EconPapers    
Economics at your fingertips  
 

Adaptive And Rational Expectations Hypotheses: Reviewing The Critiques

Lyman Mlambo
Additional contact information
Lyman Mlambo: Institute of Mining Research, University of Zimbabwe

The International Journal of Economic Behavior - IJEB, 2012, vol. 2, issue 1, pages 3-15

Abstract: The pervasiveness of expectations in economic analysis has created significant discussion on the merits and demerits of the two main expectations formation hypotheses, adaptive and rational expectations. This paper gives concise outlines of the two hypotheses and reviews their respective critiques to assess their validity. We outline that the two hypotheses have essentially been regarded as antitheses of each other in economic discourse. In this discourse, exaggerated theoretical intents and criticisms are evident. Inconsistencies among the advocates of rational expectations are also evident, with many of these inconsistencies manifesting themselves in spirited attempts to defend the hypothesis. In the end rational expectations and adaptive expectations are both based on some historical data and learning from experience. While evidence on the usefulness of the models is mixed, it is concluded that both models are beneficial. The adaptive expectations hypothesis may be considered an ad hoc approach, more appropriate for short-term expedient analysis when data and information are scanty. Rational expectations, being based on broader and longer learning experience and data, may be considered appropriate for more comprehensive and longer-term planning. It remains that the rational expectations hypothesis is not per se a model of expectations formation, but a concept pointing to the need for more systematic modeling.

Keywords: Adaptive expectations; rational expectations; forecasting; belief; uncertainty (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://ijeb.faa.ro/download/459_MLAMBO.pdf (application/pdf)
http://ijeb.faa.ro/en/article/Adaptive-and-Rationa ... e-Critiques~459.html (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:but:ijebfa:v:2:y:2012:i:1:p:3-15

Access Statistics for this article

The International Journal of Economic Behavior - IJEB is currently edited by Fabio Musso

More articles in The International Journal of Economic Behavior - IJEB from Faculty of Business and Administration, University of Bucharest Contact information at EDIRC.
Series data maintained by Cosmin Catalin Olteanu ().

 
Page updated 2015-09-08
Handle: RePEc:but:ijebfa:v:2:y:2012:i:1:p:3-15