Positive and Normative theories, Inductive and deductive methods. What's the difference?

Let's try and separate the concepts of normative, positive, induction and deduction. First off, we need a distinction between the types of theories and the methods of proof that we use to test their validity. 

Here's an analogy:

Proof by INDUCTION and POSITIVE theories are kind of like ROAD and CAR

Proof by DEDUCTION and NORMATIVE theories are kind of like RUNWAY and AIRCRAFT. 

Roads and runways kind of look the same, they are black, hard, made of the same stuff, but they have very different designs and do very different things.

Cars and planes both get you places, but again, have very different uses. Which one is better? Well that depends on what you are doing. I can't just take a plane to Chadstone shopping center. Really a a car is only the best tool for this job. 

Naturally a car matches the road, and runways are used by planes. But they can swap if they have to. Cars drive on runways all the time. There are MANY cases of planes landing on highways in emergency because it's better than crashing. 

This what I mean by theories and their methods of proof crossing over. You simply use whatever theory is best able to do the job. 

For illustration, have a look at this image below. Cars, roads, planes, and runways all in one image. It's one of the few places where the country's main highway also crosses their international airport. You'd make sure you don't mix up the differences between road and runways here otherwise there could be a very messy outcome. So too it is with your theories. Mixing your meaning often means your ideas will crash. 

And this is 100% real. No Photoshop. 

View Larger Map

The point is, don't confuse the two. If I want to fly to Gibraltar, I wouldn't say "I'm going to take the runway to Gibraltar". Likewise, I wouldn't say my idea is deductive. Instead you would say "I have a normative idea and I will show you how it works using deductive methods".

I hope this makes the idea clearer for all! 

-Tetracarbon out

Follow me on twitter @tetracarbon or subscribe to my YouTube Channel. 

A short introduction to agency theory - Part 2, Costs of Agency

A short introduction to agency theory - Part 2,
Costs of Agency

Click here for part Part 1

This gives rise to the “costs of agency”, which are costs incurred where the principles have incentives to do things that are not in the interests of the principles.  For example, managers (like any employees) may steal thing from work, of they may use company resources in a selfish and extravagant way.  Have you ever seen the offices of the big bank’s CEOs?  Do they really need to fly in their own private helicopter or Lear Jet? Or perhapsthe trip in a regular jumbo get the job done just as efficiently.  These lavish items are called “perquisites”.  A perquisites is any service or thing regarded as a special right or privilege enjoyed as a result of one's position.  It’s the whole point of climbing to the top of the corporate ladder.

A short introduction to agency theory - Part 1

A short introduction to Agency Theory

Where ever you look in society, you can see people doing things for other people.  Rather than asking as a blind unthinking robot merely processing instructions, the doing person often has some degree freedom as to how they go about the task. 

Let’s call person doing things, “the agent” and the person who benefits “the principle”.  In the standard corporate setting, you have shareholders who pool together cash and delegate the authority to manage those funds as they best see fit.  We actually see this in all walks of life.

Perhaps the most fundamental example is that of mother and child.  The child is unable to do things for itself, and so the mother must act to feed, clothe and protect the child in a way that is selfless to the mother and importantly, always in the child’s best interest.  In this sense, the CHILD is the principle and the MOTHER is the agent of the child.