just utility-maximising agents, they are also actors with meanings, emotions, and reasons