ABSTRACT
This chapter is devoted to the role of normative economics in a real-world approach. Normative economics tries to answer the question “what ought to be” while positive economics is meant to answer “what is.”
The findings of behavioral economics posed a serious challenge to mainstream normative economics. However, the typical attitude of behavioral economists was to adhere to the idea of keeping the axioms of rational choice as a normative idea while behavioral economics would be a positive field.
It is argued that normative economics can fulfill its role as a guide for economic policy as long as we use the instruments provided by real-world positive economics, i.e., an economic theory based on the actual behavior of economic actors and not on propositions deduced from arbitrarily chosen assumptions.
The main conclusion is that only if we start with real-world assumptions can we reach real-world conclusions.
