ABSTRACT. We contrast the rational theory of choice in the form of expected utility theory with descriptive psychological analysis in the form of prospect theory, using problems involving the choice between political candidates and public referendum issues. The results showed that the assumptions underlying the classical theory of risky choice are systematically violated in the manner predicted by prospect theory. In particular, our respondents exhibited risk aversion in the domain of gains, risk seeking in the domain of losses, and a greater sensitivity to losses than to gains. This is consistent with the advantage of the incumbent under normal conditions and the potential advantage of the challenger in bad times. The results further show how a shift in the reference point could lead to reversals of preferences in the evaluation of political and economic options, contrary to the assumption of invariance. Finally, we contrast the normative and descriptive analyses of uncertainty in choice and address the rationality of voting.
The assumption of individual rationality plays a central role in the social sciences, especially in economics and political science. Indeed, it is commonly assumed that most if not all economic and political agents obey the maxims of consistency and coherence leading to the maximization of utility. This notion has been captured by several models that constitute the rational theory of choice, including the expected utility model for decision making under risk, the riskless theory of choice among commodity bundles, and the Bayesian theory for the updating of belief.