Rational Expectations Theory

Rational Expectations Theory

In economics, a theory stating that economic actors make decisions based on their expectations for the future, which are based on their observations and past experiences. A basic example of rational expectations theory is a situation in which a consumer delays buying a certain good because, based on his/her observations and experiences, he/she believes that the price will be less expensive in a month. If enough consumers believe that, demand eases and the good is likely to actually be less expensive next month. Thus, the consumer waits a month before buying the good. Rational expectations theory states that current expectations strongly influence future performance. Economists disagree about how well the rational expectations theory works in the real world.
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Gooden, a writer and novelist, collects rules and principles related to politics, economics, the arts, sciences, physical survival, the internet, life and work, and laws of the land, such as the domino effect, Warren Buffett's rules, Rational Expectations Theory, hemline theory, the Bechdel test, rules of journalism, rules of grammar and usage, writers' rules, the laws of sci-fi writers, planetary naming rules, the laws of thermodynamics, the Van Halen Principle, Murphy's Law, Jim Crow laws, three strikes law, and the Miranda rule.
Rational expectations theory developed at a tune when the United States was grappling with high inflation.
The rational expectations critique against Austrian business cycle theory only really works if all--or at least an overwhelming majority of--entrepreneurs are "rational" in the very strict sense implied by rational expectations theory.
This principle extends even to the sphere of macroeconomics regarding topics such as the efficient market hypothesis and rational expectations theory.
The rational expectations theory requires ordinary people to know about, understand, and care about Bank of Japan policy.
The assertion seemed at odds with everything Bill taught us in graduate school at Brown--that, according to rational expectations theory, more information should be better than less.
The end result is represented best by the idea of a Nash equilibrium, although other embodiments, such as modern Walrasianism, expected utility theory and rational expectations theory, are also discussed.
Rational Expectations theory, an article of faith for the true believer of conventional economics, denies that either the Federal Reserve System or the Federal Government can help steer the macroeconomy.
Each relaxes the traditional rational expectations theory in a certain way.
Recall that Lucas (1976) questioned the ability of empirical economics to correctly model, test, or predict the economy based on his interpretation of rational expectations theory.
Thomas Aquinas and rational expectations theory, though, economics got entangled in a supply-and-demand chart and the topic of inquiry moved away from moral and ethical discourse to a value-sanitized mathematical exercise.
It is now well known that the application of rational expectations theory to actual cases may, for instance, be unsuitable when there are systematic errors in the observed variables, when loss functions are not quadratic, or when variables are constrained to take only positive values.