Question

Difference between Normative versus Positive decision-making and an example for each.

Answer 1

The economists refer to descriptive, factual statements about the world as positive statements. The term "positive" is not used to imply that economists always convey good news, of course, and economists often make statements that are very, well negative-positive. Accordingly, positive analysis employs scientific principles to arrive at objective, testable conclusions.

On the other hand, economists refer to prescriptive, value-based declarations as normative declarations. Normative claims are generally accompanied by credible facts, but are not conclusive in themselves. Rather, they reflect the beliefs and basic values and principles of those who make the claims. Normative analysis refers to the process of making recommendations about what action should be taken or to take a specific point of view on a issue.

The distinction between positive statements and normative statements can be easily illustrated by examples. The statement: At present the unemployment rate is 9 percent.
This is a positive statement, as it provides true, testable world knowledge. Declarations like: The unemployment rate is too high. To raising the unemployment rate the government must take action.
These are normative statements, since they are of a prescriptive nature and include value judgments. It is important to note that, given the fact that the above two normative statements are intuitively connected to the positive statement, the empirical knowledge presented can not logically infer them.

The two branches of decision theory typify the interminable juxtaposition between the rational and the irrational. For a given situation, the normative decision theory models the most ideal choice. In moral theory, it is presumed that an agent is completely rational. Normative choices often strive to find the result with the highest predicted benefit. A completely logical actor with perfect accuracy is able to arrive at the highest desired value. That's an ideal that is not always seen in the real world. Therefore, the practical implementation of normative theory is oriented more towards developing methodologies and applications.

By contrast, the theory of descriptive decision-making is more about what will happen in a situation, not what should happen. The theory of concise decisions takes into account external factors that affect the decisions made by an individual towards less desirable, less moral ends. For example Pascal's Wager addresses descriptive theory. People don't really want to believe in God by reading a list of pros and cons weighted against. The decision whether to believe in God is not so simple, nor is it fully rational in a scientific sense. Instead, the decision is taken by people based on their own assessment of uncertainty, risk and expected benefit level.