Descriptive and Normative Theories

A great introductory book on decision theory written by a leading authority, professor Itzhak GIlboa, came out recently:



Professor Ehud Kalai at Northwestern University describes this book as follows:

"This book is extremely effective for anyone who wants to acquire quick, basic understanding of old and new concepts of decision theory, with a minimum level of technical details."

In the first chapter, the author indeed effectively explains two essential notions in economics, "descriptive" (sometime called "positive") and "normative" theories:

A descriptive theory is meant to describe reality. For instance, the claim that demand curves slope down attempts to tell us something about the world. Importantly, it does not make a value judgement and takes no stand on whether this feature of the world is good or bad.

A normative theory is a recommendation to decision makers, a suggestion regarding how they should make decisions. For instance, the claim that we should reduce income inequality is a normative claim. Note that the word "normative" does not mean here "the norm in a given society" as it does in other social sciences. The term only says something about the type of interaction between the theorist and the decision maker, namely, that this is an instance in which the former is trying to convince the latter to behave in a certain way.

The author continues to document the role of each theory, which is also very intuitive:

In decision theory it is often the case that a principle can be interpreted either descriptively or normatively. Consider the theory that each economic agent maximizes a utility function. I may propose it as descriptive, namely, arguing that this is a good description of real economic agents. And I may promote it as normative, in which case my claim will be that you would be wise to become such an agent. As a descriptive theory, the principle is tested for its correspondence to reality. The better it fits the data, the more successful it is. As a normative one, the principle should not fit reality. In fact, there is no point in giving decision makers recommendations that they anyway follow. Rather, the test is whether the decision makers would like to follow the principle.