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Beyond Rational Expectations: A Constructive Interpretation of Keynes's Analysis of Behaviour under Uncertainty

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  • Gerrard, Bill
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    Abstract

    This paper suggests that behavior under uncertainty depends not only on rational expectations but also the agent's evaluation of the adequacy of the available evidence on which the expectations are based. It is argued that behavioral functions need to be augmented by a credence variable. This proposition is derived from Keynes's argument in the 'General Theory' that investment depends on both the most probable forecast and the state of confidence, reflecting the distinction between probability and weight in his 'A Treatise on Probability.' The research implications of the proposed model are indicated. Copyright 1994 by Royal Economic Society.

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    Bibliographic Info

    Article provided by Royal Economic Society in its journal The Economic Journal.

    Volume (Year): 104 (1994)
    Issue (Month): 423 (March)
    Pages: 327-37

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    Handle: RePEc:ecj:econjl:v:104:y:1994:i:423:p:327-37

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    Cited by:
    1. Giuseppe Fontana & Bill Gerrard, 2006. "The future of Post Keynesian economics," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 59(236), pages 49-80.
    2. Fontana, Giuseppe & Gerrard, Bill, 2004. "A Post Keynesian theory of decision making under uncertainty," Journal of Economic Psychology, Elsevier, vol. 25(5), pages 619-637, October.
    3. Marcello Basili, 2013. "Ellsberg Rules and Keynes’s State of Long-Term Expectation: More Than an Accordance," Department of Economics University of Siena 685, Department of Economics, University of Siena.

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