What is Rational Choice Theory?

Definition: Rational choice theory is an economic theory that assumes that individuals make their decisions based on reason and not impulse or emotions. This assumption is based in the hypothesis that everyone acts towards fulfilling their self-interest by analyzing all the available options rationally.

What Does Rational Choice Theory Mean?

This theory has a few important founding premises such as individualistic human behavior, a self-centered motivation, a constant pursue for optimal results at each decision-making situation and finally, the possession of all the required information to produce a rational analysis from each scenario.

Even though this theory is clearly not entirely accurate in reality it established a useful starting point to develop further theories such as supply and demand theory, income distribution theories and utility theory.

All these had to use rational choice theory (RCT) as a baseline to develop subsequent hypothesis, since it would be impossible to draw conclusions from a scenario where everyone decides based on irrationality. Although human behavior cannot be described as rational in all decision-making situations, there is an underlying tendency for individuals to pursue optimal results when choosing between different alternatives.


Carl is currently engaged with Laura. They are both looking for a nice department to rent so they can move together after they get married. They have seen ten different options; each of them with several pros and cons. Carl thinks the best alternative is a small flat located in the hearth of the city, close to where he works. Laura, on the other hand, believes the best place is the one located in the suburbs, since it is much bigger than the flat, as she is thinking in the future.

Rational choice theory would dictate in such scenario that both Carl and Laure will evaluate all the alternatives and decide rationally on which one is the best. Nevertheless, as it can be obviously interpreted, there are subjective elements in place that will probably deviate the decision from what would seem to be the rational one.