Rational Choice Theory: A Review of Historical Evolution, Critiques, and Domain Validity

Abstract

Rational Choice Theory (RCT) constitutes the analytical foundation of neoclassical microeconomics and contemporary decision theory, modeling individual choice as a mathematically consistent process of utility maximization grounded in axiomatic principles of rationality. This paper examines the historical and conceptual evolution of RCT as a methodological framework, tracing its development from foundational contributions such as Friedman and Savage’s (1948) inflected utility function to contemporary debates concerning its explanatory and epistemological status. Adopting a qualitative, comparative, and interpretive methodology grounded in the history and philosophy of economic thought, the study critically reviews classical and contemporary literature to analyze the transition from a formal conception of rationality toward increasingly psychologically and cognitively informed accounts of decision-making. It first examines behavioral, methodological, and philosophical critiques—including bounded rationality, heuristics, moral reasoning, and sociological perspectives—which demonstrate the descriptive limitations of the neoclassical model and redefine the conditions under which its assumptions provide an adequate approximation of observed behavior. It then considers a more recent philosophical reinterpretation of RCT, according to which rational choice is best understood not as a literal account of human cognition but as an idealized scientific modeling framework whose value depends on its explanatory purposes and domain of applicability. The paper argues that these complementary developments reposition RCT from a universal theory of rational behavior to a benchmark model within a theoretically pluralistic approach to economic explanation. In doing so, it contributes to contemporary debates on the evolution of rationality, the methodology of economics, and the future of choice theory.