Rational Choice Theory

Rational choice theory is a collective phrase for a range of expressions explaining common occurrences as an effect of human beings’ actions that can in a number of ways be interpreted as consistent (Durlauf, 2002; Amsberg, 2003). According to Sen (1987), there are a number of versions of rationality in existence. One accepted view of rationality is attentive consideration. This is not the meaning that is associated with the choice concept as put forward by Lionel Robbins (1932) or the ‘as if’ methodology of Milton Fredsman (1953).

But when Herbert Simon (1957) argued that prudence was surrounded, he used this term to refer to computational and on purpose capacity. To presume that a RCT is possible is to believe that choices can be affected by reason. In general, this theory starts by contemplation of the preference conducts of a person or group decision-making elements. RCT philosophers habitually assume that a persons’ preference element is distinctive or an agent of a bigger set (Evans and Letki, 2003; Nowotny and Wallace, 2001; Marsh, 2000; Paldam and Svendsen, 2002,). When a persons’ conduct is recognized, the scrutiny shifts to observe how persons’ selection network to create results. Rational actions are conducts to facilitate appropriate understanding of definite ambition, knowing the boundaries presented by circumstances (Torsvik, 2000, Zak e Knack, 2001).

The important fundamental of all rational choice clarification are persons’ first choice (preference), attitude (beliefs), and limitations (constraints). Preferences represent constructive or unconstructive assessment of a person to connect to probable result of their actions. First choice can have lots of pedigree, varying from ethnic background, variety of flavor for economic activities or additional objects to individual behavior and obligations (Guiso, Sapienza and Zingales, 2004). Beliefs present knowledge of ground- consequences of relations, with the hypothetical possibility through which person’s actions force effect in various likely result (Temple, 2001).

A village household for example might expect that to invest in livestock for enhancing a fresh milk business has a higher probability of success than that can be achieved from sale of animals’ oil. Constraints describe the restrictions to a set of possible measures (e.g., the sum of monies obtained from a loan obliges a budget limitation on persons in view of purchasing hybrid livestock as part of their investment strategy). The theory of rational choice is relevant in explaining the factors that affect choice of livestock investment because it covers the explanation of behavior for a single person or group decision-making units. In this perspective, an individual like head of household and a group like all other households and community members’ behaviour toward choice of investment options are well explained by this theory.