It's rational as defined by economists i.e. nothing to do with rationality at all. Similarly, don't be fooled into believing that perfect competition is perfect or free markets are free. It's just jargon, shorthand for a bunch of assumptions about a model, almost none of which actually hold in real life but just might, if you squint the right way and bear all the caveats in mind, have some useful information to impart.
"The "rationality" described by rational choice theory is different from the colloquial and most philosophical uses of the word. For most people, "rationality" means "sane," "in a thoughtful clear-headed manner," or knowing and doing what's healthy in the long term. Rational choice theory uses a specific and narrower definition of "rationality" simply to mean that an individual acts as if balancing costs against benefits to arrive at action that maximizes personal advantage.[4] For example, this may involve kissing someone, cheating on a test, using cocaine, or murdering someone. In rational choice theory, all decisions, crazy or sane, are postulated as mimicking such a "rational" process."
Also, note that co-operating with the other person gives the greatest total gain (i.e. adding yours and the partners) but the greatest individual gain is when one defects and the other tries to co-operate. So betraying the other is the best possible outcome, and he knows that, and knows you know that. That's why you can't trust them to co-operate, they have no incentive to do so.
from http://en.wikipedia.org/wiki/Rational_choice_theory
"The "rationality" described by rational choice theory is different from the colloquial and most philosophical uses of the word. For most people, "rationality" means "sane," "in a thoughtful clear-headed manner," or knowing and doing what's healthy in the long term. Rational choice theory uses a specific and narrower definition of "rationality" simply to mean that an individual acts as if balancing costs against benefits to arrive at action that maximizes personal advantage.[4] For example, this may involve kissing someone, cheating on a test, using cocaine, or murdering someone. In rational choice theory, all decisions, crazy or sane, are postulated as mimicking such a "rational" process."
Also, note that co-operating with the other person gives the greatest total gain (i.e. adding yours and the partners) but the greatest individual gain is when one defects and the other tries to co-operate. So betraying the other is the best possible outcome, and he knows that, and knows you know that. That's why you can't trust them to co-operate, they have no incentive to do so.