public choice theory

Examples of public choice theory in the following topics:

• Public Choice: Median Voters and Inefficient Voting Outcomes

  • Public choice may not lead to an economically efficient outcomes due to who votes, why they vote, and in what system they vote.
  • The study of voting systems is called voting theory.
  • Voting theory is a subfield of economics.
  • No matter what voting system is used, the act of voting gives the public the ability to choose a candidate or influence a decision.
  • Public choice is described as "the use of economic tools to deal with traditional problems of political science. " In microeconomics, public choice analyses collective decision making and studies economic models of political processes including rent-seeking, elections, legislatures, and voting behavior.

• Expectancy Theory

  • Expectancy theory is about the mental processes involved in making choices.
  • In organizational behavior, expectancy theory embraces Victor Vroom's definition of motivation.
  • Processing is done before an individual makes the final choice.
  • In 1964, Vroom defined motivation as a process controlled by the individual that governed choices among alternative forms of voluntary activities.
  • Vroom introduces three variables within his expectancy theory: valence (V), expectancy (E), and instrumentality (I).

• Exchange

  • The theory is fundamentally oriented around rational choice theory, or the idea that all human behavior is guided by an individual's interpretation of what is in his best interest.
  • Social exchange theory is only comprehensible through the lens of rational choice theory.
  • Rational choice theory supposes that every individual evaluates his/her behavior by that behavior's worth, which is a function of rewards minus costs.
  • Several assumptions undergird social exchange theory.
  • Explain how social exchange theory is based upon rational choice theory

• Problems with the Rational Decision-Making Model

  • Critics of rational choice theory—or the rational model of decision-making—claim that this model makes unrealistic and over-simplified assumptions.
  • The more complex a decision, the greater the limits are to making completely rational choices.
  • Alternative theories of how people make decisions include Amos Tversky's and Daniel Kahneman's prospect theory.
  • Prospect theory reflects the empirical finding that, contrary to rational choice theory, people fear losses more than they value gains, so they weigh the probabilities of negative outcomes more heavily than their actual potential cost.
  • This theory was proposed by Herbert A.

• Expectancy Theory

  • Expectancy Theory postulates that an individual's motivation can be derived through identifying an appropriate expectation.
  • The concept of choice is central to this theory, as there are a variety of behaviors that an individual could potentially choose.
  • To anticipate what choice will be made , identify what consequences would be expected as an outcome, and select the motivation which will result in the optimal outcome.
  • Expectancy Theory boils down to a few simple variables, which in conjunction produce the projected outcome based upon the motivational inputs.
  • Understand the three relationships and four variables that result in Expectancy Theory

• Theory of Utility

  • The theory of utility states that, all else equal, a rational person will always choose the option that has the highest utility.
  • The theory of utility is based on the assumption of that individuals are rational.
  • For example one person may prioritize flavor while another person may value making healthy choices more.
  • Based on their preferences, both made the economically rational choice.
  • If we could not assume rationality, it would be impossible to say what, when presented with a set of choices, an individual would select.

• Sources of Social Change

  • Social movement theories seek to explain how social movements form and develop.
  • Some of the better-known approaches include deprivation theory, mass-society theory, structural-strain theory, resource-mobilization theory, political process theory and culture theory.
  • This particular section will thus pay attention to structural-strain theory and culture theory, while mass-society theory and political process theory will be discussed in greater detail later in "International Sources of Social Change" and "External Sources of Social Change," respectively.
  • Both resource-mobilization theory and political process theory incorporate the concept of injustice into their approaches.
  • In other words, if person X knows that movement Y is working to improve environmental conditions in his neighborhood, he is presented with a choice: to join or not join the movement.

• Impact of Income on Consumer Choices

  • Consumer choices are predicated on various economic circumstances, and recognizing the relationship between these circumstances and an individual's purchasing behavior allows economists to recognize and predict consumer choice trends.
  • The simplest way to demonstrate the effects of income on overall consumer choice, from the viewpoint of Consumer Theory, is via an income-consumption curve for a normal good(see ).
  • Inferior goods are often sacrificed as income rises and consumers gain more choice/options.
  • In merging Consumer Theory and consumer choices with income level, the primary takeaway is that an increase in income will increase the prospective utility that consumer can acquire in the market.
  • This illustrates increased variance in consumer choice as income rises.

• Assumptions

  • An assumption allows an economist to break down a complex process in order to develop a theory and realm of understanding.
  • Later, the theory can be applied to more complex scenarios for additional study.
  • This simplifying assumption allows economists to build a structure to understand how people make choices and use resources.
  • However, using the assumption that all people are rational enables economists study how people make choices.
  • Examples of such assumptions include perfect information, profit maximization, and rational choices.

• Impact of Price on Consumer Choices

  • The demand curve shows how consumer choices respond to changes in price.
  • In almost all cases, consumer choices are driven by prices.
  • The construction of demand, which shows exactly how much of a good consumers will purchase at a given price, is defining of consumer choice theory.
  • Using demand curves, economists can project the impact of a price change on the consumer choices in a given market.
  • This graph demonstrates a shift in overall demand in the market, where the generation of a new parallel demand curve is required to accurately represent consumer choices.