Introduction

For the past few decades, scientists have been trying to figure out how every human makes their decisions and if it is a rational choice or if they are pushed into waiting/believing something untrue. However, it could be a combination of both and other factors. In this essay, I will discuss what the three main theories are and how they can influence a real-world example.

The Three Theories

Rational Choice Theory

Rational Choice Theory is a theory that argues that human behaviour and social life can be explained in terms of individuals. Rational meaning: ‘based on clear thought and reason’. It is used to describe how humans make decisions in their own self-interest. For example, if you see two products in the supermarket, you will think about price and quality before making your decision.

Pros

• People can model rational behaviour to predict people’s outcomes in the future. For example, you can further your understanding of why certain people commit crimes; this will allow people to prevent them from happening in the future.

• In the book ‘An Inquiry into the Nature and Causes of the Wealth of Nations’, Adam S. proposed ‘The Invisible Hand Theory’, which is based on three main points: self-interest, rationality, and rational choice theory. Economists who believe this theory believe people driven by self-interest and rationality will bring more benefit to the global economy because of their thinking. (MasterClass, 2022)

• Having rational thinking can be beneficial, as a section of the ‘International Encyclopaedia of Social & Behavioural Sciences by J. Elster states that when a rational thinker decides to donate to a charity, they are going to look at which charity will best use that money. This means they are looking for the best value they can get, which is a good thing in this context. (Elster, 2001)

Cons

• Humans will only use this theory if they believe the gains from a ‘conversation’ outweigh the time it takes to have it or to maximise gain and minimise loss regardless of the interests of others.

• Rationality isn’t the same for everyone. Factors affecting our ability to think rationally can include time, income, intelligence, and access to information.

• Our own self-interest does not help the wider picture. For example, in climate change, most developed countries don’t feel the effects of it as much as, let’s say, the Maldives; therefore, people in the UK would be much less likely to not use their cars in order to help the environment. But people in the Maldives would, as they know, improve their overall lives by doing so.

Nudge Theory

We like to think we make our own decisions on a day-to-day basis, but this is far from the truth, as small changes other people and businesses can make to encourage you to act a certain way. For example, in most supermarkets, when waiting to pay, you are met with a large assortment of small, bite-sized snacks. The supermarket put them here to ‘nudge’ you into purchasing them. Nudge Theory is the idea that you can influence the likelihood of your option being chosen if you change the environment around it. (Welch, 2010)

Pros

• Individuals maintain their freedom of choice and can still weigh up the pros and cons of each of their actions. Therefore, it is a theory that many people don’t even notice the nudging happening.

• Nudge theory is also easy to implement in day-to-day life. A popular example of this is from 2012, when the UK government banned the smoking of tobacco in every shop in England in an effort to quietly reduce the number of smokers in the country. The UK government went further by steadily increasing the tobacco duty on cigarettes to about 16.5%. This is to further reduce the number of cigarettes bought each year, and it has worked; between 1992 and 2011, cigarette sales declined by 51%. (Tobaccofreekids, 2012) (The Government , 2023)

Cons

• This theory can make people less likely to think for themselves. This is stated in the book ‘Nudge and the Manipulation of Choice’, where it is said that in the context of choice, nudge theory interferes with people’s decision-making by diminishing their ability to make their own choices. (Jespersen, 2017)

• Because of its simplicity, nudge theory can be implemented by the wrong people. A report by the Financial Times talks about a TV advertisement from 1971 in which a Native American man paddles down a river full of rubbish, and the message of the advertisement is that pollution is harmful to the environment. However, this advertisement was made and funded by some of the top companies in the food and drink packaging sector, who are the very people who want the consumption of these goods to continue to rise. (Harford, 2022)

• As a result of nudge theories, subtle ‘nudges’ towards a goal. Companies and individuals can get caught off guard. An example of this is a newspaper subscription. They entice you in by saying it will cost £1 for the first month, and you will get all these benefits. But in small text at the bottom of the screen, it says your subscription will rise to £60 per month after the first month. This point was brought up in the New York Times in 2015. (Thaler, 2015)

Social & Institutional Contexts 

Social institutional context is a way to look at how actions by one person or group of people (a country) affect people around the world and businesses. An example of this would be energy consumption, as some groups of people want the world to have a sustainable future whereas others don’t and, therefore, continue to consume the same or more amount of energy.

What is the fair-trade scheme?

Fair Trade is a certification scheme that informs people that the goods they purchase in shops are being bought from their producers for a fair price and abide by the internationally agreed-upon Fairtrade standards. The whole scheme is run by The Fairtrade Foundation, which is an independent non-profit organisation. The Fairtrade Foundation mainly operates in developing countries such as Kenya, Costa Rica, and Peru, to name a few. (Nygren, 2010) (Fairtrade Foundation, 2023)

How do the three theories influence our decisions when purchasing Fairtrade products?

From the questionnaire, it is clear that the Fairtrade Foundation has been trying to use the nudge theory to move people towards the scheme by posting videos (advertising) and by word of mouth from friends and family. However, everyone will always use the Rational Choice Theory to make their mind up; in this case, they will look at the extra cost to them from a financial point of view. They may agree with the premise, but they will always, at least to some extent, put their own self-interest above others. But this survey was done on 12 university students between the ages of 18 and 24; therefore, it is a safe assumption that a large portion of them don’t have much money and will look for ways to save money, such as not buying fair trade products. So, for a more accurate analysis, you would need a large and more diverse sample size.

The survey also seems to show that the Fairtrade Foundation is trying to use the nudge theory to influence how people view the Fairtrade scheme. I believe this to be the case, as almost half of the participants (5) had seen YouTube videos about the benefits, and this influenced their behaviour. Therefore, given that our world is becoming more and more interconnected, the public will become more aware of the Fairtrade scheme.

The social and institutional context in this example is the peer pressure individuals may go through from friends or institutions to purchase these products. This will only happen in countries like the UK, whose population is wealthier than others.

Are there social forces that enable and encourage ‘fair trade behaviour’? 

I believe this to be the case because the ever-increasing interconnected world we live in is making it easier to send or spread your ideas to millions of people. Not to mention all of this is offered for free, and for a non-profit organisation like The Fairtrade Foundation, why would they not take advantage of this tool and advertise or create short videos explaining what they do?

Do people act out of habit or laziness?

We can make a case for both ‘habit’ and ‘laziness’ as we are aware of both the rational and the nudge theories. We know of the nudge theory and have seen multiple examples of this in day-to-day life, so it is therefore safe to say some of our daily habits will be influenced by the nudge theory. According to rational theory, at the end of the day, we want the best for ourselves and therefore will act in a rational manner. It is neither laziness nor habit; it is just human nature to do what is proven to work and what benefits us the most.

Conclusion

Overall, I believe a combination of all the theories explains the outcome of the survey, but they are not equally accountable for the outcome. I think rational choice and nudge theory account for most of the outcomes, especially considering the sample size is university students, as they are not as wealthy as people who are not in education. Add to that that all fair-trade items cost more than the same non-fair-trade items, and you start to make the results of the survey sort of one-sided. I do think everyone’s judgement is altered to some degree by one or more of these theories, and I would say the rational choice theory is the main one, as we all want the best for ourselves. Therefore, we will put our own self-interests above those of others.

Bibliography

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