Rational expectations


Also found in: Wikipedia.

Rational expectations

The idea that people rationally anticipate the future and respond today to what they see ahead. This concept was pioneered by Nobel Laureate, Robert E. Lucas, Jr.

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.
References in periodicals archive ?
We will also develop a self-confirming equilibrium analysis, which by leaving room for agents to have wrong views about models, can much more naturally confront agents with model uncertainty than the rational expectations approach.
With a critical mass of participants and rational expectations in a trusted environment, a highly efficient, market-based system to transact patents is entirely possible.
never acquiring any stable relationship to male authority, never acquiring any set of rational expectations about the future -- that community asks for and gets chaos.
Wise are those whose desires and expectations are logical and rational; but what to do if our very logical and very rational expectations prove a house of cards.
Rational expectations / Harford crucially notes that Phillips never did offer a rationale for why a tradeoff between inflation and unemployment would exist.
International politics may be founded on treaties, but it functions on the basis of rational expectations.
Keywords: asset price bubbles, rational expectations, price expectations, monetary policy
This is the sense in which the public does not have rational expectations.
Speaking recently as part of the newly introduced Nobel Laureate Lecture Series at the American University of Sharjah (AUS), Dr Sargent, who in 2011 won the Nobel Memorial Prize in Economic Sciences for research concerning the role of rational expectations in the development of macroeconomic policy, discussed the challenges and implications of the euro crisis.
The rational expectations hypothesis (REH) is a theoretically attractive framework for assessing the mechanism with which economic agents process information when formulating judgments about the real world (Krause 2000).
By necessity, this review will be highly selective, focusing on the developments that I regard as the most important for conducting monetary policy, and will concentrate on what economists call rational expectations.
Australia) traces the history of the dogma that the larger economy is an aggregate of decisions made by individuals, more specifically by RARE--representative agents with rational expectations.