Terms in this set (7) Rational self-interest. each individual tries to maximize the expected benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit. Economic Choice.

The key elements of all rational choice explanations are individual preferences, beliefs, and constraints. Preferences denote the positive or negative evaluations individuals attach to possible outcomes of their actions.

According to the definition of rational choice theory , every choice that is made is completed by first considering the costs, risks and benefits of making that decision. Choices that seem irrational to one person may make perfect sense to another based on the individual’s desires.

As a quick rule: When total benefits rise more than total costs, then the action is logical. When total costs rise more than total benefits, then the action is illogical.

“There ain’t no such thing as a free lunch” (TANSTAAFL) is a phrase that describes the cost of decision-making and consumption. TANSTAAFL suggests that things that appear to be free will always have some hidden or implicit cost to someone, even if it is not the individual receiving the benefit.

The Invisible Hand Theory suggests that when entities make economic decisions in a free market economy based on their own self-interest and rational self-interests it manifests unintended, positive benefits for the economy at large.

Do Choices Made in the Pursuit of Self-Interest also Promote the Social Interest? Choices can support both the pursuit of self interest and also the pursuit of social interest. Choices that are best for society as a whole are said to be in the social interest.

Self-interest is an individual’s economic decisions that are made to fulfill the individual’s best interests. On the other hand, social interest indicates choices that are made to benefit society as a whole.

This is the main difference between healthy self-interest and selfishness. In essence, selfishness involves satisfying your own needs at the expense of others. Healthy self-interest is simply taking care of yourself but not at the expense of others.

Economists predict that Rational Self-Interest is the reason why John buys ramen in bulk to last a week for $10, and spends the rest buying a bus pass to commute for the next 7 days. Thus he maximises the $20 he had to ensure all his needs are covered within his limited resources, arriving at an optimal outcome.

Rand advocates the ethics of rational self-interest, otherwise known as rational egoism, which is the basic principle of the objectivist ethics. Ethical egoism opines that a person should act to promote their self- interest. Rand holds that happiness or pleasure could be the purpose of morality but not the standard.

Rational self-interest is when both parties are better off than they were before their exchange because each side is maximizing its own benefits to be better off, either financially or intrinsically.

The invisible hand is a metaphor for the unseen forces that move the free market economy. Through individual self-interest and freedom of production as well as consumption, the best interest of society, as a whole, are fulfilled.