Normative Rational Choice Theory: Past, Present, and Future

Abstract

The economics profession has traditionally viewed rational choice theory as a positive scientific theory. Normative economics was associated exclusively with ethics and should be kept strictly separate from positive scientific economics. This paper argues that the profession is changing in this regard. Increasingly rational choice theory is viewed as a normative theory of rationality: what economic agents ought to do in order to be rational. It is argued that the change initiated from within a community of critics – experimental psychologists – but it has now become widely accepted within many areas of economics. The paper explains this change and examines some of the possible causes and consequences of this development.

Keywords: rational choice theory, expected utility theory, demand theory, methodology, normative economics

JEL Classification: B2, B4