Rational Choice Theory Essay ⋆ Political Science Essay Examples ⋆ EssayEmpire

Politics is a particularly difficult science. The classic definitions of politics—the study of who gets what, when and where (Harold Lasswell), the authoritative allocation of values (David Easton), and the legitimate monopoly of violence (Max Weber)—raise more questions than they answer. What is being allocated? Possible answers include money and resources; policies and payoffs; rewards and punishments; material interests, social identities; global ideals; and class, status, and power. How are these things allocated? They may be distributed through institutions and regimes; mechanisms and rules; norms and values; markets, communities, contracts, and hierarchies; force and fraud; and fights, games, and debates. And what is at stake? Equity and efficiency; poverty and development; war and peace; and, more generally, the relation between individual choices and reasons of state are among the outcomes of politics.

Rational choice theory (RCT) first entered political science in the 1950s and early 1960s to address such questions. Anthony Downs’s theory of elections (1957), William Riker’s theory of political coalitions (1982), and Thomas Schelling’s work on deterrence (1960) began modeling the institutions and processes of collective action and collective choice. RCT soon became one of the core research programs in the four fields of political science—American politics, international relations, comparative politics, and political theory. For many hard-working political scientists, it is a philosophy of social science, social theory, and research methodology—a way of thinking and working in the midst of inquiry.

RCT is so successful because it positions itself between the denigration and the glorification of reason. Partly an attempt to contain the empirical and normative relativism of the irrational, RCT seeks the reasons and causes of social phenomena. Yet RCT finds rationality highly imperfect. RCT thus works out the empirical limits of applied reason and problem solving in the concrete institutional life of politics. Moreover, like the poetry of mathematics and the art of abstract reason, RCT exerts a certain aesthetic allure. And, like the attractions of liberalism, many find RCT ethically appealing. In short, RCT’s truth, beauty, and justice charm political scientists.

Themes Of Rational Choice Theory

In the dark days of the twentieth century, when science, modernity, and reason resulted in a European civil war that turned into a world war that produced the Holocaust and Hiroshima, three economists and a mathematician returned to the problems of pure reason that drove Enlightenment thinkers. They developed ideas about militiaperson decision-making that became the basis of RCT.

Given the first and second fundamental theorems of welfare economics, everyone recognized that there were first best problems of choosing among (Pareto) optimal points and second best problems of having the chance to choose (i.e., reaching the Pareto frontier). How do collectivities choose? Politics seems somehow required to supplement economics. Economist Kenneth Arrow addressed these basic questions of welfare economics (1963). He unearthed the problems confronting any possible social welfare function applied to resource allocation.

Others recognized the indeterminacies of strategic reasoning in collective choice situations. For example, suppose two or three people agreed on how to divide a fixed resource, and their agreement was executed. Which coalitions would form and how would the resource be divided? Mathematician John von Neumann and economist Oskar Morgenstern (1953) raised general questions in decision theory and game theory. Like Arrow, they unearthed the problems and offered possible solutions.

Still others saw that economics was developing along two separate tracks: econometrics was becoming a statistical science at the same time that theoretical economics was becoming mathematical modeling. What was the connection between the normative and the empirical? Economist Paul Samuelson (1947) showed how comparative statics provided the linkage: if a utility function is maximized and an equilibrium found, exogenous changes could shift the equilibrium. For example, if consumers optimized a utility function, equating marginal benefits and marginal costs, exogenous shifts in price influenced the quantities consumed. Comparative statics thus linked normative optima to observable quantities, allowing mathematical models in economics to fit the positivist cannons of testability and falsifiability. Now that it had an operational mode of proceeding, RCT could become a science.

These disparate concerns became a unified field of inquiry. Pulling together the strands, RCT has grown into the most developed paradigm in political science, influencing all traditional areas of political inquiry. Journals contain numerous articles applying insights from RCT to empirical questions about policy outcomes, political participation, governing institutions, and constitutional choice, as well as to normative questions of equity and efficiency, democracy and justice.

What are RCT’s unifying themes? RCT assumes that citizens are rational (i.e., choose their most preferred course of action) and that they interact within an institutional environment (e.g., competitive elections). RCT then uses mathematically formalized models of reasoning to derive implications about collective choices (e.g., public policy). RCT’s most basic question is, therefore, how individual preferences are aggregated into equilibrium social outcomes by a decision-making process. Given a choice mechanism, whether consumers and firms allocating resources by market exchange, players choosing strategies in a game, or citizens voting over a policy issue, what will be the characteristics of the collective outcome? Will an equilibrium exist? If an equilibrium exists, will it be stable? Will it be desirable? Answering these questions is complicated by the fact that voters do not necessarily vote sincerely and people who want public goods do not necessarily demand them openly. People, in other words, often find it in their own best interest to dissemble and strategically reveal their preferences. When studying how decision-making procedures—whether democratic or nondemocratic, political or economic—aggregate individual preferences into social outcomes, RCT cannot assume honest preference revelation.

RCT offers two methodological approaches to studying such problems: game theory and axiomatic theory.

Game Theory. How are differences in preferences among actors reconciled into equilibrium outcomes? One wants to determine the social outcome that actually results from a set of individual preferences when the preferences are advanced strategically. RCT seeks to discover, for example, how the coordination and distribution of resources emerge given private goods (the neoclassical market) or public goods (economist Mancur Olson’s topic).The basic approach in game theory is to determine how one particular collective choice process (e.g., voting or voluntarily participating in some political act), when modeled as a game in some environment (e.g., private goods, public goods), produces an outcome. Game theory thus studies cooperative and conflictual interactions among players, including threats and promises, offers and counteroffers, as well as the use of trickery: ploys and bluffs, commitments and surprises. Because institutions help locate equilibria, changes in institutions produce changes in outcomes.
Axiomatic Theory. This approach raises normative questions about how differences in preferences among actors should be reconciled by the rules of collective choice. The puzzle is to discover the best choice for society, or equivalently, to locate a collective choice mechanism that maximizes the group’s social welfare function. For example, RCT seeks to determine whether one can order social choices for society transitively or to operate on any set of individual preferences and meet certain additional democratic standards. Axiomatic social choice theory thus examines the compatibility of certain ethically appealing standards for choice (i.e., equity and efficiency, liberalism, and Pareto optimality) for all possible collective choice processes. RCT then locates possibilities and impossibilities, which are, of course, affected by institutions and altered when institutions change.

Political scientists typically use game theory and axiomatic theory to understand three types of social choice problems: Collective action, collective choice, and collective institutions.

Collective Action. Using arguments from microeconomic theory about public goods and game theory about the Prisoner’s Dilemma, Mancur Olson (1971) and others showed that, under certain conditions, the equilibrium outcome of voluntary contributions to the general welfare will be Pareto deficient: although everyone would be better off if all contributed, rational people almost never will voluntarily contribute, and hence groups to promote the general welfare almost never will form. People, of course, do display voluntarism and groups do form. The elaboration of the collective action problem therefore involves locating institutional (e.g., political entrepreneurs) and motivational (e.g., altruism) factors that overcome Olson’s problem.
Collective Choice. A second application of social choice theory in political science is the study of how voting procedures produce policy outcomes. Majority voting procedures over three or more alternatives can lack an equilibrium outcome. Majorities may prefer A to B, B to C, and yet C to A, producing a cycle among the three outcomes. The voters’ paradox leads to two political consequences. The first is that whoever controls the agenda can determine the outcome and lead the majority decision to any alternative. The second is that voters can affect the outcome by reporting false preferences. The political battle is thus between monopoly agenda setters and strategic voters.
Collective Institutions. People also choose the formal and informal laws by which they live. Constitutions are written that then dictate voting and taxation regulations. Rules of procedure in legislatures are written that then determine committee systems and the power, for example, of the U.S. Speaker of the House. Moreover, norms guiding contributions to public goods are ultimately established. How can we explain why one set of rules is adopted and another rejected?

The theorems (results) of these inquiries have been puzzles and paradoxes. Three theorems are especially important. Arrow’s theorem demonstrates an incompatibility among several ethically appealing desiderata for preference aggregation. Gibbard-Satterwaite’s theorem demonstrates that a large class of methods of preference aggregation are subject to strategic preference revelation. And McKelvey’s theorem demonstrates that the results of majority rule voting can be wholly cyclic over all possible outcomes. It has been proven formally, in other words, that the same set of individual preferences can be aggregated differently by different collective choice rules, and differently even by the same rule.

Social choice theory, therefore, has revealed a fundamental indeterminacy in how social interactions produce social outcomes. As a result of these discoveries, political scientists have concluded that social outcomes are generally anything but stable and intended equilibrium outcomes of individual choices. The social consequences of individual choices are often unwanted by all. At one point, a general nihilism about taking individual preferences into account in making social decisions took hold; preference revelation and aggregation involve so many potential manipulations and incompatibilities that incoherence and disequilibrium in social outcomes are to be expected. Since then, political scientists have come to recognize that humans acting in society rely on institutions to structure preferences and produce equilibrium outcomes. RCT thus investigates how differences or changes in institutions yield differences or changes in outcomes. However, as indicated above, institutions themselves are products of social choice, which raises key questions about the origins of institutions.

Rational Choice Theory Methodology

Although RCT subsumes many interrelated ideas and techniques, it always combines assumptions about individually rational actors with mathematically formalized modes of reasoning to reach conclusions about collective outcomes. RCT thus has a certain way of proceeding, a typical set of practices.

A classic example is the public goods problem. The conditions of individual choice involve self-interest coupled with nonexcludable and nonrival goods. A voluntary exchange institution exists. Mechanisms investigated involve free riding or not wanting to be a sucker. The outcome is noncontribution or reduced contribution. Hence, inefficiency, a suboptimal supply of the public good, and inequity, or exploitation of contributors by noncontributors, results. Unintended and unwanted outputs lead entrepreneurs to propose new institutional arrangements to fix the problem. For example, taxation schemes can facilitate the provision of public goods.

In general, the ideal or quintessential RCT is developed, beginning with a characteristic problem situation, as follows:

RCT is concerned with complex macro level phenomena. Outcomes, collective preferences (such as government policies), or collective actions (such as group actions) animate inquiry.
Collective preferences and collective actions are especially worth studying when they are inefficient. Outcome performance varies in space and time, but what catches the eye is wasted resources: poverty and underdevelopment, violence and war, force and fraud, anarchy and lawlessness, theft and plunder, and rent seeking and corruption. Suboptimal outcomes are the distortions and dysfunctions, flaws and failures, of collective choice. RCT addresses such breakdowns of reason.
RCT also addresses issues of justice, fairness, and democracy; for example, the sometimes-inequitable distributions of income and government services.

A RCT explanation is then constructed as follows.

Assume individuals’ desires plus beliefs lead to actions. This is Karl Popper’s logic of the situation.
Assume methodological individualism: macro structure = f(micro interactions).The world is populated by actors, agents, or players with interdependent strategies, beliefs, and resources whose interactions produce outcomes. The question is one of n-person preference summation and choice aggregation. Visible actions produce invisible equilibria embodying complex regularities, both stable and unstable.
Assume that interactions among individuals involve decentralized mechanisms and processes yielding spontaneous order and self-organizing complexity. Inefficient or inequitable outcomes thus result from the generic social dilemmas and universal political traps of coordination, cooperation, competition, and conflict. Bare-bones baseline models of the mechanisms are developed. Rousseau’s model of the state of nature, Coase’s model of voluntary exchange, Waltz’s model of anarchy, Rawls’s veil of ignorance, Walras’s model of pure exchange, and Arrow’s axioms of social choice begin with highly abstract reasoning.
Assume that institutions aggregate choices: preferences plus institutions lead to outcomes. Additional models, therefore, must be developed that thicken rationality and thereby explain real-world institutions and outcomes. RCT thus studies markets, communities, contracts, and hierarchies; groups, organizations, teams, coalitions, and networks; norms, rules, regulations, standards of behavior, and (property) rights; and contracts, agreements, bargains, transactions, settlements, and pacts. It studies market institutions such as credit cooperatives, credit bureaus, firms, merchant guilds, and law merchants. RCT also studies nonmarket institutions, such as governments, regimes, and states; democracy, liberalism, and constitutionalism; courts, legislatures, and executives; representation, elections, and voting rules; autocracies, dictatorships, and bureaucracies; and organizations in the international system. In other words, RCT operates at the center of political science.
Assume that the institutions themselves are macroequilibrium outcomes of an underlying game of strategy. Because different institutions correspond with different endogenous equilibria, actors try to shape the institutions. Stable or self-enforcing institutions therefore must be endogenous to desires, beliefs, and actions.
Given these assumptions—equilibrium rules and institutions that set in motion decentralized mechanisms of choice— the result is outcomes that exhibit fatal problems of aggregation. Intentional action often produces results that are unintended and unwanted, unpredicted and unexpected, and unstable and incoherent. The many paradoxes and antinomies, tragedies and ironies, of choice are the main results of RCT: market failures, bargaining failures, and intertemporal resource allocation failures; and principal-agent problems, commitment problems, and asymmetric information problems. RCT also uncovers the problems of chaos: butterfly effects, the power of initial conditions, and the significance of complexity; the problems of equilibria: multiple equilibria and disequilibria; the problems of path dependence: rigidity, deadlock, and stalemate; and the problems of feedback: complementarities, adaptability, and integration.

Evidence and testing is conducted as follows:

RCT compares institutions.The grand problem of the social sciences, from the RCT point of view, is how humanly constructed institutions matter. RCT thus compares the costs and benefits of organizing cooperation (e.g., minimizing postcontract opportunism, restraining self-interest) under different structural arrangements.
RCT employs comparative statics exercises to examine causality. It explains observed behavior, the emergence of cooperative, and noncooperative equilibria by finding the conditions of nature and of the underlying rules of the game that make institutions produce particular outcomes.
The rules of the game are neither constant nor unalterable. Institutions, after all, are the results of choice. Some are created to solve coordination and cooperation problems: efficiency-enhancing institutions are designed to implement collective optimization and mechanisms designed to achieve incentive compatibility. Optimal voting rules, social welfare functions, compensation criteria, and constitutional contracts are in this tradition. For example, RCT might discover that purely instrumental reason, strategic rationality, and unconstrained rational egoism cannot successfully coordinate social and political relations. Taking the perspective of the benevolent planner or political engineer aiming to repair the world, RCT asks the evaluative question: What is to be done? How can actors achieve mutual advantage, joint gains, the public good, successful coordination, and productive exchange? Yet institutions are created also to enhance inequities. The power to construct institutions is the power to forge opportunities and constraints for the players. The possibility of using RCT to enhance the power of some rather than others always exists.
As problems are modeled in a sustained way, RCT learns about political life. It discovers, in particular, the limits of institutional revolution and reform. Uncovering the transition costs of moving along equilibrium paths and the problems of jumping between punctuated equilibria, RCT espouses pragmatism. One recalls Weber: the balance of the ethics of conviction and the ethics of responsibility. One also recalls Hillel: ours is not to complete the task, but we are not to desist from it either.

RCT thus realizes that it is the human-made institutions that embody the most interesting and important paradoxes and puzzles. Institutions fashioned by men and women create problems of myopia, risk aversion, self-interest, materialism, dishonesty, preference falsification, fraud, cheating, promise breaking, credible commitments, uncertainty, lack of information, and transaction/decision costs. For the most part, RCT in political science thus studies how particular institutions produce market failures and political failures: public goods problems, prisoner’s dilemma problems, bargaining problems, incentive incompatibilities, and organizational failures. RCT now realizes that institutions often are created to reduce the transaction costs of cooperation, contracts, exchange, and bargains. As the field turns from the operation of institutions to their origins, stabilization, and transformation, the dynamics of real-world institutions move center stage.

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