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It therefore fits the looseeconomic criterion of rationality.

The premise of the rational expectations hypothesis is that economic variablesare generated by systematic processes.

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Economic theory and the hypothesis of rationality, in …

The crux of the hypothesis is notthat a rational agent should simply use all the available information but thathe should use all the available information in an efficient manner.

Herbert A. Simon and the concept of rationality: boundaries and procedures . Gustavo Barros *


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already have an excellent theory of economic rationality: ..

Over time, economic agents learn whatthe process determining a variable is and they will use this knowledge to formexpectations of that variable.

The colourful name that gave to one of the essential ingredients of economic prosperity: confidence. According to Keynes, animal spirits are a particular sort of confidence, "naive optimism". He meant this in the sense that, for entrepreneurs in particular, "the thought of ultimate loss which often overtakes pioneers, as experience undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death". Where these animal spirits come from is something of a mystery. Certainly, attempts by politicians and others to talk up confidence by making optimistic noises about economic prospects have rarely done much good.

In 2000, the EU controversially blocked a merger between two American firms, GE and Honeywell; the deal had already been approved by America's antitrust regulators. The controversy highlighted an important issue. As increases, the relevant market for judging whether market power exists or is being abused will increasingly cover far more territory than any one single economy. Indeed, there may be a need to establish a global antitrust watchdog, perhaps under the auspices of the .

"economic theory and the hypothesis of rationality." ..

Thus, in fact, the limitation imposed by costly information coincides with theefficiency standpoint of the hypothesis.

The rational expectations hypothesis thus puts forward a means of formingexpectations which is based on agents taking account of all necessary availableinformation to make their forecasts.

They arerandom, they exhibit no definite pattern, they have a mean value of zero andthey have a variance less than that associated with any other model offorecasting. This means that, , rational expectations will be correct because the mean value ofthe forecast error is zero and it also means that they are the most efficient(in a statistical sense) means of forming expectations because their forecasterrors have the property of minimum variance.

What the hypothesis argues is that on average and after a period of time,economic agents will learn from past experience what the process is.
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Forms of Bounded Rationality in Economic Theory: …

I began developing and applying experimental economics methods to the study of behavior and market performance in the 1950s and 1960s and started teaching a graduate course in experimental economics in 1963; these early research exercises continued and occasionally started to include experiments that had economic design and “policy” applications in the 1960s. Thus, laboratory experiments in the 1960s examining rules for auctioning U.S. Treasury securities, in confluence with other forces, helped motivate a field experiment by Treasury in the 1970s, consisting of sixteen bond auctions, and this led to changes in policy in the 1980s and 1990s.

Forms of Bounded Rationality in Economic Theory: ..

Most current work in this domain still assumes thateconomic agents seek to maximize utility, but within limits posedby the incompleteness and uncertainty of the informationavailable to them. An important potential area of research is todiscover how choices will be changed if there are otherdepartures from the axioms of rational choice--for example,substituting goals of reaching specified aspiration levels(satisficing) for goals of maximizing.

The Simonian bounded rationality hypothesis and the ..

At the University of Arizona, along with several of my remarkable students and colleagues, we started to do electronic trading experiments – “E_Commerce” in the lab – in 1976 (Williams, 1980). Primarily these were exercises testing and exploring theoretical and other hypotheses about the performance of markets under controlled laboratory conditions. In the 1980s, these efforts grew naturally through our incremental learning into using experimental economics more systematically as a framework for communication and interaction with business, legal, engineering, regulatory, and other practitioners, in addition to students, and as a test bed for market designs that are applied in the world and used for postimplementation dialogue in ongoing rule evaluation.

Rationality often the key to economic theory - …

In general, it seems fair to saythat the ethical assumptions that neoclassical economics presupposes falltogether into a family of normative ideals that privilege individualism,inequality, and the minimal exercise of public policy.

for having developed and applied the hypothesis of rational ..

All these laboratory experiences changed the way many of us thought about economic analysis and action, as experimental methods took on a life of their own – a fact that I had no conscious awareness of initially, as I was still thoroughly imbued with the prevailing orthodox way of economic thinking. The transformation began in the 1960s, but progressed slowly. There are many reasons for the change, but of unique significance is the discovery that programming myself through the challenging exercises of designing and conducting experiments forced me to think through the process rules and procedures of institutional arrangements within which agents interact. Few are as skilled as was Albert Einstein in acquiring new understanding by the device of formulating detailed and imaginative mental experiments – the , a concept introduced into German by Ernst Mach. Scientists need the challenge of real experiments to discipline their thinking in the required painstaking detail. This practice is what fuels the development of experimental knowledge in economics and all of science. That knowledge has a life of its own, whose traditions and techniques are distinct from the theory and the test hypotheses associated with each particular science.

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