Behavioural normative economics: foundations, approaches and trends

Abstract

AbstractThis article summarises the theoretical foundations, main approaches and current trends in the field of behavioural normative economics. It identifies bounded rationality and bounded willpower as the two core concepts that have motivated the field. Since the concepts allow for individual preferences to be context‐dependent and time‐inconsistent, they pose an intricate problem for standard welfare analysis. The article discusses the ways in which two prominent approaches – the preference purification approach and the opportunity approach – have tackled the problem. It argues that shortcomings in each of these approaches motivate an agency‐centric perspective. The article presents two concrete policy proposals of the agency‐centric approach. While this approach is promising, the article argues for pluralism in normative economics since an exclusive focus on agency can likely not do justice to the multifarious concerns that citizens hold.