The Rationale for the Importance of the Rational Choice Theory in Contemporary Economics

Rational choice theory is pragmatically used by mainstream economics to explain and defend the existence and behavior of prevailing social and economic institutions as being optimal. Every deviation in actual individual and institutional behavior from the optimum is attributed to imperfections in the agents’ ability to pursue the optimal actions rather than the implausibility of the underlying norms in rational choice theory. It is shown in the paper that all axioms of rational choice are routinely violated in both market and nonmarket economic systems and in the capitalist and transitional socio-ideological settings. Thus rational choice defies three propositions that can be adequately accounted for only by realism: (1) There are many truths about the world that we will never know and have no way of finding out; (2) some of our beliefs are false and will never be discovered to be so, and (3) if a belief is true, it would be true even if no one believed it. If individual choice behavior is indeed unpredictable, no normative theory (including rational choice) or generalized positive theories (such as prospect theory) can individually come close to explaining or predicting it. Then, if rational choice (and other normative theories) is to credibly serve its mission of explaining, justifying, and preserving the prevailing economic institutions, economists may as well simultaneously use prospect theory or similar positive theories of individual choice to complement the normative theories of institutional behavior in order to enhance their usefulness. Journal of Ideology Volume 33, 2011 Rationale for Rational Choice Theory 2