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SPA 508 PUBLIC POLICY ANALYSIS & DESIGN RATIONAL CHOICE THEORY (RATIONALISM) & GAME THEORY

RATIONAL CHOICE THEORY (RCT)


Known as social-choice or formal theory Originated with economist Its pointed out that government should choose policies resulting in gains to society that exceeds the cost by the greatest amount (ACHIEVES MAXIMUM SOCIAL GAIN) & government should refrain from policies if the cost exceeds gains.

Core Assumptions of RCT


It involves applying the principles of microeconomic theory (cost-benefit analysis) and explanation of political behavior (or non-market decision making) Expected utility as a principal of economic theory It emphasize on the maximization of profits and minimizing losses Rationalists want to improve policymaking: calculate costs and tradeoffs, recognize externalities, optimize policies.

Core Assumptions of RCT


The cost-benefit analysis is thoroughly applied into the RCT whereby the involvement of monetary value of initial and ongoing expenses vs expected return (benefit). However, Rationalism should not be viewed only in a narrow $ mindset. Rationalism involves calculation of all social, political and economic values sacrificed or achieved by public policy not only those measured in $.

Example of RCT:
Issue: Nuri Helicopter for the Malaysias Army. Cost: The price of Nuri Helicopter is expensive The public money mostly will be spent on buying this helicopter Benefits: New technology (faster compared to the other helicopter) Low maintenance cost Capable to do many missions and actions

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IMPLICATIONS

The voters and political parties act as rational decision makers who seek to maximize attainment of their preferences. Being rational, it is argued that individual can comprehend and rank their preferences from most to least desired. In making decisions (whether economic or political), they are guided by these preferences and will seek to maximize the benefit they gain.

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IMPLICATIONS:

Rational choice theory involves methodological individualism. It means the individual decision maker is the primary unit of analysis and theory. It can be said that it involves the selection of the alternative which will maximize the values of decision makers, the selection being made following a comprehensive analysis of alternatives and their consequences.

STRENGTH OF RCT
Reutilization of activity through establishing programs and standard operating procedures
Specialization of activities and roles it will directed to a particular restricted set of value Simultaneous and sequential pursuit of conflicting goals Factoring of goals and tasks into programs and departments that are semi-independent of one another to reduce interdependencies

WEAKNESS OF RCT
Time Consuming Processes It include group of professional involve in making decision
Expensive Process The cost involve is usually is very high Determining the suitability The need for determining the best method because it involve money and time spend

Delays in Decision Making - There are to many critical values and data involved in analyzing the alternative. Conflict among members also will create delay of the slipped opportunities

Game theory
Definition: Study of rational decision in situation in which two or more participants have choices to make and the outcomes depends on the choices made by each. Game theory is a branch of mathematics developed to deal with conflict of interest situation in social science. The origins of this theory can be traced to early articles written by Emile Borel (1921,1924) and John von Neuman (1928)--a mathematicians

Cont
Game theory can be consider as a theory of interdependent choice. In game theory, a player can be an individual, or a group of individuals which functioning as a decision making unit. Players are assumed to be able to evaluate and compare the consequences associated with the set of possible outcomes---> utilities

Cont
The options that available to players which resulting to outcomes are called strategies. Games can be divided according to the rules assumed to govern play. Non-cooperative games: games in which biinding agreements are precluded Cooperative games: binding agreements are possible.

Non-cooperative Game Theory


This theory begins with the supposition that each players are unable to communicate or negotiate to binding agreements with each other. Thus, it is more suitable for analyzing situations where there are obstacles Equilibrium outcomes play a central role. In briefly, Nashs equilibrium concept assumes that players only consider the immediate advantages and disadvantages of a unilateral strategy switch. This can be seen through the concept of Prisoners Dilemma.

Cont

Cooperative Game Theory


In cooperative theory there are rules that allow players to negotiate binding agreements with each other. The assumption about the possibility of binding agreements that distinguishes cooperative from non-cooperative game theory has important implications for the outcomes that each branch of theory predicts to be selected by players.

Cont
In the cooperative theory, no special status is afforded to equilibrium outcomes. Cooperative theory attempts to single out outcomes from among the set of possible outcomes that rational players would agree to. It is assumed that, an outcome must satisfy both the conditions of individual rationality and also group rationality

Strengths
Rational model of the interaction (event trees, conditional probabilities) Mathematical logic of interdependence. Mixed motives of conflict and cooperation.

Mathematical equilibria.
Quantitative utility of expected outcomes. Models lead to clear predictions. First models of group behavior. Generalizable

Weaknesses
Emotion is not integral to the model Uncertainty is modeled sequentially, not interdependently (i.e., uncertainty in observation is followed by uncertainty in action).

Argumentation, incommensurability, and diversity have zero social value.


Static configurations and equilibria force information processing to occur extrarationally (i.e., reactive to observations of others behaviors).

Cont
Arbitrary utilities for cooperation and competition lead to explanation versus prediction, overstating the value of cooperation. No validation in lab or field. Shifts between individual to group utility or in group to out group utilities cannot be studied. Conclusions are normative.

Conclusion:
To sum it up: Rational choice theory provides a methodology for assessing decision-making by using empirical evidence and information like listed of benefits and costs to understand revision and choice, and thus rationalize the policies made. While, a game theory: Mimics most real-life situations well Solving may not be efficient Applications are in almost all fields Big assumption: players being rational Can you think of unrational game theory?

Thank you. Any question?:

REFERENCES:
Anderson, James E. (2006) Public Policymaking. Boston: houghton mifflin. 6th ed. Dye, Thomas R. (2008) Understanding Public Policy. Pearson Prentice Hall. 12th ed. Downs, Anthony (1957). An Economic Theory of Democracy. New York: Harper. Lawless, W. (2000). Adversarial Collaboration Decision Making: An Overview of Social Quantum Information Processing. Zagare, F. C. (1984). Recent Advances in Game Theory and Political Science.

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