Final answer:
The assumption of rational self-interest means that individuals typically make decisions that they perceive to benefit themselves the most, which corresponds to Option 1: 'People generally will make the best choices for themselves.' While rational self-interest is a basis for economic models, it doesn't exclude other motives influencing behavior.
Step-by-step explanation:
The assumption of rational self-interest means that individuals make decisions that are in their own best interest, using all available information to make informed choices that benefit themselves. Option 1: 'People generally will make the best choices for themselves' aligns with this definition, as it encapsulates the idea that individuals strive to optimize their personal gain or satisfaction.
In practical terms, while people may focus on their own self-interest in economic transactions, such as negotiating for a raise or buying a car, they can also act beyond their immediate self-interest by engaging in altruistic behaviors like volunteering or donating to charity. This demonstrates that rational self-interest is a useful starting point for analyzing economic decisions but does not preclude actions driven by other motives.
Economic theories and models commonly start with the assumption of rational behavior, but reality shows that people can exhibit seemingly inconsistent or 'irrational' behavior, not always acting in their direct financial interest.