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Economics concept
Rational expectations is a set of modeling assumptions describing how macroeconomic agents form expectations about the future under uncertainty. Under
Rational_expectations
Devaluation of money's purchasing power
begets further inflationary expectations, which beget further (built-in) inflation. The important role of rational expectations is recognized by the emphasis
Inflation
Formation of expectations based on past events
model of how expectations are formed, called rational expectations. The use of rational expectations have largely replaced adaptive expectations in macroeconomic
Adaptive_expectations
American economist
He is "the father of the rational expectations revolution in economics", primarily due to his article "Rational Expectations and the Theory of Price Movements"
John_Muth
Economic model relating wages to unemployment
which confounded the traditional Phillips curve. The rational expectations theory said that expectations of inflation were equal to what actually happened
Phillips_curve
Non-equilibrium model of supply and demand
adaptive expectations may make ever-increasing errors over time has led many economists to conclude that it is better to assume rational expectations, that
Cobweb_model
American economist and Nobel Laureate (born 1943)
Sargent's main contributions to rational expectations were these: trace the implications of rational expectations, with Wallace, for alternative monetary-policy
Thomas_J._Sargent
American economist and Nobel Laureate (1937–2023)
Sciences in 1995 "for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened
Robert_Lucas_Jr.
School of macroeconomics
proponents of new classical macroeconomics, particularly the emphasis on rational expectations and the Lucas critique. New Keynesian models typically incorporate
New_Keynesian_economics
Schools of economic thought developed at elite colleges in the 1970s United States
macroeconomics Homo economicus Lucas critique Efficient-market hypothesis Rational expectations Real business cycle theory Ricardian equivalence Saltwater theories
Saltwater and freshwater economics
Saltwater_and_freshwater_economics
American economist (born 1946)
served as an underpinning of a new class of empirical models with rational expectations and sticky prices—sometimes called new Keynesian models. In a 1993
John_B._Taylor
Study of an economy as a whole
Lucas's introduction of rational expectations into macroeconomics. Before Lucas, economists had generally used adaptive expectations, in which agents were
Macroeconomics
proponents of new classical macroeconomics. They emphasized the role of rational expectations, contending that Keynesian frameworks which ignored forward-looking
History of macroeconomic thought
History_of_macroeconomic_thought
School of thought in macroeconomics
the importance of foundations based on microeconomics, especially rational expectations. New classical macroeconomics uses neoclassical microeconomic foundations
New_classical_macroeconomics
Social science studying goods and services
and "rational expectations" theory, led by Robert Lucas, and real business cycle theory. In contrast, the new Keynesian approach retains the rational expectations
Economics
British macroeconomist (born 1943)
rational expectations; and was at the forefront of what came to be known as the 'rational expectations revolution'. At this time adaptive expectations was
Patrick_Minford
Quality of being agreeable to reason
Rationality is the quality of being guided by or based on reason. In this regard, a person acts rationally if they have a good reason for what they do
Rationality
American economist
______, "Reflections on Rational Expectations," Journal of Money, Credit and Banking, Vol. 12, No. 4, Part 2: Rational Expectations (Nov., 1980), pp. 826–832
Phillip_D._Cagan
American economist (1933–2026)
came under heavy criticism with the introduction of John Muth's rational expectations, which was popularized by future Nobel prize winner Robert Lucas
Edmund_Phelps
School of economic thought
two "seemingly incompatible" concepts: bounded rationality and rational expectations. Bounded rationality was developed by Herbert A. Simon, along with
Carnegie_School
Economic theory
by Thomas J. Sargent and Neil Wallace based upon the theory of rational expectations, which posits that monetary policy cannot systematically manage
Policy-ineffectiveness proposition
Policy-ineffectiveness_proposition
Adage about statistical measures
As applied in economics, the law is also implicit in the idea of rational expectations, an economic theory that those aware of a system of rewards and
Goodhart's_law
School of economic thought
to new classical macroeconomics heavily based on the concept of rational expectations. The freshwater–saltwater distinction is largely antiquated today
Chicago_school_of_economics
American and Israeli economist (1943–2025)
Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule, which reconciled the concept of rational expectations—developed by new classical
Stanley_Fischer
Economic model
supply and price and output changes in a simplified economy using rational expectations. It delivered a new classical explanation of the Phillips curve
Lucas_islands_model
Class of models in the behavioral sciences
Rational choice modeling refers to the use of decision theory (the theory of rational choice) as a set of guidelines to help understand economic and social
Rational_choice_model
Macroeconomic method
that attempted to directly respond to Lucas through the use of rational expectations econometrics. In 1982, Finn E. Kydland and Edward C. Prescott created
Dynamic stochastic general equilibrium
Dynamic_stochastic_general_equilibrium
American economics scholar and consultant (born 1959)
of Rochester, completing his thesis Information, incentives and rational expectations in 1987. Chakravorti also participated in TAS (Tata Administrative
Bhaskar_Chakravorti
Monetary policy on interest rates
rational agents form expectations based on the most probable outcomes derived from available information. However, implementing rational expectations
Inflation_targeting
Branch of economics covering theories of money
"rational expectations" by Thomas J. Sargent. Abstract. Archived 2012-03-26 at the Wayback Machine "inflation expectations" by Bennett
Monetary_economics
Malaysian-American economist
1982 with a thesis entitled 'Exchange rate determination under rational expectations: a structural approach'. The University of Cambodia awarded Professor
Woo_Wing_Thye
1971 book by Graham T. Allison
science and the study of international relations were saturated with rational expectations theories inherited from the field of economics. Under such a view
Essence_of_Decision
American economist and statistician (1912–2006)
elaborated a new approach in which rational expectations were presumed instead of the Friedmanian adaptive expectations. Due to this reformulation, the story
Milton_Friedman
Economic model explaining consumption pattern formation
by Robert Hall in a rational expectations model. Originally applied to consumption and income, the process of future expectations is thought to influence
Permanent_income_hypothesis
American rationality writer and speaker (born 1983)
caricature of rationality. Galef argues that, given the gross irrationality Spock has seen in humans, his failure to adjust his expectations about humans'
Julia_Galef
Indian journalist (1963–2021)
2021. "Rational Expectations: Another pyrrhic telecom victory". The Financial Express. 22 April 2021. Retrieved 15 May 2021. "Rational Expectations: Can't
Sunil_Jain
Group of macroeconomic theories
with microeconomic theory based on rational choice theory, and in particular emphasized the idea of rational expectations. Lucas and others argued that Keynesian
Keynesian_economics
American Lithuanian economist (born 1946)
(MIT) in 1968, and his Ph.D. from MIT in 1972 with thesis entitled Rational expectations and the structure of interest rates under the supervision of Franco
Robert_J._Shiller
American financial theorist and neurologist (born 1948)
asset allocation in a more accessible way. In 2014, his sixth book, Rational Expectations: Asset Allocation for Investing Adults, was published. It updated
William_J._Bernstein
Model used in Macroeconomics
exaggerate individual rationality and foresight, and understate the importance of heterogeneity, since the rational expectations, representative agent
Macroeconomic_model
Fusion of macroeconomic schools of thought
synthesis described by Goodfried and King: intertemporal optimization, rational expectations, imperfect competition, and costly price adjustment (menu costs)
New_neoclassical_synthesis
proposition extends the model by arguing that, since people with rational expectations cannot be systematically surprised by monetary policy, monetary
Lucas aggregate supply function
Lucas_aggregate_supply_function
Lucas critique to modeling consumption. He incorporated the idea of rational expectations into his consumption models and sets up the model so that consumers
Random walk model of consumption
Random_walk_model_of_consumption
French economist and professor (born 1948)
approach. The derivation of the solution to linear models with rational expectations, with Charles Kahn. The analysis of the co-movements between asset
Olivier_Blanchard
Model of humans as rational, self-interested agents
decision for themself. See rational choice theory and rational expectations for further discussion; the article on rationality widens the discussion. In
Homo_economicus
1970s paradigm shift in economic thought, named for American economist Robert Lucas
paradox Policy-ineffectiveness proposition Problem of induction Rational expectations Real business cycles Structural estimation Variable change Lucas
Lucas_critique
Percentage of a sum of money charged for its use
inflation they expect. Under behavioral expectations, the formation of expectations deviates from rational expectations due to cognitive limitations and information
Interest_rate
Epistemological view centered on reason
Positivism Psychological nativism Rational choice theory Rational expectations Rational mysticism Rational realism Rationality and Power Realistic rationalism
Rationalism
Topics referred to by the same term
Multi-Academy free school Trust Rational Emotive Therapy, therapy now referred to as rational emotive behavior therapy Rational Expectations Theory, economic model-consistent
RET
Groups who share a common perspective
Economics: This school rejects the neoclassical focus on equilibrium and rational expectations, arguing instead that "fundamental uncertainty" and the dynamics
Schools_of_economic_thought
English economist (1903–1992)
decisions based on probability distributions and consequently derive rational expectations from the "hard data" as New Classical economists such as Leonard
G._L._S._Shackle
American economist
31(3, Part 2), pp. 443–457. Thomas J. Sargent and Neil Wallace, "Rational Expectations and the Dynamics of Hyperinflation," International Economic Review
Neil_Wallace
American economist (born 1953)
Economic Review. 70 (3): 393–408. Sanford J. Grossman (1975). "Rational Expectations and the Economic Modeling of Markets Subject to Uncertainty: A Bayesian
Sanford_J._Grossman
Economic concept
Olivier Blanchard argues that the concept declined with the rise of rational expectations theory. Blanchard attempts to rehabilitate the concept, whilst according
Wage–price_spiral
Dependence of the state of a system on its history
time rather than being approximately correct as in theories of rational expectations) and second because labor markets do not clear instantly in response
Hysteresis
Italian-American economist and Nobel Laureate (1918–2003)
their working years and then spending during their retirement). The rational expectations hypothesis is considered by economists to originate in the paper
Franco_Modigliani
American classical macroeconomist
paper, "Rational expectations and the role of monetary policy" in which he argued that information asymmetries would cause real effects as rational economic
Robert_Barro
Attempts to use monetary or fiscal policy to stimulate the economy
typically strongly in favor of stimulus. Austrian economic school and Rational expectations economists are typically against stimulus. The Economic Stimulus
Stimulus_(economics)
American economist
paper, "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models". For his work in studying the properties of financial markets
Lars_Peter_Hansen
Academic discipline concerned with the exchange of money
are identical to the best guess of the future: the assumption of rational expectations. The EMH does allow that when faced with new information, some investors
Financial_economics
Amount of money given in order to purchase a thing or service
equal only under conditions of market efficiency, equilibrium, and rational expectations. Market price is measured during a specific period of time and is
Price
Hypothesis on the equivalence of tax vs. debt financing
of new classical macroeconomics, built around the assumption of rational expectations. In 1979, Barro defined the Ricardian equivalence theorem as follows:
Ricardian_equivalence
Idea that real and nominal variables can be analysed separately
short-run Phillips curve which can shift vertically according to the rational expectations being reviewed continuously. In the strict sense, money is not neutral
Classical_dichotomy
United States "for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened
1995_Nobel_Prizes
Economist, author and professor at the London Business School
Marcet) Journal of Economic Theory, 2009 Consumer Confidence and Rational Expectations: Are Agents' Beliefs Consistent with the Theory? (with Daron Acemoglu)
Andrew_Scott_(economist)
American economist (died 2023)
(Johnson, 2002) provides a rational explanation for the momentum anomaly in a representative agent model with rational expectations, which has influenced subsequent
Timothy_C._Johnson
United States "for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened
List of Nobel Memorial Prize laureates in Economic Sciences
List_of_Nobel_Memorial_Prize_laureates_in_Economic_Sciences
Economic model constructed by Peter Diamond
in determining the overall outcome. As a result, people's (fully rational) expectations become a self-fulfilling prophecy and the economy can wind up with
Diamond_coconut_model
Longitudinal statistical study
1016/0304-4076(94)01649-K. Davies, A.; Lahiri, K. (2000). "Re-examining the Rational Expectations Hypothesis Using Panel Data on Multi-Period Forecasts". Analysis
Panel_data
American accounting theorist and experimental economist
information: An application of rational-expectations models”, with C. R. Plott, Journal of Political Economy, 1982. “Rational expectations and the aggregation of
Shyam_Sunder_(economist)
Economic bubble in a stock market
wisdom of crowds and say that price movements really do reflect rational expectations of fundamental returns. Large traders become powerful enough to
Stock_market_bubble
Psychological heuristic
models (the peak-end model, extrapolative expectations model, adaptive expectations model, and rational expectations model), the peak-end model is the most
Peak–end_rule
American economist and academic (born 1955)
194–220 (co-authored with Dennis W. Carlton). "Rational Expectations and the Limits of Rationality: An Analysis of Heterogeneity," American Economic
Michael_Waldman_(economist)
Type of social group in some animals
from rational decisions through processes such as information cascade and rational expectations. Other researchers, however, ascribe it to non-rational process
Herd
Phenomenon of fluctuations of supply and prices in livestock markets
perfectly rational expectations about future prices. They showed that even in this case, the three-year lifetime of beef cattle would cause rational ranchers
Pork_cycle
Generally accepted economic schools of thought
include the neoclassical assumptions of rational choice theory, a representative agent, and, often, rational expectations. However, much of modern economic
Mainstream_economics
Economic theory
However, things are far more complicated in these models, since rational expectations were presumed. For Lucas, the islands model made up the general
Neutrality_of_money
Application of quantum theory mathematics to cognitive phenomena
terms of quantum interference. The above deviations from classical rational expectations in agents’ decisions under uncertainty produce well known paradoxes
Quantum_cognition
Exchange rate of a currency on a future date
Euro. The unbiasedness hypothesis states that given conditions of rational expectations and risk neutrality, the forward exchange rate is an unbiased predictor
Forward_exchange_rate
2009 book by Robert Skidelsky
thought within modern economics are briefly discussed, such as rational expectations, real business cycle theory and efficient market theory. Chapter
Keynes: The Return of the Master
Keynes:_The_Return_of_the_Master
American economist
research addresses the implications of bounded rationality and deviations from rational expectations for macroeconomic dynamics and monetary and fiscal
Michael_Dean_Woodford
Theory of equilibrium between supply and demand
function can represent the excess demand of an economy populated with rational utility-maximizing individuals. There has been much research on conditions
General_equilibrium_theory
Model of affirmative action
correlated with it. Employers have rational expectations about worker qualifications and workers have rational expectations about employer screening. Thus
Coate–Loury_model
Construct in psychology
of cognitive biases Magical thinking Optimism and optimism bias Rational expectations Rat race Self-deception Smiley Cowles, Charlotte (May 26, 2022)
Toxic_positivity
Degree of individual well-being
psychology Poverty Occupational burnout Quality of working life Rational expectations Rehabilitation psychology Simple living Social policy Social rejection
Quality_of_life
macroeconomics, public finance, and international economics. His book Rational Expectations (2nd edition, Cambridge University Press, 1996) is a highly regarded
Steven_M._Sheffrin
Theory of macroeconomic fluctuations
being the Austrian theory of the business cycle and one based on rational expectations. Leland Yeager's (1968) understanding of the monetary disequilibrium
Monetary-disequilibrium theory
Monetary-disequilibrium_theory
American academic and Nobel Laureate (1916–2001)
The industrial planning book that produced the bounded rationality vs rational expectations rift. 1969. The Sciences of the Artificial. MIT Press, Cambridge
Herbert_A._Simon
Factors influencing economic decisions
theories. Other theories where AI has had impact include in rational choice, rational expectations, game theory, Lewis turning point, portfolio optimization
Behavioral_economics
French mathematician
in statistics and econometrics and particularly in the theory of rational expectations. She is a professor of applied mathematics at the University of
Laurence_Broze
Price at which an asset would trade in a competitive auction setting
market value, the market must be informationally efficient and rational expectations must prevail. Mocciaro Li Destri, Picone & Minà (2012) have underscored
Market_value
American economist and Nobel Laureate (born 1943)
of rational-expectations equilibrium assumptions to achieve a more realistic understanding of capitalism than is usual among rational-expectations theorists
Joseph_Stiglitz
Application of mathematical and statistical methods in finance
central tenet of modern macroeconomics, the Lucas critique - or rational expectations - which states that observed relationships may not be structural
Mathematical_finance
Mathematical concept
assumptions underlying classical game theory, perfect maximization and rational expectations, with the weaker notions of ordinal monotonicity –players' choice
M_equilibrium
Theory of international relations
Rational choice (also termed rationalism) is a prominent framework in international relations scholarship. Rational choice is not a substantive theory
Rationalism (international relations)
Rationalism_(international_relations)
Argentine-American economist
a Monetary Economy," Econometrica, November 1978. Reprinted in Rational Expectations and Econometric Practice, edited by R.E. Lucas Jr. and T.J. Sargent
Guillermo_Calvo
Study of the development of economic thought
the wages/prices are sticky, even when all workers and firms have rational expectations, which caused Keynesian economics to make a comeback among mainstream
History_of_economic_thought
Policy of interest rates or money supply
Phillips curve § NAIRU and rational expectations). But if the policy announcement is deemed credible, inflationary expectations will drop commensurately
Monetary_policy
American economist
Siow, Altonji tests the rational expectations lifecycle model of consumption against a Keynesian model and the rational expectations lifecycle model with
Joseph_Altonji
Concept in econometrics
exogenous variable is consumption in models with credit constraints and rational expectations. Here, consumption is predetermined but not strictly exogenous.
Endogeneity_(econometrics)
RATIONAL EXPECTATIONS
RATIONAL EXPECTATIONS
Boy/Male
Tamil
Rational
Boy/Male
Hindu
Rational
Boy/Male
English
National protector.
Girl/Female
Christian, German, Greek, Hebrew
Noble; Kind; Rational; Great Happiness
Boy/Male
Hindu
Rational
Boy/Male
Hindu, Indian
National Player
Boy/Male
Gujarati, Hindu, Indian
Lord of Pleasure
Boy/Male
Gujarati, Hindu, Indian, Kannada, Malayalam, Marathi, Telugu
Animated; Rational
Girl/Female
Hindu, Indian
Rational
Boy/Male
American, Anglo, British, English, Teutonic
National Protector; Wealthy Defender
Boy/Male
Indian
Talker, Speaker, Rational
Boy/Male
Hindu, Indian, Tamil
Revolving; Pearl
Girl/Female
Indian
Optional
Girl/Female
Hindu, Indian
Rational
Boy/Male
Muslim/Islamic
Categorical (decision) talker, speaker, rational
Boy/Male
Muslim
Talker, Speaker, Rational
Girl/Female
German, Greek
Noble; Kind; Rational
Boy/Male
Tamil
Rational
Boy/Male
Arabic, Muslim
National Leader
Boy/Male
Indian, Tamil
National Boy; Lord Krishna
RATIONAL EXPECTATIONS
RATIONAL EXPECTATIONS
Boy/Male
Indian, Punjabi, Sikh
Lord's Warrior
Boy/Male
British, English
Guard
Girl/Female
English American
Femininemeaning manly.
Girl/Female
Australian, British, English, Greek
Seer; Oracle
Girl/Female
French, German, Swedish
Alive
Girl/Female
Spanish
Bitter grace.
Girl/Female
British, Christian, English
The Female Version of Eldred; Old Advisor
Boy/Male
Welsh
From Caerleon.
Boy/Male
Arabic, Farsi, Iranian, Muslim, Parsi
Water; Sun
Boy/Male
Tamil
Shastra
RATIONAL EXPECTATIONS
RATIONAL EXPECTATIONS
RATIONAL EXPECTATIONS
RATIONAL EXPECTATIONS
RATIONAL EXPECTATIONS
a.
Expressing the type, structure, relations, and reactions of a compound; graphic; -- said of formulae. See under Formula.
a.
Attached to one's own country or nation.
a.
Agreeable to reason; not absurd, preposterous, extravagant, foolish, fanciful, or the like; wise; judicious; as, rational conduct; a rational man.
v. t.
To form a rational conception of.
a.
Involving surds; not capable of being expressed in rational numbers; radical; irrational; as, a surd expression or quantity; a surd number.
a.
Given to foolish or visionary expectations; whimsical; fanciful; as, a notional man.
n.
The state of being national; national attachment; nationality.
a.
Relatively small; inconsiderable; insignificant; as, a fractional part of the population.
a.
Not rational; void of reason or understanding; as, brutes are irrational animals.
a.
An explanation or exposition of the principles of some opinion, action, hypothesis, phenomenon, or the like; also, the principles themselves.
a.
Having reason, or the faculty of reasoning; endowed with reason or understanding; reasoning.
a.
Involving an option; depending on the exercise of an option; left to one's discretion or choice; not compulsory; as, optional studies; it is optional with you to go or stay.
adv.
In a rational manner.
a.
Fractional.
n.
A rational being.
a.
Of or pertaining to fractions or a fraction; constituting a fraction; as, fractional numbers.
a.
Of or pertaining to a nation; common to a whole people or race; public; general; as, a national government, language, dress, custom, calamity, etc.
a.
Relating to the reason; not physical; mental.
a.
Notional.
v. t.
To supply with rations, as a regiment.