The theory of utility is based on the assumption of that individuals are rational. Rationality has a different meaning in economics than it does in common parlance. In economics, an individual is "rational" if that individual maximizes utility in their decisions. Whenever an individual is to choose between a group of options, they are rational if they choose the option that, all else equal, gives the greatest utility. Recalling that utility includes every element of a decision, this assumption is not particularly difficult to accept. If, when everything is taken into account, one decision provides the greatest utility, which is equivalent to meaning that it is the most preferred, then we would expect the individual to take that most preferred option. This should not necessarily be taken to mean that individuals who fail to quantify and measure every decision they make are behaving irrationally. Rather, this means that a rational individual is one who always selects that option that they prefer the most .
Consumer making a decision
When making an economically rational purchasing decision, a consumer must consider all of their personal preferences.
It is important to emphasize how rationality relates to a person's individual preferences. People prioritize different things. For example one person may prioritize flavor while another person may value making healthy choices more. As a result the first person may choose a sugary cereal while the second may choose granola. Based on their preferences, both made the economically rational choice.
The rationality assumption gives a basis for modeling human behavior and decision making. If we could not assume rationality, it would be impossible to say what, when presented with a set of choices, an individual would select. The notion of rationality is therefore central to any understanding of microeconomics.