Rational Choice Theory

John Scott

From Understanding Contemporary Society: Theories of The Present, edited by G.

Browning, A. Halcli, and F. Webster. (Sage Publications, 2000).

It has long appeared to many people that economics is the most successful of the social
sciences. It has assumed that people are motivated by money and by the possibility of making
a profit, and this has allowed it to construct formal, and often predictive, models of human
behaviour. This apparent success has led many other social scientists to cast envious eyes in
its direction. They have thought that if they could only follow the methods of economics they
could achieve similar successes in their own studies. These sociologists and political
scientists have tried to build theories around the idea that all action is fundamentally 'rational'
in character and that people calculate the likely costs and benefits of any action before
deciding what to do. This approach to theory is known as rational choice theory, and its
application to social interaction takes the form of exchange theory.

The fact that people act rationally has, of course, been recognised by many sociologists, but
they have seen rational actions alongside other forms of action, seeing human action as
involving both rational and non-rational elements. Such views of action recognise traditional
or habitual action, emotional or affectual action, and various forms of value-oriented action
alongside the purely rational types of action. Max Weber (1920), for example, built an
influential typology of action around just such concepts. His ideas were taken up by Talcott
Parsons (1937) and became a part of the sociological mainstream. In a similar way, the social
anthropologists Bronislaw Malinowski (1922) and Marcel Mauss (1925) looked at how social
exchange was embedded in structures of reciprocity and social obligation. What distinguishes
rational choice theory from these other forms of theory is that it denies the existence of any
kinds of action other than the purely rational and calculative. All social action, it is argued,
can be seen as rationally motivated, as instrumental action, however much it may appear to
be irrational or non-rational.

A pioneering figure in establishing rational choice theory in sociology was George Homans
(1961), who set out a basic framework of exchange theory, which he grounded in
assumptions drawn from behaviourist psychology. While these psychological assumptions
have been rejected by many later writers, Homans's formulation of exchange theory remains
the basis of all subsequent discussion. During the 1960s and 1970s, Blau (1964), Coleman
(1973), and Cook (1977) extended and enlarged his framework, and they helped to develop
more formal, mathematical models of rational action (see also Coleman 1990).

Rational choice theorists have become increasingly mathematical in orientation, converging

more closely with trends in micro-economics. Indeed, some economists have attempted to
colonise areas occupied by other social scientists. This trend towards formal, mathematical
models of rational action was apparent in such diverse areas as theories of voting and
coalition formation in political science (Downs 1957; Buchanan and Tullock 1962; Riker
1962) and explanations of ethnic minority relations (Hechter 1987) and, in a less rigorously
mathematical form, social mobility and class reproduction (Goldthorpe 1996, Breen and
Rottman 1995). Economists such as Becker (1976, 1981) set out theories of crime and
marriage. A particularly striking trend of recent years has been the work of those Marxists
who have seen rational choice theory as the basis of a Marxist theory of class and exploitation
(Elster 1983, 1986; Roemer 1988. See also Wright 1985; 1989).

Rationality and Social Exchange

Basic to all forms of rational choice theory is the assumption that complex social phenomena
can be explained in terms of the elementary individual actions of which they are composed.
This standpoint, called methodological individualism, holds that:

'The elementary unit of social life is the individual human action. To explain social
institutions and social change is to show how they arise as the result of the action and
interaction of individuals' (Elster 1989: 13)

Where economic theories have been concerned with the ways in which the production,
distribution and consumption of goods and services is organised through money and the
market mechanism, rational choice theorists have argued that the same general principles can
be used to understand interactions in which such resources as time, information, approval,
and prestige are involved.

In rational choice theories, individuals are seen as motivated by the wants or goals that
express their 'preferences'. They act within specific, given constraints and on the basis of the
information that they have about the conditions under which they are acting. At its simplest,
the relationship between preferences and constraints can be seen in the purely technical terms
of the relationship of a means to an end. As it is not possible for individuals to achieve all of
the various things that they want, they must also make choices in relation to both their goals
and the means for attaining these goals. Rational choice theories hold that individuals must
anticipate the outcomes of alternative courses of action and calculate that which will be best
for them. Rational individuals choose the alternative that is likely to give them the greatest
satisfaction (Heath 1976: 3; Carling 1992: 27; Coleman 1973).

The methodological individualism of rational choice theorists leads them to start out from the
actions of individuals and to see all other social phenomena as reducible to these individual
actions. For Homans, however, it was also necessary to see individual actions as reducible to
these conditioned psychological responses (see also Emerson 1972a and 1972b). This
position was justified on the grounds that the principles of rational choice and social
exchange were simply expressions of the basic principles of behavioural psychology. While
many other rational choice theorists have rejected this claim - and Homans himself came to
see it as inessential - it is worth looking, briefly, at the argument.

A Psychological Basis?
The idea of 'rational action' has generally been taken to imply a conscious social actor
engaging in deliberate calculative strategies. Homans argued that human behaviour, like all
animal behaviour, is not free but determined. It is shaped by the rewards and punishments
that are encountered. People do those things that lead to rewards and they avoid whatever
they are punished for. Reinforcement through rewards and punishments -- technically termed
'conditioning' -- is the determining factor in human behaviour. This behaviour can, therefore,
be studied in purely external and objective terms; there is no need to invoke any internal
mental states. People learn from their past experiences, and that is all we need to know in
order to explain their behaviour.

The inspiration behind Homans's psychology was the behaviourism of Skinner, developed
from studies of pigeons (See Skinner 1938, 1953, 1957). Food is the basic goal sought by
animals, and Skinner held that animal behaviour could be shaped by the giving or
withholding of food. Food is a reward that reinforces particular tendencies of behaviour.
Humans, however, are motivated by a much wider range of goals. While pigeons will do
almost anything for grain, humans are more likely to seek approval, recognition, love, or, of
course, money. Human consciousness and intelligence enters the picture only in so far as it
makes possible these symbolic rewards. Homans did not see this as involving any
fundamental difference in the way that their behaviour is to be explained. The character of the
rewards and punishments may differ, but the mechanisms involved are the same.

In social interaction, individuals are involved in mutual reinforcement. Each participant's

behaviour rewards or punishes the other, and their joint behaviour develops through this
'exchange' of rewarding and punishing behaviours. While any behaviour can, in principle,
reinforce the behaviour of another, Homans held that approval is the most fundamental
human goal. Approval is a 'generalised reinforcer' that can reinforce a wide variety of
specialised activities. Because of its generalised character, Homans saw approval as directly
parallel to money. Both money and approval are general means of exchange in social
interaction, one in economic exchange and the other in social exchange.

Not all rational choice theorists have relied on behavioural psychology in this way. Indeed,
many remain quite deliberately agnostic about the ultimate determinants of human action.
Following the example of many economists, they have seen their task simply as the
construction of logically coherent, predictive theories of human action. Individuals, they
argue, act as if they were fully rational and, therefore, rationality can be taken as an
unproblematic starting point. There is no need to dig any deeper into individual psychology:
whatever psychology may say about motivation does not affect the fact that social relations
and exchange processes can be understood as if all individuals were purely rational actors.
This argument is tenable only if a rather extreme positivist view of knowledge is adopted, and
most realists would expect to find some attention given to the psychological basis of
motivation and, therefore, to attempts to test out the adequacy of particular psychological
assumptions. While these epistemological issues point beyond my present concerns (see
Delanty 1997), they should be borne in mind in the following discussion.
Social Interaction as Social Exchange
Following the economic model, then, rational choice theorists see social interaction as a
process of social exchange. Economic action involves an exchange of goods and services;
social interaction involves the exchange of approval and certain other valued behaviours. In
order to emphasise the parallels with economic action, rewards and punishments in social
exchange have generally been termed rewards and costs, with action being motivated by the
pursuit of a 'profitable' balance of rewards over costs. The various things that a person might
do - his or her opportunities - vary in their costs, but they also vary in their rewards. In many
cases, there will be a combination of monetary and non-monetary rewards and costs.

The rewards received from goods purchased from a shop, for example, might include the
intrinsic satisfactions that can be gained from their consumption and the social approval that
is gained from their status display. Stealing a car, on the other hand, might be rewarding
because of the pleasures derived from joy riding and the recognition accorded by fellow car
thieves. These same activities, however, also involve costs. Items can be purchased from a
shop only by giving up some of the money that a person possesses, and car theft involves
penalties, such as imprisonment and social disapproval that will be incurred if the thief is
apprehended and convicted.

The strength of a reinforcement is measured by its quantity and its value. For example, the
more banknotes that a person receives, and the higher their denomination, the more of a
reward they are likely to be. The quantity and value of social approval, on the other hand, is
less easily measured, though it may sometimes have a monetary equivalent. Social exchange
theories, however, regard this as a purely technical problem that exists only because we have
not yet developed adequate methods for measuring it.

For many rational choice theorists it is not even a technical problem, as it can be handled in
exactly the same way as the intangible satisfactions that people gain from the objects that
they buy or sell with money. The value of a reward, they argue, is the 'utility' that it has for a
person. While this subjective utility can vary greatly from one person to another, it is possible
to construct preference curves that measure the relative utility of one object against another
and, therefore, the likelihood that people will try to obtain them. In general, the utility of
someone's behaviour is seen in terms of such things as the amount of their time that it takes
up and the frequency with which they are able to do it.

Rational choice theorists also recognise that the threat of punishment or the promise of a
reward may motivate people just as much as the punishment or reward itself. The threat of
punishment, for example, may call forth appropriate behaviour from those who wish to avoid
the punishment. This assumption allowed Homans to recognise the motivating role of threats
and inducements in the conditioning of human behaviour.

This can be illustrated by the case where one work colleague helps another to complete a
difficult task. Someone who helps another and, in consequence, receives their approval, is
likely to help them and others in future circumstances where he or she expects this to meet
with approval. Conversely, the more often that approval has been given to those who help,
the more often are people likely to help others; and the more oriented a person is to approval-
seeking, the more likely he or she is to offer help. However, the more often that a helper has
been approved by others, the less likely is she or he to find this approval to be so highly
rewarding in the future. Such relationships will also involve an exchange of punishments as
well as an exchange of rewards. For example, a person who has been punished for an activity
in the past is likely to avoid doing it wherever he or she believes that they are likely to be
punished again.

The profit that a person gains in interaction is measured by the rewards received minus the
costs incurred. Homans argued that 'no exchange continues unless both parties are making a
profit' (Homans 1961: 61). What this means is that unless each participant finds it profitable,
the interaction will not continue. The person who experiences a 'loss' finds the interaction
more costly than rewarding and so will have an incentive to withdraw. A sustained social
relationship, therefore, rests upon a balance of mutual profitability. Participants in social
interaction engage in a calculus of rewards and costs and the interaction will continue in a
stable form only if all participants are making a profit. Those who experience a loss will
withdraw and will seek out alternative interactions where they are more likely to earn a profit.

Exchange relations are also power relations, as the resources that people bring to their social
relations are rarely equal. The outcome of any particular exchange, therefore, will depend
upon the relative power of the participants. This bargaining power varies with the dependence
of each participant on the exchange relationship, and this dependence varies, in turn, on the
extent to which there are alternatives available to them (Emerson 1962; Heath 1976: 24). If
people are able to obtain a particular goal only through one specific social relationship, then
they are highly dependent on that relationship and so will have little power to influence the
'price' that they have to pay. This reflects the fact that a monopoly supplier is able to use its
market power to command a high price from its customers. Social exchange systems, like
economic markets, range from this monopoly situation through various forms of oligopoly
and imperfect competition, to the fully competitive. In recent work, Emerson's colleagues
have analysed the generation of power in extensive networks of exchange relationships (Cook
1983).

Problems in Rational Choice and Social Exchange

Three inter-linked problems have bedevilled attempts to depict theories of rational action as
general theories of social action. These are the problems of collective action, of social norms,
and of social structure. Critics have argued that a proper solution to these problems shows the
need to go beyond, or even to abandon, the theory.

The problem of collective action is that of how it is possible to explain the co-operation of
individuals in groups, associations, and other forms of joint action. If individuals calculate the
personal profit to be made from each course of action, why should they ever choose to do
something that will benefit others more than themselves? The problem of social norms is the
related question of why people seem to accept and to follow norms of behaviour that lead
them to act in altruistic ways or to feel a sense of obligation that overrides their self-interest.
This and the problem of collective action comprise what Parsons (1937) called the Hobbesian
problem of order: if actions are self-interested, how is social life possible?

The problem of social structure is that of how it is possible for an individualistic theory to
explain and take proper account of the existence of larger structures. In particular, it is the
question of whether there are social structures that cannot be reduced to the actions of
particular individuals and that, therefore, have to be explained in different terms. This
problem is raised for all individualistic theories, but it takes a particular form in relation to
rational choice theories.

I will discuss each of these three problems in turn, looking at the answers proposed by
rational choice theorists and assessing the adequacy of their arguments.

The Problem of Collective Action

Rational choice theorists have incorporated collective action into their theories by requiring
that the actions of groups and organisations be reducible to statements about the actions of
individuals. Trades unions, political parties, business enterprises, and other organisations
may, then, all figure as actors in rational choice theories. Whenever it is possible to
demonstrate the existence of a decision-making apparatus through which individual
intentions are aggregated and an agreed policy formulated, it is legitimate to speak of
collective actors (Hindess 1988, Cook et al 1990).

The problem that these theories face, however, is that of showing how such organisations
come to be formed in the first place. It is possible to show that rational individuals would join
organisations that are likely to bring them benefits that outweigh the costs of membership and
involvement, but why should individuals join or support organisations that provide benefits
that they will gain even if they do not join the organisation? Why, for example, should
someone join a trades union if they will receive any negotiated wage increases in any case?
Why will they join a professional association that works on behalf of all members of the
profession, regardless of whether they are members of the association? This is the problem of
the so-called 'free rider'. Rational actors have no individual incentive to support collective
action. They will calculate that the costs of membership are high and that their participation
can have no significant effect on the organisation's bargaining power, and so they will
conclude that they have nothing to gain from membership. Each potential member of a trades
union, for example, will judge that the sheer size of its membership gives it the necessary
bargaining power, one extra member will make no difference. This leads to a paradox: if each
potential member makes this same calculation, as rational choice theory expects them to do,
then no one would ever join the union. The union would have little or no bargaining power,
and so no one will receive any negotiated pay rises or improved conditions of work.

The fact that people do join organisations and do become active in them must mean that there
is something missing from the simple rational action model. Olson (1965) has suggested that
collective action is sustained through what he calls 'selective incentives'. Unions might attract
members, for example, if they can ensure that only their members will benefit from what they
are able to negotiate. Selective incentives alter the rewards and costs in such a way as to
make support for collective action profitable. Union membership is a rational choice for
individuals if a 'closed shop' can be enforced, if pay rises are restricted to union members, or
if unions can offer advantageous insurance or legal advice to their members. Hechter (1987),
has generalised this point into the claim that associations are formed if it is possible for them
to monopolise a resource and to exclude non-members (See also Oliver et al. 1985: Oliver
and Marwell 1988; Marwell et al. 1989). The fundamental problem remains, however.
Organisations and associations that do not act in this way still do manage to attract members
and, often, to thrive.

The Problem of Norms and Obligation

The related question is that of why individuals should ever feel any sense of obligation or
wish to act in altruistic ways. Why, that is, should individuals obey norms that lead them to
act in non-self-interested ways? Individuals pay taxes or join trades unions, for example,
because they feel that they are under an obligation to do so or because they have some kind of
moral or ideological commitment to the organisation. Rational choice theorists tend to
respond that norms are simply arbitrary preferences. Individuals may be socialised into all
sorts of value commitments and will then act rationally in relation to these, whatever they
may be. If people want to help others and get a sense of satisfaction from doing so, then
giving help is an act of rational self-interest.

Other rational choice theorists find a solution in the existence of reciprocity. They argue that
where social exchanges are recurrent, rather than episodic, it is possible for cooperation to
emerge as a rational strategy. People rapidly learn that cooperation leads to mutual
advantage, even if it does not produce the maximum outcome for any one participant. They
learn, that is to say, that cooperation, rather than pure self-interest, is the optimum strategy.
Ridley (1996: Chapter 3) has argued that this must be seen as an instinctive response, as a
genetically-programmed innate predisposition for cooperation and reciprocity. The question
remains, however, whether such an instinct exists and, if it does, whether it is powerful
enough to generate the wide range of cooperative and altruistic behaviour found in human
societies.

Equally important, it is not at all clear that rational choice theory can explain why cooperative
and altruistic behaviour is so often sensed as a normative matter, as a matter of obligation and
commitment. Durkheim (1893) argued that all rational economic actions occur within an
institutional framework of norms that cannot itself be explained as the result of rational action
alone. The norms of fair exchange and reciprocity, for example, cannot be explained in terms
of specific contractual acts of exchange.

This was, I have already suggested, the core of the Parsonian critique of the Hobbesian
account of social order. Parsons (1937) held that self-interested rational actors cannot
generate a stable social order on an economic (or coercive, political) basis. For Parsons,
social order could be explained only through the recognition that there is a normative, non-
rational element in individual contracts.

Blau (1964) attempted to counter the problem by suggesting that people are willing to incur
costs and imbalances in their exchange relations when they are formed into long chains of
actions. In these circumstances - which are normal in all societies - they anticipate that any
loss can be traded in for a counter-balancing profit at some time in the future. People
anticipate a long-term reciprocity that is in everybody's interest and so becomes accepted as a
norm. However, this solution assumes that individuals will trust each other, and the whole
point of Parsons' argument is that rational individuals have no incentive to build this trust in
the first place. The framework of norms and commitments that sustain such trust relations
cannot themselves be explained through rational action processes.

Coleman tried to overcome this problem by seeing the emergence of trust in social interaction
as a rational response to attempts to build coalitions, but the recent work of Cook and
Emerson (1978) has recognised that the existence of trust cannot be seen in purely rational
terms. They show that the norms of trust and justice that individuals use in their actions have
a moral force that runs counter to purely rational considerations. The sense of obligation is
real and can be felt very strongly.
Elster, among rational choice theorists, has accepted this conclusion. He argues that norms
are not 'outcome-oriented' but are internalised and so acquire a compulsive character that
cannot be explained in purely rational terms (Elster 1989a: 119; Elster 1989b: 98). Norms
operate, he holds, through shame and guilt, rather than through rewards and punishment. As
far as the explanation of norms is concerned, rational choice theory has nothing to offer.
Rational choice and normative commitment, he argues, are complementary processes in the
formation of social action.

The assumption of instrumental rationality, then, cannot give a complete explanation of social
order. A full account must incorporate an awareness of the part that is played by social norms
and emotional commitments alongside the exercise of rational choice. This dependence of
rational choice theory on assumptions from very different theoretical traditions was
recognised by Heath in his review. While rational considerations may explain why particular
individuals introduce and enforce social norms, they cannot explain how these norms come to
be internalised:

'The rational choice approach can only explain what people do. It can explain why people
might institute a norm and might then enforce it, but it cannot explain why they should
change their values - for this is what internalisation amounts to. Values … must always
remain a "given" in the rational choice approach and to explain how they change we should
have to introduce additional psychological mechanisms that have nothing to do with
rationality' (Heath 1976: 64. See also Friedman and Hechter 1990: 226. And see Granovetter
1986).

The Problem of Social Structure

The methodological individualism adopted by rational choice theorists holds that all
statements about social phenomena are reducible to statements about individual action.
Explanation of social facts in terms of other social facts is, at best, a shorthand summary of
the more detailed individual-level processes that produce them. Homans held that there are no
independent and autonomous social structures:

'If you look long enough for the secret of society you will find it in plain sight: the secret of
society is that it was made by men [sic.], and there is nothing in society but what men put
there' (Homans 1961: 385).

Homans claimed that his analysis of the 'elementary social behaviour' of face-to-face
interaction comprised the 'subinstitutional' level of social analysis on which all large-scale
social institutions depend. The greater complexity of the institutional level simply reflects the
more indirect nature of many exchange relations and the greater use of such generalised
reinforcers as money and social approval. The employee of a business enterprise, for
example, exchanges work time for a wage that is received from a clerk in the salary
department and not from a direct supervisor or from the owner of the firm. Instead of a direct
exchange between the worker and the person for whom the work is undertaken, there is an
indirect exchange that involves one or more intermediaries.

Those features of social life that are conventionally called 'social structures' are, for rational
choice theorists, simply chains of interconnected individual actions. They are the 'patterns'
that result from individual actions. It is because many of these chains can be quite extensive
that social life can appear to have a life of its own. Cook and her colleagues (1990) have
recently drawn on arguments from social network analysis to suggest that social structures
can be understood as chains of interconnection that form extensive exchange networks
through which resources flow.

The most successful attempts to explain the distinctive structural features of social life, have
seen them as the unintended consequences of individual action. It is the compounding of
unintended consequences that produces social phenomena that individuals may be only
partially aware of and that they experience as constraints. The classic example of this is the
operation of market relations, as seen in economic theory. Through the operations of the
competitive market, it is argued, the supply and the demand for commodities is matched
without the need for central planning and co-ordination. The matching of supply and demand
is the unplanned and unanticipated consequence of many hundreds of separate individual
actions. It must be said, however, that rational choice theorists do tend to deny any autonomy
or constraining power for social structures. This claim is not inherent in rational choice
theory but in the methodological individualism that, for most of its advocates, is adopted as a
philosophical underpinning. In this respect, rational choice theory faces similar difficulties to
most other social theories that have focused on action to the exclusion of social structure.

Summary
In this chapter I have argued that:

 Rational choice theory adopts a methodological individualist position and attempts to

explain all social phenomena in terms of the rational calculations made by self-
interested individuals.
 Rational choice theory sees social interaction as social exchange. modelled on
economic action. People are motivated by the rewards and costs of actions and by the
profits that they can make.
 Some rational choice theorists have seen rationality as a result of psychological
conditioning. Others have adopted the position that it is simply necessary to assume
that individuals act as if they were completely rational.
 The problem of collective action poses great difficulties for rational choice theory,
which cannot explain why individuals join many kinds of groups and associations.
 The problem of social norms, the other aspect of the Hobbesian problem of order, also
poses difficulties. Rational choice theories cannot explain the origins of social norms,
especially those of altruism, reciprocity, and trust.
 The problem of social structure is a feature of methodological individualism, rather
than rational choice theory per se, but it creates difficulties for the theories
considered. Solutions to this problem have been in terms of the unintended
consequences of individual action.

Further Reading
James Coleman, The Mathematics of Collective Action. A magisterial attempt to cover the
whole field in a systematic way and to present rational choice theory as the only reliable basis
for a comprehensive social theory.
Jon Elster, The Cement of Society. An important summary by an advocate of rational choice
theory as the basis for a reconstruction of Marxism.

Anthony Downs, An Economic Theory of Democracy. A pioneering study that still has much
to offer, especially in relation to the drift towards the centre in competitive political systems.

Gary Becker, A Treatise on the Family. A tour de force that tries to show, amid much
mathematics, that rational economic assumptions have more to offer than any other
framework for the study of the family.

Anthony Heath, Rational Choice and Social Exchange. An early critical summary that still
has much to offer for a balanced assessment of rational choice theory.

John Scott studied sociology at Kingston College of Technology and the London School of
Economics. He has taught at Strathclyde University and Leicester University, where he was
Professor of Sociology. Since 1994 he has been Professor of Sociology at the University of
Essex, and he is Adjunct Professor at the University of Bergen, Norway. He is the author of
books on social stratification and power, business organisation, research methods, and
sociological theory. His most recent publications include Stratification and Power (Polity
Press, 1996), Corporate Business and Capitalist Classes (Oxford University Press, 1997),
and, with James Fulcher, Sociology (Oxford University Press, 1999).

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Notes
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