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start learning
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examines preferences and choices of individuals
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start learning
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trends at much higher level of aggregation
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methodological individualism start learning
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individuals determine the way society is
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ontological individualism start learning
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in reality no supra-individual entities exist, only aggregate outcomes of the actions and behaviours of individuals
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Character of the analysis start learning
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1. Explaining phenomena - perspective of spectator; 2. Understanding phenomena - perspective of participant
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start learning
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art of interpretation; understanding meanings; the goal of science is not only to predict but to understand people's behaviour, hence we should assume the perspective of the participant and try to interpret their aims and find their reasons
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start learning
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method through which we can try to understand social institutions and social changes as resulting from there actions and interactions of rational individuals
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start learning
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individuals who try to optimise their own preferences to the fullest
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Considerations of Rational Choice Theory start learning
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society to be a cooperation of individuals who tune their behaviour, cuz it is the best way for them to fulfil their goals; RCT assumes that all individuals act as perfectly rational beings
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perfectly rational beings start learning
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people's preferences are ordered according to priority; individuals do have all information about all options and results; they are capable of calculating the best mix of results
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start learning
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you anticipate others' choices as best as you can
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problem of coordination in a coordination game start learning
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such model always involves at least two individuals and two options, the results can be seen as levels of utility or priorities in succession. 1 represents the highest, 4 the lowest. When an equilibrium is possible, all players will get to it
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start learning
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combination of choices of which no choice can be changed to the benefit of any of the players
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start learning
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combination of choices in which none of the players can benefit from changing their choice without harming at leats one of the other players
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start learning
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it showcases why we need not only conventions, but also a government that can impose sanctions for not keeping to conventions
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Claims of Rational Choice Theory start learning
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it assumes that individuals will strive to have their preferences satisfied, but those don't need to be egoistic; the problem with RCT is that it can only make claims about the behaviour of agents, but at the same time it draws conclusions about actors
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behaviourist conception of preference start learning
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subject choose what they prefer, so their choice reveal their preferences
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mentalist conception of preference start learning
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subjects prefer what they find most agreeable and what gives them most pleasure
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start learning
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theory about theory; assumptions, ambitions, models of explanation, epistemologies methodological prescriptions; theories sharing similar assumptions
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types of meta-theoretical questions start learning
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ontological - individualism or holism?; is social reality socially constructed?; epistemological - what type of explanation should we look for? explaining vs understanding
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Explanations and their aims start learning
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Causal and functional - explaining; Intentional - understanding
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start learning
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individual, explaining; explain behaviour and social level outcomes from the rational choices of individual agents
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Assumptions of Rational Choice Paradigm start learning
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1. Methodological Individualism; 2. Agents are fully self-interested; 3. Agents are perfectly rational
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Methodological Individualism - 1st Assumption of RC Paradigm start learning
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social phenomena (rules, institutions) really exist, but we can explain them only form the actions and behaviours of individuals; i.e. institutions - meeting the needs of society by filling certain roles&behaviours
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Self-interest - 2nd Assumption of RC Paradigm start learning
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agents exclusively seek to maximise their own welfare; welfare of others is only relevant insofar it figures in one's own preference ordering
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Rationality - 3rd Assumption of RC Paradigm start learning
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rational agents have a complete and consistent preference ordering, all options included in preference ordering; rational agents have all relevant info and perfectly functioning computer on board (in our minds)
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start learning
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we tend to value things higher than their market value when they belong to us
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start learning
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if we invest labor in something, we value it higher
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start learning
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1. Parametric rationality - assumes the choices of others to be known in advance; 2. Strategic rationality - takes into consideration the rational choices of other agents, who try to anticipate your actions
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start learning
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process of modelling strategic interaction between two or more players in the situation containing certain rules and outcomes
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start learning
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explains patterns of behaviour and institutions from interdependent rational choices; strategic rationality; Nash-equilibrium; Pareto-optimal; coordination problem - how can I make people cooperate?; motivational problem - how can I make people work hard?
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start learning
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parametric rationality, helps to resolve issues in relationships between human interactions
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Agency relationships lead to agency problems because: start learning
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conflicts of interest between agent and principal; info/knowledge asymmetry; ex ante (selecting the right employee) - adverse selection; ex post (monitoring employee once hired) - moral hazard
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How you solve agency problems? start learning
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monitoring costs (principal); bonding costs (agent); residual loss (principal)
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