Rational Self-interest

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A behavioural assumption that economists make about how people act under different economic conditions. Acting in an economically rational way entails taking actions that reduce costs and increase benefits for the individual.

In The Economic Approach to Human Behavior, economist Gary Becker applied a theory of “rational self-interest” to economics to explain human tendencies, including one to commit crime or fraud. He demonstrated that, in a wide variety of settings, individuals can take actions to benefit themselves without detection and, therefore, avoid the cost of punishment. Control mechanisms are put in place in society to deter such behaviour by increasing the probability of detection and shifting the risk–reward balance so that the expected payoff from crime is decreased.

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Rational Self Interest (Economics) - Explained