An Exploration of the Eductive Justifications of the Rational Expectations Hypothesis (Now published in American Economic Review, vol.82, no.5 (1992), pp.1254-1278.)
AbstractThis paper examines justifications of the rational expectations hypothesis that rely on the analysis of the agents' mental forecasting ("educing") activity which involves "forecasting the forecasts" of others etc. The corresponding eductive learning stability concept, based on the game theoretical concept of rationalizability, is primarily used within the classical Muth's model. Conditions for coordination of beliefs - formally recminiscent of convergence conditions for the Cobweb tatonnement - are interpreted discussed ; they are robust to the introduction of noise. More generally educive stability fits economic intuition on coordination: stability increases when the industry product differentiation increases, when decisions are sequential and observable.
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Bibliographic InfoPaper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Theoretical Economics Paper Series with number 238.
Date of creation: 1992
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