Macro rational expectations, as I have labeled the hypothesis, seems to say that expectations in an economist's model must be perfectly consistent with his model that embodies these expectations. In other words, the agents of his model must all share his views of the relevant economic mechanisms, as well as his data. Why? Because if he holds them they must believe they are God's truth and, if so, rational people can have no other views (and of course we should never ask how they would come by these views and data, that not even other specialists may have heard of yet, let alone accepted). I submit that this view is pretty absurd--I would almost say offensive! I certainly believe that I know more about economics and the economy than (almost) everybody else, and i can even prove it: If everybody shared my vies, then the economy could not be in today's troubles.
Franco ModiglianiRelated topics
almost ask believe consistent course datum economics economy everybody hypothesis model offensive people pretty prove rational say should share truth view well yet words macroRelated quotes
The proposition that markets drive economic efficiency is central to much of economics. Adam Smith illustrated that the "invisible hand” of the market drives efficient allocation of resources in a system of division of labor. Friedrich Hayek illustrated the central importance of the price system as an information processing mechanism more powerful than any centrally planned system could ever be. Kenneth Arrow and Gerard Debreu illustrated that complete and perfect markets deliver a Pareto-efficient equilibrium, in which no one person can be made better off without making someone else worse off. And the development of the efficient- market and rational- expectations hypotheses suggested that financial markets are in fact efficient, and that the conditions required for efficiency and for rational and stable equilibria apply even in contracts between the present and the future, which financial markets provide.
Adair Turner, Baron Turner of Ecchinswell
Have the climate models been successful in predicting anything? They, of course, predict substantial global warming. This is not surprising given the expressed belief of some of the model builders in the global warming hypothesis and the many parameters in the model that need to be introduced. However, the models also predict unambiguously that the atmosphere is warming faster than the surface of the earth; but all the available observational data unambiguously shows the opposite! Truth in science is always determined from observational facts. One finds the truth by making a hypothesis and comparing observations with the hypothesis. It is absolutely essential that one should be neutral and not fall in love with the hypothesis. If the facts are contrary to any predictions, then the hypothesis is wrong no matter how appealing. "Truth by Assertion" is not science.
David Douglass
As conceived in this book, economics is the science of rational choice in a world─our world─in which resources are limited in relation to human wants. The task of economics, so defined, is to explore the implications of assuming that man is a rational maximizer of his ends in life, his satisfactions─what we shall call his "self-interest.” Rational maximization should not be confused with conscious calculation. Economics is not a thoery about consciousness. Behavior is rational when it conforms to the model of rational choice, whatever the state of mind of the chooser.(...) Nor is perfect rationality assumed; rational-choice thoery allows us to assume that rationality is "bounded” because of human cognitive limitations, although another way to think of those limitations is as costs of absorbing and using information.
Richard Posner
... a rather different class of applications of the idea of best allocation of scarce resources... usually referred to as the theory of optimal economic growth. In most studies of this kind made in the countries with market economies there is not an identifiable client to whom the findings are submitted as policy recommendations. Nor is there an obvious choice of objective function, such as cost minimization or profit maximization in the studies addressed to individual enterprises. The field has more of a speculative character. The models studied usually contain only a few highly aggregated variables. One considers alternative objective functions that incorporate or emphasize various strands of ethical, political, or social thought. These objectives are then tried out to see what future paths of the economy they imply under equally simplified assumptions of technology or resource availability.
Tjalling Koopmans
... I entirely concur in the propriety of resorting to the sense in which the Constitution was accepted and ratified by the nation. In that sense alone it is the legitimate Constitution. And if that be not the guide in expounding it, there can be no security for a consistent and stable, more than for a faithful exercise of its powers. If the meaning of the text be sought in the changeable meaning of the words composing it, it is evident that the shape and attributes of the Government must partake of the changes to which the words and phrases of all living languages are constantly subject. What a metamorphosis would be produced in the code of law if all its ancient phraseology were to be taken in its modern sense! And that the language of our Constitution is already undergoing interpretations unknown to its founders, will I believe appear to all unbiased Enquirers into the history of its origin and adoption.
James Madison
