Rational choice theory
Agents choose consistently to maximize their own utility given their constraints.
What it means
Rational choice theory is the framework, foundational to neoclassical economics, which assumes that individuals have well-ordered, stable, and consistent preferences and select the option that maximizes their utility subject to their constraints. Its formal requirements include completeness and transitivity of preferences and adherence to axioms such as independence, which together yield an agent whose behavior is coherent and, in principle, predictable. The theory is genuinely powerful and often predictive in aggregate, particularly in competitive markets where prices and incentives dominate and errors may cancel out, and it provides a clean normative benchmark for what optimal choice would look like. Its central weakness is descriptive: a large body of behavioral evidence shows that real people systematically and predictably violate its axioms — they are swayed by how options are framed, attach value to sunk costs and defaults, exhibit loss aversion and inconsistent time preferences, and rely on heuristics. Behavioral economics arose precisely to document these departures and to build more realistic models. It matters because rational choice remains the indispensable baseline against which actual behavior is measured, even as its descriptive failures define the agenda of behavioral science.
Examples
The theory predicts you will ignore a $5 sunk cost when deciding what to do next — which, reliably and predictably, you will not.
Raise the price of petrol and people drive less, much as the theory predicts — in aggregate, prices and constraints dominate and individual quirks largely cancel out.
Told an operation has a 90 percent survival rate, patients consent; told it has a 10 percent mortality rate, many refuse. The theory says the wording cannot matter. It does.
First described in Neoclassical economics.