Rational Choice TheoryMethodological Individualism- General approach to many paradoxical paradigms of theoretical perspectives- Argument about app structure of theories- Any complete explanation should include as one of its components, some analysis of individuals’thought and actiono Individuals better be somewhere in the explanationo MacroMicro (thought) Micro(actions) Macro (outcome) If from Macro to Macro, then something is missing Ex: Deviance law change to harsher leads to crime rate decrease- Cognitive theory, that perceives humans as thinking beingso Individuals have goals and their actions are a means to achieve their goals (means end theory)- A set of micro assumptions that model the macro outcomesTypes of ModelsMaximizing and Satisficng- Maximizing Utility: o Begins with choice set that specifies certain actions that could be made  Ex: buying a car, there are 100’s of “choice sets” ie. The feasible options - Go through the costs and benefits for each option, and choose the one with greatest net benefit - Impossible to go through all the calculations because our calculating capacities are limited, and it’s not realistic o Argument that its not realistic to predit peoples outcomes because we don’t know what goes on in their heado Utility (goals): What people want- If you don’t specify what people want, then the model becomes un-testable o Difficult to collect data about what people want Often not truthful/don’t really know o Use assumptions that are fungible(adaptable)- If you can’t prove a theory wrong, then you can’t test the theorySpecifying preferences- Bounded rationality and Satisficing o Simon argued that people need to find shortcuts to decision making to simplify process Ex: Satisficing- Going through the list and finding something that’s “good enough” and making the decision based on that- Its satisfactory and suffices for a decision, but doesn’t mean it’s the bestSmith- Wealth of Nations- 1776, to explain why some countries are rich/poorSelf Interested action- Individuals that are always looking out for themselves, likely to produce society with negative consequencesCounterintuitive- In certain conditions, self interest produces some positive social benefits o Ex: Baker to make best bread, lowest cost in order to maximize profit for his bakeryo Scope conditioncompetitive market (with more than one baker) and free market (no rules governing what to use and how to use it)  Self interested action of the baker will result in him producing the best bread he can produce at the lowest possible price, and if he doesn’t, then the other bakerdown the road will get all the customers, and he will not survive Key is creating and maintaining markets that are free and competitive, if not, then you will remain poorSelf Regulation- Argues that free competitive markes are self regulating, self equilibratingo Do not need third party (state/federal) intervention to work at maximum efficiencyo The free choices of self interested individuals will result in maximum profitability o Ex: in country x, there is terrible chicken plague, resulting in fewer eggs in market Supply and demand says, price of eggs increases- Self interested people now begin importing chickens and supply of eggs increaseo Price goes down again to normal price  People will change their diet/state intervenes- No one will have motivation to produce more eggs, thus preventing self equilibrating  Laissez-faire - State shouldn’t intervene, people will do what they have to, to surviveDivision of Labor- Technological/other advances are produced by free competitive markets- Within the factoryo Size of market (local to global) will determine the extent of division of labor Increased pressure on manufacturers to find more efficient ways to make things Everyone is rational and self interested in order to get a leg up on their competitors Consequence:- Increase within the production units/firms/laborers- Ex: production of chairs could be more efficient if we divide the production process into assembly lineso Increase specialization and efficiencyo Same tools and number of hours yield more chairs= CHEAPER- Theory of comparative advantageo Ex: England= sheep grazing vs. Portugal= winery’so Different countries because of their natural endowments can more efficiently produce certain products, because of natural resources Both locally procuring what they need, saving on transportationo However, both countries are better off if they specialize and trade  Cost of production will decrease, overthrowing the cost of transportation o Trade is positive sum, meaning both England and Portugal benefit from specialization Increasing wealth of nationsState intervention- Against state intervention but necessary for certain thingso Fundamental role relative to economy  Free competitive markets cannot exist/be efficient without the role of the state- Role of the stateo Social Security Protect property rights and private property- No one will build factory, etc, if they know that they are not protected and legal environment is untrustworthy, they will never build a factory- If trade regulations are not stable, there is no internal security, and no one will want to produce anythingo Civil and criminal law State will step in and settle the dispute, ensuring fairness o Protection from external threat Some sort of army to protect from other nations taking over your factoryo Social  Adequate infrastructure, education, airports- To reduce cost of transportation and increase