Theoretical Definitions Economics

NORMATIVE Vs. POSITIVE ANALYSIS

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Abstract

While talking about normative analysis, we generally refer to the opinions based on value

judgments, without considering the available facts and figures. Based on theoretical

foundations, this analysis is carried out on a subjective mode. For example, if we look at the

foundations of game theory, it becomes clear that subjective judgments come with

probabilistic choices, and that is solely based on contextual arrangements. However,

boundary conditions are majorly not considered in this case, as normative analysis is

subjective in nature and therefore, considering a phenomenon as a boundary or not is totally

subjective in nature.

On the other hand, when we talk about positive analysis, we generally refer to the opinions

based on available facts and figures. If the analysis is done based on a particular theoretical

foundation, and if the analysis of the data on any particular context does not that theory, then

in accordance with the positive analysis, the theory has to be disproved in that particular

context. For example, if we consider the Environmental Kuznets Curve hypothesis in the

context of a developed and a developing country, then we can see that the curve may hold in

the context of a developed nation, but not for developing nation. Therefore, the hypothesis

has to be disproved in the second context, based on the economic development and emission

data available in that context.