Descriptive Theory

Publication Date :

22 Mar, 2025

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Table of Contents

What Is Descriptive Theory?

Descriptive theory in economics discusses how people behave and make choices. It is a set of propositions that helps in understanding and describing something. To understand consumer behavior, this theory highlights the irrational, consistent choices made by individuals.

Descriptive theories are utilized in various fields, including economics and accounting, to explain and predict behaviors. These theories assist in understanding decision-making processes at individual, institutional, and market levels, helping uncover the reasons behind certain events. In the context of **descriptive theory psychology**, they offer insights into why people act the way they do, informing policies that align with or counteract specific behaviors.

Key Takeaways

Descriptive theory is an assumption that attempts to describe how individuals and institutions work, behave, and make decisions.
It explains what it is rather than prescribing how these elements are supposed to behave.
Accounting focuses on describing actual practices, standards, and decision-making patterns of accountants.
It provides insights into how these practices are adopted and implemented and generalized observations.
They provide insights to understand real-world phenomena instead of making judgments, and hence, they differ from normative and prescriptive theories.

Descriptive Theory In Accounting Explained

Descriptive theories are propositions that attempt to describe certain phenomena or events as they are. They do not pass judgments' based on values or evaluate the correctness; instead, they ascertain the results. The theory helps predict events or individual behaviors, such as what they would do and how they would act. It helps predict how events will be treated in the process of accounting based on the description or explanation given pertaining to the happenings of the event. In accounting, they are concerned about describing the behaviors of accountants who are in practice. Theories here are developed based on accounting practices.

These theories are formulated using approaches such as inductive approaches. Under this, a generalized decision is arrived at after looking into the logical reasoning and assumptions that have resulted in such events. It is often done through observation and analysis. The process begins by observing the financial information of entities and institutions and observing patterns or repeated relationships and principles of accounting.

It focuses on understanding the practices followed in accounting and the decision-making process involved in choosing and following them. It examines and understands how financial information is prepared and presented and how it is used. It evaluates how the standards, practices, and policies are implemented and the impact they have on various stakeholders, including investors, managers, and regulators.

Examples

Let us look into some examples to understand the concept better.

Example #1

Suppose a researcher, Dan, wants to understand the factors that influence output production in a business company. He analyses the methods that have already been in practice and the new shift from the LIFO (last in, first out) to the FIFO (first in, first out) method that the company is trying. He wants to know how the changes in such decisions make a shift in the stock price of the company in the market. He evaluates the settings and conducts surveys and observations regarding customers and consumers, including shareholder responses, to understand the same.

Example #2

Stanford Encyclopedia of Philosophy published an article regarding the descriptive decision theory. The article explains that the descriptive decision theory is based on explaining the regularities in people's choices that they are disposed to make. It states that this is different from the normative theory, which describes things how they are supposed to be. Tests were performed on the expected subjective utility for the same.

Descriptive Theory Vs. Normative Theory

Given below are some of the differences between both concepts

Aspect	Descriptive Theory	Normative Theory
1. Concept	These are predictive models that are valid irrespective of whether or not the goal structure is accepted.	Normative theory is a model theory that requires policymakers to make value judgments and commit to goals.
2. Purpose	It is used to understand the workings of an enterprise or the market setting. They are useful in deciding what individuals and entities do and how they act.	Normative theories are concerned with goal setting and prescription structures. Here, a prescription is converted into a conditional prescription to assess validity after the objective is provided. The focus here is on finding an individual or an entity's optimal behavior.
3. Essence	Looks into how people and institutions behave.	Normative economic theory reveals how people should act if individuals or institutions make rational choices.

Descriptive Theory Vs. Prescriptive Theory

Below are some of the differences between the two concepts.

Aspect	Descriptive Theory	Prescriptive Theory
1. Concept	These theories describe how things are as opposed to how they are expected to be.	A prescriptive theory prescribes how things are supposed to be as opposed to how they actually are.
2. Purpose	These theories are used to understand and explain.	Prescriptive theories are used to formulate ideas of changes to get to the desired outcome.
3. Essence	Provides insights into the current state of matters. They help in finding out why certain events happened.	Guides changing the current state of matters.