7/29/2019 rational choice theory, game theory

1/22

SPA 508

PUBLIC POLICY ANALYSIS & DESIGNRATIONAL CHOICE THEORY

(RATIONALISM) & GAME THEORY

7/29/2019 rational choice theory, game theory

2/22

RATIONALCHOICETHEORY(RCT) Knownassocial-choiceorformaltheory

Originatedwitheconomist Itspointedoutthatgovernmentshouldchoose

policiesresultingingainstosocietythatexceedsthecostbythegreatestamount(ACHIEVES

MAXIMUMSOCIALGAIN)&governmentshouldrefrainfrompoliciesifthecostexceedsgains.

7/29/2019 rational choice theory, game theory

3/22

CoreAssumptionsofRCT Itinvolvesapplyingtheprinciplesof

microeconomictheory(cost-benefitanalysis)and

explanationofpoliticalbehavior(ornon-marketdecisionmaking)

Expectedutilityasaprincipalofeconomictheory

Itemphasizeonthemaximizationofprofitsand

minimizinglosses Rationalistswanttoimprovepolicymaking:

calculatecostsandtradeoffs,recognizeexternalities,optimizepolicies.

7/29/2019 rational choice theory, game theory

4/22

CoreAssumptionsofRCT Thecost-benefitanalysisisthoroughlyapplied

intotheRCTwherebytheinvolvementof

monetaryvalueofinitialandongoingexpensesvsexpectedreturn(benefit).

However,Rationalismshouldnotbeviewedonlyinanarrow$mindset.

Rationalisminvolvescalculationofallsocial,politicalandeconomicvaluessacrificedorachievedbypublicpolicynotonlythosemeasuredin$.

7/29/2019 rational choice theory, game theory

5/22

ExampleofRCT: Issue:NuriHelicopterfortheMalaysiasArmy.

Cost: ThepriceofNuriHelicopterisexpensive Thepublicmoneymostlywillbespentonbuying

thishelicopter

Benefits: Newtechnology(fastercomparedtotheother

helicopter)

Lowmaintenancecost

Capabletodomanymissionsandactions

7/29/2019 rational choice theory, game theory

6/22

1stIMPLICATIONS Thevotersandpoliticalpartiesactasrational

decisionmakerswhoseektomaximizeattainment

oftheirpreferences.Beingrational,itisarguedthatindividualcancomprehendandranktheirpreferencesfrommosttoleastdesired.

Inmakingdecisions(whethereconomicor

political),theyareguidedbythesepreferencesandwillseektomaximizethebenefittheygain.

7/29/2019 rational choice theory, game theory

7/22

2ndIMPLICATIONS:

Rationalchoicetheoryinvolvesmethodologicalindividualism.Itmeanstheindividualdecisionmakeristheprimaryunitofanalysisandtheory.

Itcanbesaidthatitinvolvestheselectionofthealternativewhichwillmaximizethevaluesofdecisionmakers,theselectionbeingmadefollowingacomprehensiveanalysisofalternativesandtheirconsequences.

7/29/2019 rational choice theory, game theory

8/22

Reutilizationofactivitythroughestablishingprogramsandstandardoperatingprocedures

Specializationofactivitiesandrolesitwilldirectedtoaparticularrestrictedsetofvalue

Simultaneousandsequentialpursuitofconflictinggoals

Factoringofgoalsandtasksintoprogramsanddepartmentsthataresemi-independentofoneanothertoreduceinterdependencies

STRENGTHOFRCT

7/29/2019 rational choice theory, game theory

9/22

Time Consuming Processes Itincludegroupofprofessionalinvolveinmakingdecision

Expensive ProcessThecostinvolveisusuallyisveryhigh

Determining the suitabilityTheneedfordeterminingthebestmethodbecauseitinvolvemoneyandtimespend

Delays in Decision Making -Therearetomanycriticalvaluesanddatainvolvedinanalyzingthealternative.Conflictamongmembersalsowillcreatedelayoftheslippedopportunities

WEAKNESSOFRCT

7/29/2019 rational choice theory, game theory

10/22

Gametheory

Definition:

Studyofrationaldecisioninsituationinwhichtwoormoreparticipantshavechoices

tomakeandtheoutcomesdependsonthechoicesmadebyeach.

Gametheoryisabranchofmathematicsdevelopedtodealwithconflictofinterestsituationinsocialscience.

TheoriginsofthistheorycanbetracedtoearlyarticleswrittenbyEmileBorel(1921,1924)andJohnvonNeuman(1928)---amathematicians

7/29/2019 rational choice theory, game theory

11/22

Cont

Gametheorycanbeconsiderasatheoryofinterdependentchoice.

Ingametheory,aplayercanbeanindividual,oragroupofindividualswhichfunctioningasadecisionmakingunit.

Playersareassumedtobeabletoevaluateandcomparetheconsequencesassociatedwiththesetofpossibleoutcomes--->utilities

7/29/2019 rational choice theory, game theory

12/22

Cont

Theoptionsthatavailabletoplayerswhichresultingtooutcomesarecalledstrategies.

Gamescanbedividedaccordingtotherulesassumedtogovernplay.

Non-cooperativegames:gamesinwhichbiindingagreementsareprecluded

Cooperativegames:bindingagreementsarepossible.

7/29/2019 rational choice theory, game theory

13/22

Non-cooperativeGame

Theory Thistheorybeginswiththesuppositionthateachplayersareunabletocommunicateornegotiatetobindingagreementswitheachother.

Thus,itismoresuitableforanalyzingsituationswherethereareobstacles

Equilibriumoutcomesplayacentralrole.

Inbriefly,Nashsequilibriumconceptassumes

thatplayersonlyconsidertheimmediateadvantagesanddisadvantagesofaunilateralstrategyswitch.

Thiscanbeseenthroughtheconceptof

PrisonersDilemma.

7/29/2019 rational choice theory, game theory

14/22

Cont

7/29/2019 rational choice theory, game theory

15/22

CooperativeGameTheory

Incooperativetheorytherearerulesthatallowplayerstonegotiatebindingagreementswitheachother.

Theassumptionaboutthepossibilityofbindingagreementsthatdistinguishescooperativefromnon-cooperativegametheoryhasimportant

implicationsfortheoutcomesthateachbranchoftheorypredictstobeselectedbyplayers.

7/29/2019 rational choice theory, game theory

16/22

ContInthecooperativetheory,nospecialstatusisaffordedtoequilibriumoutcomes.

Cooperativetheoryattemptstosingleoutoutcomesfromamongthesetofpossibleoutcomesthatrationalplayerswouldagreeto.

Itisassumedthat,anoutcomemustsatisfyboththeconditionsofindividualrationalityandalsogrouprationality

7/29/2019 rational choice theory, game theory

17/22

Strengths

Rationalmodeloftheinteraction(eventtrees,conditionalprobabilities)

Mathematicallogicofinterdependence.

Mixedmotivesofconflictandcooperation.Mathematicalequilibria.

Quantitativeutilityofexpectedoutcomes.

Modelsleadtoclearpredictions.

Firstmodelsofgroupbehavior.

Generalizable

7/29/2019 rational choice theory, game theory

18/22

Weaknesses Emotionisnotintegraltothemodel

Uncertaintyismodeledsequentially,notinterdependently(i.e.,uncertaintyinobservation

isfollowedbyuncertaintyinaction).

Argumentation,incommensurability,anddiversityhavezerosocialvalue.

Staticconfigurationsandequilibriaforceinformationprocessingtooccurextrarationally

(i.e.,reactivetoobservationsofothers

behaviors).

7/29/2019 rational choice theory, game theory

19/22

Cont Arbitraryutilitiesforcooperationandcompetition

leadtoexplanationversusprediction,overstatingthevalueofcooperation.

Novalidationinlaborfield.

Shiftsbetweenindividualtogrouputilityoringrouptooutgrouputilitiescannotbestudied.

Conclusionsarenormative.

7/29/2019 rational choice theory, game theory

20/22

Conclusion:

Tosumitup: Rationalchoicetheoryprovidesamethodologyforassessingdecision-makingbyusingempiricalevidenceandinformationlikelistedofbenefitsandcoststo

understandrevisionandchoice,andthusrationalizethepoliciesmade.

While,agametheory:

Mimicsmostreal-lifesituationswell

Solvingmaynotbeefficient Applicationsareinalmostallfields

Bigassumption:playersbeingrational

Canyouthinkofunrationalgametheory?

7/29/2019 rational choice theory, game theory

21/22

Thankyou.Anyquestion?:

7/29/2019 rational choice theory, game theory

22/22

REFERENCES: Anderson,JamesE.(2006)PublicPolicymaking.

Boston:houghtonmifflin.6thed.

Dye,ThomasR.(2008)UnderstandingPublicPolicy.PearsonPrenticeHall.12thed.

Downs,Anthony(1957).AnEconomicTheoryofDemocracy.NewYork:Harper.

Lawless,W.(2000).AdversarialCollaborationDecisionMaking:AnOverviewofSocialQuantumInformationProcessing.

Zagare,F.C.(1984).RecentAdvancesinGameTheoryandPoliticalScience.