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The Simonian bounded rationality hypothesis and the expectation formation mechanism

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  • Kowalski, Tadeusz

Abstract

. In the 1980s and at beginning of the 1990s the debate on expectation formation mechanism was dominated by the rational expectation hypothesis. Later on, more interest was directed towards alternative approaches to expectations analysis, mainly based on the bounded rationality paradigm introduced earlier by Herbert A. Simon. The bounded rationality approach is used here to describe the way expectations might be formed by different agents. Furthermore, three main hypotheses, namely adaptive, rational and bounded ones are being compared and used to indicate why time lags in economic policy prevail and are variable. JEL Codes: D78, D84, H30, E00.

Suggested Citation

  • Kowalski, Tadeusz, 2002. "The Simonian bounded rationality hypothesis and the expectation formation mechanism," MPRA Paper 33981, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:33981
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    References listed on IDEAS

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    1. Simon, Herbert A, 1978. "Rationality as Process and as Product of Thought," American Economic Review, American Economic Association, vol. 68(2), pages 1-16, May.
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    5. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 69(1), pages 99-118.
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    7. Simon, Herbert A, 1979. "Rational Decision Making in Business Organizations," American Economic Review, American Economic Association, vol. 69(4), pages 493-513, September.
    8. Rutherford,Malcolm, 1996. "Institutions in Economics," Cambridge Books, Cambridge University Press, number 9780521574471.
    9. Tversky, Amos & Slovic, Paul & Kahneman, Daniel, 1990. "The Causes of Preference Reversal," American Economic Review, American Economic Association, vol. 80(1), pages 204-217, March.
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    Cited by:

    1. Tadeusz Kowalski & Yochanan Shachmurove, 2011. "An Historical Walk Through Recent Financial Crises," PIER Working Paper Archive 11-019, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    2. Polowczyk Jan, 2021. "A synthesis of evolutionary and behavioural economics," Economics and Business Review, Sciendo, vol. 7(3), pages 16-34, September.
    3. Kowalski, Tadeusz & Shachmurove, Yochanan, 2011. "The financial crisis: What is there to learn?," Global Finance Journal, Elsevier, vol. 22(3), pages 238-247.
    4. Tadeusz Kowalski & Yochanan Shachmurove, 2011. "John Maynard Keynes: Is That you Knocking on the Door?," Working Papers 56, Department of Applied Econometrics, Warsaw School of Economics.
    5. Kaczmarek Aleksander & Przybyszewski Krzysztof & Rutkowska Dorota & Sosnowska Honorata, 2018. "The impact of mathematical competences and cognitive effort on the appearance of the framing effect," Economics and Business Review, Sciendo, vol. 4(2), pages 64-79, June.
    6. Kowalski, Tadeusz, 2011. "Economic policy and the financial and economic crisis," MPRA Paper 33994, University Library of Munich, Germany.

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    More about this item

    Keywords

    Keywords: bounded rationality; substantive and procedural rationality; expectation formation; adaptive and rational expectations; time lags;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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