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Rational Choice and Principal Agent

Rational choice theory posits that individuals calculate the costs and benefits of potential actions to determine the option that maximizes personal benefit. It assumes people have clear objectives and sufficient information to make rational decisions. While helpful for explaining some behaviors, it has limitations because people do not always act rationally and have imperfect information. Principal-agent theory further examines how the interests of principals and their agents can diverge.

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ZikrilHakim MKenali Rohani
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94 views12 pages

Rational Choice and Principal Agent

Rational choice theory posits that individuals calculate the costs and benefits of potential actions to determine the option that maximizes personal benefit. It assumes people have clear objectives and sufficient information to make rational decisions. While helpful for explaining some behaviors, it has limitations because people do not always act rationally and have imperfect information. Principal-agent theory further examines how the interests of principals and their agents can diverge.

Uploaded by

ZikrilHakim MKenali Rohani
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Rational Choice

Theory
Rational Choice Theory
Use rational calculations to
make rational choices and
achieve outcomes that are To maximize the result
aligned with their own (greatest benefit & satisfaction)
personal objectives.

Assume that they are clear


Describe the motivations,
objectives, adequate
preferences, restrictions on behavior
information & ability to
and behavior itself of individuals as
analyze the problem
well as groups or organizations in
accurately
society
Rational Decision Making Process
Pros & Cons of RCT
PPros Cons

• Individuals do not always make rational decisions.


• Helpful in explaining individual and collective
behaviors • In reality, people are often moved by external
factors that are not rational, such as emotions.

• All theories attempt to give meaning to the • There are obstacle in making decision
things we observe in the world.
• Individuals do not have perfect access to the
information they would need to make the most
• Can help to explain behavior that seems rational decision every time.
irrational
• Rarely the power to make decisions belongs to one
individual.
PRINCIPAL-AGENT THEORY
WHO ARE THE AGENT?
WHOA THE PRINCIPAL?

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