Straight from the horse’s mouth on “rational expectations”

18 Jul, 2012 at 20:23 | Posted in Economics | 1 Comment

As we have seen, Oxford professor Simon Wren-Lewis undauntedly goes on defending representative actors and rational expectations models in the microfoundations programme for macroeconomics on his blog.

It may perhaps be interesting to listen to how Mr Rational Expectations himself – Nobel laureate Robert Lucas – values these assumptions in the aftermath of the latest financial crisis:

Kevin Hoover: The Great Recession and the recent financial crisis have been widely viewed in both popular and professional commentary as a challenge to rational expectations and to efficient markets … I’m asking you whether you accept any of the blame … there’s been a lot of talk about whether rational expectations and the efficient-markets hypotheses is where we should locate the analytical problems that made us blind.

Robert Lucas: You know, people had no trouble having financial meltdowns in their economies before all this stuff we’ve been talking about came on board. We didn’t help, though; there’s no question about that. We may have focused attention on the wrong things, I don’t know.

Source

1 Comment

  1. Lars,

    Since classical economists have physics envy, perhaps time to point them to Schrodinger’s Cat?

    http://en.wikipedia.org/wiki/Schr%C3%B6dinger's_cat

    Starting from the small means that you start to miss emergent behaviour – because you don’t understand the effects of aggregation properly.

    And that means you miss policy space that different viewpoints on the same system reveal – simply because they are studying and modelling that emergent behaviour.

    Since both viewpoints are valid from their point of view, policy should choose the one that has the best human outcome.

    Comment by Neil Wilson (@neilwilson)— 19 Jul, 2012 #


Sorry, the comment form is closed at this time.

Blog at WordPress.com.
Entries and Comments feeds.