Rational Expectations
Rational expectations is an economic theory that states that individuals and businesses will make decisions based on their expectations of the future. This theory suggests that people and businesses will make decisions based on the most accurate information available to them. It is based on the idea that people and businesses will act in their own best interests and will make decisions that will benefit them in the long run. Rational expectations theory is used to explain how people and businesses make decisions in the face of uncertainty.
History of Rational Expectations
The concept of rational expectations was first introduced by John F. Muth in 1961. Muth argued that people and businesses make decisions based on their expectations of the future. He argued that people and businesses will make decisions based on the most accurate information available to them. Muth’s theory was further developed by Robert Lucas in 1972. Lucas argued that people and businesses will make decisions based on their expectations of the future and that these expectations will be based on the most accurate information available to them.
Rational expectations theory has been used to explain a variety of economic phenomena, including inflation, unemployment, and economic growth. It has also been used to explain how people and businesses make decisions in the face of uncertainty. The theory has been used to explain how people and businesses make decisions in the face of changing economic conditions.
Comparisons
| Theory | Expectations | Decision Making |
|---|---|---|
| Rational Expectations | Based on most accurate information available | In own best interests |
| Keynesian Economics | Based on past experience | In response to government policies |
Summary
Rational expectations is an economic theory that states that individuals and businesses will make decisions based on their expectations of the future. This theory suggests that people and businesses will make decisions based on the most accurate information available to them. It is based on the idea that people and businesses will act in their own best interests and will make decisions that will benefit them in the long run. For more information about this term, you can visit websites such as Investopedia, The Balance, and The Economist.
See Also
- Keynesian Economics
- Expectations Theory
- Adaptive Expectations
- Monetary Policy
- Fiscal Policy
- Inflation
- Unemployment
- Economic Growth
- Risk Aversion
- Game Theory
