IDEAS home Printed from https://ideas.repec.org/h/pal/palchp/978-1-349-11516-7_12.html
   My bibliography  Save this book chapter

Rational Expectations: a Fallacious Foundation for Studying Crucial Decision Making Processes

In: Inflation, Open Economies and Resources

Author

Listed:
  • Paul Davidson

Abstract

Proponents of the rational expectations hypothesis (hereafter REH) claim they have developed a general theory of how expectations are formed. To assure that these rational expectations generate efficient, unbiased forecasts which do not display any persistent errors when compared to the actual outcome over time, REH theorists assume that information exists and is available for processing by all decision makers. This information, consisting primarily of quantitative time series data, it is assumed, is a finite realization of a stochastic process; from this data the probability distribution of actual outcomes today and for all future dates can be estimated. Or as John Muth puts it, ‘the hypothesis can be rephrased a little more precisely as follows: that expectations of firms (or more generally, the “subjective” probability of outcomes) tend to be distributed, for the same information set, about the prediction of the theory (or the “objective” probability distribution of outcomes)’ (1961, p. 316).

Suggested Citation

  • Paul Davidson, 1991. "Rational Expectations: a Fallacious Foundation for Studying Crucial Decision Making Processes," Palgrave Macmillan Books, in: Louise Davidson (ed.), Inflation, Open Economies and Resources, chapter 12, pages 123-138, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-11516-7_12
    DOI: 10.1007/978-1-349-11516-7_12
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Paul Davidson, 1992. "International Money and the Real World," Palgrave Macmillan Books, Palgrave Macmillan, edition 0, number 978-0-230-37809-4, December.
    2. Vasilev, Aleksandar & Maksumov, Rashid, 2010. "Critical analysis of Chapter 23 of Keynes’s Notes on Mercantilism in The General Theory of Employment, Interest and Money (1936)," EconStor Research Reports 155318, ZBW - Leibniz Information Centre for Economics.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sheila C. Dow, 1986. "Post Keynesian Monetary Theory for an Open Economy," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 9(2), pages 237-257, December.
    2. Girol Karacaoglu, 1984. "Absence of Gross Substitution in Portfolios and Demand for Finance: Some Macroeconomic Implications," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 6(4), pages 576-589, July.
    3. Leonard A. Rapping, 1984. "Buŕeaucracy, the Corporation, and Economic Policy," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 6(3), pages 337-354, March.
    4. Victoria Chick, 1987. "Speculation, the Rate of Interest, and the Rate of Profit," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 10(1), pages 124-132, September.
    5. Paul Davidson, 1987. "Sensible Expectations and the Long-Run Non-Neutrality of Money," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 10(1), pages 146-153, September.
    6. Paul Davidson, 1983. "The Marginal Product Curve Is Not the Demand Curve for Labor and Lucas’s Labor Supply Function Is Not the Supply Curve for Labor in the Real World," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 6(1), pages 105-117, September.
    7. Lloyd Ulman, 1992. "Why Should Human Resource Managers Pay High Wages?," British Journal of Industrial Relations, London School of Economics, vol. 30(2), pages 177-212, June.
    8. Hany Shawky & Ronald Forbes & Alan Frankle, 1983. "Liquidity Services and Capital Market Equilibrium: The Case for Money Market Mutual Funds," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 6(2), pages 141-152, June.
    9. Hideaki Aoyama & Hiroshi Yoshikawa & Hiroshi Iyetomi & Yoshi Fujiwara, 2008. "Labour Productivity Superstatistics," Papers 0809.3541, arXiv.org.
    10. Ulrich van Suntum, "undated". "The Purchasing Power Argument – Could Rising Wages Foster Employment?," Working Papers 200126, Institute of Spatial and Housing Economics, Munster Universitary.
    11. P. Arestis & C. Driver, 1984. "The Policy Implications of Post Keynesianism," Journal of Economic Issues, Taylor & Francis Journals, vol. 18(4), pages 1093-1105, December.
    12. Paul Davidson, 1985. "Liquidity and Not Increasing Returns is the Ultimate Source of Unemployment Equilibrium," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 7(3), pages 373-384, March.
    13. repec:bla:ecpoli:v:20:y:2005:i:44:p:799-844 is not listed on IDEAS
    14. Masaaki Shirakawa, 2010. "Revisiting the Philosophy behind Central Bank Policy," International Finance, Wiley Blackwell, vol. 13(3), pages 485-493, December.
    15. James Forder, 2010. "The historical place of the 'Friedman—Phelps' expectations critique," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 17(3), pages 493-511.
    16. Palash Deb & Parthiban David & Jonathan O'Brien, 2017. "When is cash good or bad for firm performance?," Strategic Management Journal, Wiley Blackwell, vol. 38(2), pages 436-454, February.
    17. Schlicht, Ekkehart, . "Isolation and Aggregation in Economics," Monographs in Economics, University of Munich, Department of Economics, number 3, November.
    18. Shackelford, Douglas A. & Shaviro, Daniel N. & Slemrod, Joel, 2010. "Taxation and the Financial Sector," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(4), pages 781-806, December.
    19. Shyam Gouri Suresh & Mark Setterfield, 2015. "Firm performance, macroeconomic conditions, and “animal spirits” in a Post Keynesian model of aggregate fluctuations," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 38(1), pages 38-63, July.
    20. Nicola Meccheri, 2007. "Wage behaviour and unemployment in Keynes' and New Keynesians' views: A comparison," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 14(4), pages 701-724.
    21. John T. Harvey, 1991. "A Post Keynesian View of Exchange Rate Determination," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 14(1), pages 61-71, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:palchp:978-1-349-11516-7_12. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.