Exchange Rational Choice

Individual decision-making is part of all microeconomic analysis, where rational choice refers to determining the available option where one can choose the most favoured option as per some of the consistent criteria. 

Social exchange and rational choice come from utilitarian thinking that refers to various theories, where all share the common theme of gaining the maximum outcomes, which they value the most.  

Since such theories are connected with achieving a maximum outcome, social science theories are voluntaristic. They are based on the belief that people act rationally to get the maximum benefits from their choices. Still, when external limits constrain their choices, they may be unable to make a rational choice. 

Exchange theory - Exchange theorists explain individual and family phenomena where they generalize propositions that cover particular phenomena of interest. 

Exchange rational choice states the actors adopt norms and regulated behaviour to maximize the marginal utility.

They prefer stable structures where the rational calculation of profits is possible, and they support structural norms, supporting structures that allow the exchange and choice theorist to move from the micro-level to macro-level analysis related to social structures and norms.  

• The propositions of the exchange theory state – an actor will choose the course of action that offers first rewards relative to the cost. 

• The implicit in-exchange theory refers to the concept of reward and cost being interchangeable as profit calculation.

• In the rule, maximizing profits in global opportunities in business and investment is related directly to minimizing costs.

• The theory is widely applied for long-term and rewards computation versus short-term cost and reward.

• For example – A family as a social institution maintains exchanges between the illiquid assets of parents to the children.

In such a setup, individuals learn to increase the profits of others to increase their profits.