Rational Choice Theory: The Common Good and Human Nature

By Ian Howarth

Rational choice theories attempt to predict the course of actions that either individuals or groups will take in specific situations.  The utility of this is apparent in international relations, and during the Cold War governments on all sides spent considerable time and money developing this field.  Each side trying to work out what State A would do if State B did X.  The policy of Mutually Assured Destruction (MAD) emerged out of this theoretical approach to human behaviour and international relations.  It could be in no-one’s interests either individually or collectively to launch a nuclear war in the knowledge of their own assured destruction.  Unless of course they were mad!rationality

The prisoner’s dilemma is the classic example from rational choice theory in its examination of the clash between individual and collective rationality.  The dilemma is as follows, two partners in crime are in police custody and in separate cells. There are three potential courses of action that could follow from police questioning. The first is that they will both say nothing, the second that one will implicate the other or thirdly that they will both implicate each other.  In the first instance if both say nothing they will receive a short sentence, in the second instance the one who implicated there partner will be acquitted, while their partner will receive a long sentence; while finally if both have implicated each other, then each will receive a medium sentence.

The individual rational choice is to implicate your partner and therefore go free.  However, when in this situation we assume that our partner will come to the same conclusion and so if we have both implicated each other then we will not go free but serve a medium sentence.  Therefore, the collectively rational choice for both criminals is to say nothing and serve a short sentence. However, in the real world each criminal will be overcome by doubt and uncertainty as to their partner’s actions and so both will probably implicate each and end up behind bars for far longer than if they had both kept their mouths shut.  The prisoner’s dilemma highlights the trouble with rational choice models that tell us that individuals acting in their own best interests will always emerge as the dominant strategy.

An example of the problems that arise out of the assumption of the dominant strategy can be illustrated by the ‘tragedy of the commons’ (Shepsle & Bonchek 1997: 292-295).  In this tragedy we see how a common pool resource such as fish stocks is used and distributed between a number of interested individuals (e.g. fishermen).   All the fishermen know that over fishing will in the long run deplete their common pool resource (fish) and drive them out of business.  However, at the same time they are equally aware that the more fish they catch the more money they can make, and most importantly of all that the other fishermen are probably thinking the same thing.  If all the fishermen follow the dominant strategy fish stocks and the price at market will collapse and they will eventually all be out of a job.

This human instinct to follow the dominant strategy and the often different needs of collective decision-making represent a clash of interests.  The nature of this clash is two-fold.  Firstly the collective rational decision may not be in our own individual best interests.  In this case it is in our interests to subvert any attempted collective decision making despite its overall positive outcomes for the majority.  Secondly our lack of knowledge as to what the other individuals in the group are thinking means in situations where communication between members in the group is limited we are forced to rely on instinct and trust in order to judge what the other members of the group will do.  We would all like to believe that our friends colleagues, or even our governments are acting in our collective interests.  That if, as in the prisoners dilemma we are pushed into a situation where in order to achieve the optimal outcome for ourselves we rely on the cooperation of another individual, that the individual will think along the same lines and opt for the collective rational choice.   However this is the underlying problem with collective rational choice, we as individuals rationally assume that everyone is out for themselves.  That we will all in the end take the individualistic approach to situations, and often ignore the rationality of collective approaches.  This means that in short we don’t trust one another, and it is this lack of trust, in itself a deeply irrational thing that produces the problems of the ‘prisoners dilemma’ and to a certain extent the ‘tragedy of the commons’.

The key to overcoming both the tragedy of the commons is communication.  If prisoner one knows what prisoner two is going to say and do in a given situation then the dilemma is neutralised.  This is similarly the case in problems arising from the distribution of common pool resources, such as oil, fish, coal etc.

The EU’s common fisheries policy (CFP) is the perfect example of how communication, compromise and collective enforcement have overcome the clashes between the fishing fleets of Europe over a dwindling common resource.  Through the continuing meetings of ministers, and civil servants from various government departments from all over the EU the various nations are kept up to speed on what each other is thinking and doing. This ensures that the dominant strategy is not pursued and that collective rationality in the use of this common pool resource is maintained.

Other examples of this include the EU’s Common Agricultural Policy and the harmonization of legal systems across the EU to tackle international terrorism, and their financial networks.  On a more global scale the Uruguay Round and the consequent World Trade Organisation frameworks are designed to bring a level of communication and reassurance into the international economy. It ensures that nations that pursue free trade policies don’t end up being penalised or restricted by tariffs and long running trade wars.

The clash between the rationality of the individual’s interests and the overriding interests of collective rationality can on the most part be accommodated through the construction of national and international institutions and regulations on the freedoms of the individual and the responsibilities of the collective.  It may be for example in a homeless man’s individual rational interests to steal another man’s wallet in order to buy food.  However this is not in the collective rational interests of society, as this would create anarchy.  It is for this reason that we have legal systems, legislators and police forces.

However there are cases such as the ‘prisoners dilemma’ that are not so easy to overcome in this way, or where the will of one individual is in stark contrast to the rationality of the collective.  One such example can be seen in the British system of Cabinet Government, where the will of the prime minister will always prevail against the collective opinion of the cabinet as a whole.  It is simply the case that we do not always make rational decisions either as individuals or groups.

Therefore in conclusion the underlying paradox that lies in the clash between individual rationality and collective rationality is human nature.  The application of purely rational scientific criteria to human nature will always prove problematic.  Trust, emotion, gut instinct and pure chance are things that cannot be measured and are beyond the explanation of rational choice theory.


Birch, Anthony H, (1998) ‘The British System of Government’ Tenth Edition, Routledge, London, p157-159

Evans, Graham, & Newnham, Jeffrey (1998) ‘The Penguin Dictionary of International Relations’ Penguin, London, p189-191

Heywood, Andrew, (1997) ‘Politics’ First Edition, Palgrave, Basingstoke, Hampshire, Great Britain, p16-17

Shepsle, Kenneth A, & Boncheck, Mark S, (1997) ‘Analysing Politics Rationality, Behaviour and Institutions’ Norton, New York, p292-296


Private Profit and Public Debt; The Continuing Hypocrisy of the ‘Free Market’

By Ian Howarth

Since the autumn of 2008 there has been one issue in politics on which if the surface is scratched a great sense of anger, almost rage can be found.  I am of course talking about the financial crisis and the crushing five year recession that has followed.  In particular I am angered by what I see as a great injustice being committed by our politicians on behalf of the richest people in the country and the world.   fat cat

Why has the British and America taxpayer continued to tolerate billions of pounds of their money being used to support the people and institutions that drove the economy onto the rocks, with out so much as an ounce of real reform to the mad and immoral practices of the institutions responsible.  In Britain today we are told by our leaders that we are living in an ‘Age of Austerity’. An austere age in which banks and market traders reap mighty profits while nurses, builders, and postal workers face redundancy!  An austerity that provides us with the spectacle of multimillion pound bonuses after the timely injection of billions of pounds worth of taxpayer’s money saved the financial system from collapse.   This is a strange and discriminating type of austerity, one that picks its way through society, sparing the hedge fund manager while leaving thousands of young people without work.

In truth most of us have yet to fully awaken to the scale of the crime against public decency that is being perpetrated in the halls of power and high finance today. Most of us are still reeling from the shock of finding that the promises of endless prosperity and an end to ‘boom and bust’ were in truth propped on so shaky a foundation that they were in reality as worthless as Lehman Brothers shares.

I simply find it impossible to fathom the sheer scope of the hypocrisy that our leaders on all sides of the political divide are trying to feed us.  There is an old maxim that cometh the hour, cometh the man.  This is the hour, but I do not see anyone of worth claiming the mandate of the people and providing the answers, or leadership I believe millions of us seek.     Where is our FDR?  We need someone to offer us a New Deal and put an end to the deceitful self-interests of the small and powerful elite who have raided the public purse in the interest of private enterprise.  Are we to simply watch as the financiers and corporate executives run away with our money leaving ordinary people to face cuts to their schools and hospitals in the name of efficiency and living within ‘our’ means?  Must we return to the old dying on trolleys in hospital corridors for a lack of funding and compassion?  We face growing poverty and a widening gap between those that have, and those that have not, all so that the corrupt system that delivered us to this place may survive.

The Banks are in reality broken, and so the state must take its just stake and make clear to those CEO’s and executives that a bank that is too big to fail, is too big to exist.  The retail and casino operations need to be separated and the state must regulate with a ruthless zeal those practices that have led us to this place.  To continue on our current trajectory is only to ensure that we face such crisis again, and to ignore the human suffering that it must inevitably contain.  The disconnect between profit and the real world must be ended and tethered to the wealth of the nation through the guarantee that the practices of these mighty financial institutions will be regulated to ensure that they are not simply printing money for their own executives, but engaged in economic activity that benefits the whole of society.

It is the role of the state to ensure that all sectors of the economy are operating not only to the benefit of shareholders but the nation at large.  However outrageous these suggestions may seem to the apostles of Friedman let us not forget the single biggest lesson of the last five years.  If this crisis had been left to the free market the financial system would have collapsed and many millions of us would have faced losing our pensions, savings and even our current accounts.  It was in the end the guarantee of the state, of the taxpayer, that all debts would be met, and all deposits honoured that allowed these banks to continue.  As long as it is true to say that the largest of our banks cannot be allowed to fail then the shareholders and speculators of these institutions are in fact taking no risks at all with their investments.  This is not a free market.  These banks can in reality do as they will because they now know that the state is their acting as a back stop should they hit choppy waters.  This is why the state has the right, and obligation to crack the whip and end the free ride.  We cannot continue to abide a system that allows for state welfare for banks, and financial institutions while they continue to preach a failed doctrine of free markets and light regulation.   The Banks  have been given an implicit guarantee of state support without any conditions set upon their practices.  This is both immoral and undemocratic. The leaders we rely on have placed their connections and friendships with the high flyers of the City of London over their responsibility to represent and protect the interests of the people and their money.

What we need is a system that rewards and punishes fairly, and recognises the right of democratic forces to exert control over the dangerous excesses that are inherent to capitalism.  It is clear to me that the last 30 years has witnessed a mighty experiment in free market economics, a de-regulation of everything with a simple and accepted mantra; leave it to the market to decide.  This experiment led us to this place and a world in which a few got very rich, but ultimately the taxpayer, not the free market had to carry the can.   This is not a choice between the inefficiencies of a command economy or the disastrous effects of deregulated free markets.  It is an argument for common sense, and the recognition that in a democracy the people have a rightful interest in economic policy, and the right to place certain demands and expectations on the corporations that seem to believe that as private enterprises they need only answer to the Board. The outcome of this crisis and the role of the state in averting an even greater disaster must mean an end to this hypocrisy within the free market.