Nope. Still not right. Someone with rational expectations is making the best possible use of available information to forecast variables of concern to some decision problem. Rational expectations does require that ones forecast have minimum variance and not just that it is unbiased. However, money is still neutral in most RatX models even if expectations are just unbiased. That is probably what Eric means when he says that RatX only requires unbiasedness and not minimum variance. In any case. RatX is certainly different from perfect foresight which is often assumed in place of rational expectations for analytic convenience. - - Bill Dickens
William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens >>> [EMAIL PROTECTED] 11/11/02 09:17AM >>> On Mon, 11 Nov 2002 [EMAIL PROTECTED] wrote: > Yes. Somewhere along the line someone--either the most ardents adherents or > the most disingenuous opponents--has defined "rational expectations" as > meaning that people are perfect prognosticators, omnicient not only about > past conditions, but about future conditons as well. Under the definition > nobody has "rational expectations." Ummm...not quite. Rational expectations just means that a person's expectations are unbiased. There can be high variance, but the variance is around a true mean. Check Sargent's short piece on rational expectations for a primer: http://www.econlib.org/library/Enc/RationalExpectations.html Eric Crampton
