Reconciling normative and behavioural economics

Economic analysis is traditionally separated into two different branches: positive economics seeks to explain and describe how economic agents behave, while normative economics aims at evaluating economic outcomes, policies, and institutions.Both approaches attribute to economic agents coherent preferences, i.e., preferences that are consistent and context-independent.Individual behaviour is described by assuming that agents behave as if seeking to satisfy their preferences, and economic outcomes are desirable to the extent that individual preferences are satisfied.Conventional normative economics therefore takes the satisfaction of individual preferences as the normative criterion: although this approach seems perfectly justifiable when individual preferences are coherent, it is less obvious that this criterion remains valid when individual preferences are incoherent, as suggested by the experimental findings of behavioural economics (it is indeed unclear that it is desirable to give to someone what she prefers now, knowing that she is likely to change her mind in other circumstances).The problem of how to reconcile normative and behavioural economics (the 'reconciliation problem', McQuillin and Sugden 2012) is that economists need to develop an alternative normative criterion to the standard preference satisfaction paradigm.The main approach suggested up to now-behavioural welfare economics (henceforth 'BWE')-consists in assuming that the revealed preferences of the agents, when they are incoherent, are a combination of true preferences (the preferences the individual would have revealed, were she perfectly rational) and errors.The satisfaction of the underlying true preferences is then taken as the normative criterion (see for instance Thaler and Sunstein's (2008) libertarian paternalism and the use of nudges).I argue in the first part of my thesis that this notion of true preferences is psychologically and philosophically problematic: