THE THEORY OF RATIONAL CHOICE, ITS SHORTCOMINGS, AND THE IMPLICATIONS FOR PUBLIC-POLICY DECISION-MAKING

The theory of rational choice has become the predominant theory of human behavior in many of the social sciences. The theory holds, among other things, that individuals are rational utility-maximizers and that organizations are rational profit-maximizers. Recent developments in cognitive psychology and in economics suggest that human beings have significant cognitive imperfections that make the routine applicability of the theory of rational choice questionable. The article reviews these developments and, by addressing examples from the field of law and economics, shows how an awareness of cognitive imperfections can help to devise better public policy. © 1990, Sage Publications. All rights reserved.